Farms with no employees can still benefit from the Paycheck Protection Program

Self-employed farmers can apply for PPP loan funds based on their 2020 gross income. Application deadline is March 31.

The Paycheck Protection Program (PPP) was created in the CARES Act in 2020 to provide forgivable loans to small businesses, including farms. Much has been made of the provisions that focus on payroll expenses. However, PPP loans are also available to self-employed farmers based on gross income. This was one of several updates provided by the Consolidated Appropriations ACT (CAA) in December of 2020.

The CAA re-opened applications for First Draw loans to farms that had not yet received one and created a Second Draw loan for farms that had already received a First Draw loan. First Draw loans are open to most farms that experienced a negative economic impact due to COVID-19. Second Draw loans require that the business have experienced a 25% reduction in gross receipts in any quarter of 2020 as compared to the same quarter of 2019.

For sole proprietors and single-member LLCs, the owner compensation portion of new PPP loans is based on the farm’s gross income. The owner compensation portion of the loan amount is 2.5 months of the farm’s total annual gross income. Thus, the maximum amount of this portion of the PPP loan is $20,833. Farms with gross income under $100,000 may be eligible for a lower amount.

First Draw loans under the CARES Act were based on net income, rather than gross income. Sole proprietors and single-member LLCs with First Draw loans remaining unforgiven may be able to have their loan amount recalculated using their gross income.

Other business entities are subject to different loan amount calculations. Partnerships and multi-member LLCs are also eligible for the owner compensation portion of the PPP loan amount. However, their amount is based on net income up to $100,000 per member. Loan amounts for S corporations and C corporations are based exclusively on payroll expenses but the covered employees can include company owners.

Provisions of the PPP loans for the owner compensation portion of the loan amount are essentially the same as the portion for payroll expenses. The funds must be spent on eligible expenses during a period of 8 to 24 weeks after the loan funds are received. At least 60% of the funds must be spent on payroll and/or owner compensation. The remaining funds must be spent on qualifying operating expenses. After the funds are exhausted, the farmer can apply for forgiveness of the loan. As much as 100% of the loan may be forgiven if the funds are spent as required. As a result, the loan is closed without repayment once forgiveness is approved by the Small Business Administration.

The PPP loan program is administered by SBA-approved lending institutions. Applications for the loan funds, as well as for forgiveness, are conducted by these lenders. Interested farmers should contact their lender or check the SBA website for an approved lender. The deadline for both first and second draw loan applications is March 31.

Additional information on the PPP and other coronavirus relief programs can be found at the SBA website.  Please contact Michigan State University Extension farm business management educator with concerns or questions.

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