At least some farmers should be in a better position to apply for Small Business Administration emergency loans set up to help small businesses manage through the coronavirus crisis. But there are still some glitches that could affect them.
The first rule, though, is get in touch with your lender and get your application paperwork together as soon as possible. The House of Representatives voted overwhelming late Thursday afternoon to send the $484 billion aid package to President Donald Trump to sign into law.
Much like at the end of March, the spigot on $310 billion in new funds for SBA’s Paycheck Protection Program (PPP) will start flowing within hours after President Donald Trump signs the new aid package into law.
“It moved extremely quickly in the first round, and it’s going to move just as quickly in the second round,” said RJ Karney director of government relations for the American Farm Bureau Federation.
Kristine Tidgren, director of the Iowa State University Center for Agricultural Law and Taxation, reiterated the point that the money will again go quickly.
“If you are not already working with your lender, you need to get into see them to see if this is something that would help them,” Tidgren said.
The first pot of $350 billion hit its limit in just under two weeks with 1.6 million loans approved. The vast majority of loans, 1.2 million of them, were for $150,000 or less. Larger businesses with loans over $1 million, accounted for just 4% of total loans, but received nearly $153 billion of the loan dollars, according to SBA data.
Agriculture accounted for 1.3% of the initial PPP loans with 46,334 approved for $4.37 billion.
The new legislation includes a special $60 billion carve-out under the PPP for small community banks and credit unions. This will expand access for small businesses that don’t have a larger banking lender in their communities. Yet, a caveat to that element is that Farm Credit lenders are eligible for the entire PPP, but not part of the specific $60 billion provision.
Aaron Mitchell, who runs a 420-head dairy farm and grain operation with his brother near Winnebago, Illinois, received the PPP loan for their operation on Wednesday. Mitchell said his family is active in the Illinois Farm Bureau, which has been keeping tabs on these aid programs for farmers. So Mitchell Dairy and Grain LLC was able to apply the first day loan applications became available.
Given that the PPP loan is meant to offset payroll costs, Mitchell said the loan will help cover expenses for their eight full-time and five part-time employees, especially with the low milk prices they are facing right now.
“This is going to be a huge for us to get through the next couple of months,” Mitchell said.
STILL SOME UNANSWERED QUESTIONS
Farm organizations and agricultural lenders have struggled to get some clarity from SBA about the PPP.
For instance, there was a lot of confusion in the beginning over whether farmers were eligible for the Paycheck Protection Program. SBA did not provide clear guidance on self-employed people qualifying for PPP loans until two days before the money was drained. Then, there was confusion among lenders over whether Schedule F forms could be used.
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“So, basically, farmers were shut out in large part just because of confusion and lack of clarity from Treasury regarding the eligibility of self-employed people and the issue over the Schedule F,” Tidgren said. “I feel like that confusion is largely resolved and almost all lenders are going along with the thought they can use a Schedule F instead a Schedule C.”
Karney said Farm Bureau has continued to press SBA to issue guidance on the Schedule F.
Farm Credit institutions also have not received any guidance from SBA on how to translate the Schedule F forms for PPP applications.
Mark Hayes, a spokesman for the Farm Credit Council, said, “We’ve been pushing SBA for clarity on Schedule F sole proprietors. We’ve seen guidance related to Schedule C, and we’ve based the applications off of that. We hope SBA will provide some much-needed answers for farmers and ranchers ahead of the next round of funding.”
A PPP guidance issued last week by SBA on self-employed applicants did not mention the ability to use a Schedule F. So, going into a new round of loans, that issue could still confuse some lenders and farmers trying to apply for loans.
DTN reached out to SBA’s communications staff Wednesday but did not hear back by the time this article was posted.
PPP loans are open to businesses with fewer than 500 employees, and the loans can go as high as $10 million. The loans are largely meant to cover up to 2.5 times the average monthly payroll costs for a business, averaged based on the year prior to the loan application.
The loans can be forgiven — effectively translating into tax-free income — but for that to happen, SBA states that at least 75% of any loan must apply to payroll, meaning retaining or rehiring workers.
A caveat to a PPP loan is that, if a loan recipient is not forgiven, the PPP loan has to be repaid within two years.
While farmers were struggling to apply for PPP loans, Geoff Cooper, president and CEO of the Renewable Fuels Association, said numerous ethanol companies were able to use the PPP program and secure loans. Cooper also said other ethanol plants “should act quickly to apply for the loans as soon as the president signs the new package into law and the funding becomes available for SBA to disburse.”
Until now, SBA also had declined to allow farmers to apply for the Economic Injury Disaster Loan (EIDL) program, even though lawmakers and farm groups clamored for SBA to open up the program to agriculture. The Senate spelled out in the new bill a clear statutory change to ensure farmers can participate in EIDL loans as well.
EIDL loans go directly through SBA, and they provide individual grants to small businesses for up to $10,000. But the EIDL loans can go as high as $2 million for small businesses. The EIDL loans are not forgiven, but EIDL allows low-interest loans (3.75%) for up to 30 years.
And the loans are not as limited in what they can be used for compared to the PPP loans. The EIDL also does not have the collateral demands that small businesses and farmers might face from commercial lenders.
Yet, the EIDL $10,000 advances also didn’t work out exactly like promised initially. Instead, SBA was capping loans because of demand and sending out $1,000 per employee, up to $10,000.
“People should get in line now because bankers are working to get the applications filled out and get you in line because, as you know, it’s first come, first serve,” Tidgren said.
Another outstanding question for farmers is whether approval for either SBA loan program would exclude farmers from USDA programs.
“That has caused a lot of lenders to take pause and producers to be concerned about pursuing these as well,” Tidgren said. “They are saying they don’t want to take the loan if it is going to make them ineligible for farm-program payments.”
Tidgren added, “I can’t imagine USDA preventing farmers from pursuing a loan that is beneficial to them.”
DTN reached out to USDA to clarify this issue, but did not get a response by the time this article was posted. With payment limits on the direct aid coming from USDA, the SBA loan programs might be a lot more advantageous for larger operations.
Details on SBA’s Paycheck Protection Program and Emergency Injury Disaster Loan program can be found here.
Chris Clayton can be reached at Chris.Clayton@dtn.com
Follow him on Twitter @ChrisClaytonDTN