With the recent traditional filing deadline for Schedule F filers behind us another deadline looms. The application process for loans provided by the Paycheck Protection Program 2 closes on March 31st. For individual agricultural producers, the PPP2 qualification rules were broadened to allow more to apply. Rather than focus on the net income of Schedule F filers, the PPP2 uses the total Income reported on Line 9 of the 2019 or 2020 form. A first-time applicant who operates as a sole proprietor or single-member LLC without employees will now qualify for up to $20,833. Those with employees add the higher of 2019 or 2020’s monthly payroll multiplied by 2.5. The loans are forgivable as long as 60% or more of the proceeds are spent on approved payroll expenses such as self-employment compensation. Therefore under the provisions passed by Congress in late December, a forgiven loan will not be taxed as income and the associated expenses will still be deductible on your Schedule F. The provisions apply as follows:
- First–draw loans are open to farmers who did not apply in 2020 for PPP1.
- Farmers who received a PPP1 loan in 2020 can apply for an increase using the new calculation as long as they have not already completed the forgiveness process.
- Farmers who did receive PPP1 can apply for a second-draw loan but they must show a 25% decline in receipts for one quarter of 2020 compared to the same timeframe in 2019.
Once the money is dispersed, the farmer has an eight- to 24-week period to spend the proceeds. Paying employees and yourself is the easiest way to ensure qualified payroll expenses are incurred in the required timeframe. However, employee benefits and retirement costs are also eligible payroll costs. Non-payroll costs are limited to 25% of the loan, such as covered operations expenditures, covered property covered damage costs, covered supplier costs, covered worker protection expenditures, interest on mortgage obligations, rent, and utilities.
Partnerships, C corporations, and S corporations are subject to a different set of rules to calculate a draw. Please discuss these with your accountant and/or lender.
The PPP loans have an interest rate of 1% for any amounts not forgiven up to $10 million for a first draw loan and $2 million for a second draw loan and have a 5-year maturity.
Applications are processed via your traditional lenders such as banks and Farm Credit Institutions.
PPP loan applications are being accepted until funds are exhausted or March 31, 2021, at the latest. Small businesses with less than 20 employees enjoy exclusivity through March 9, 2021. The AICPA has urged Congress to extend the deadline by at least 60 days.
If you have questions regarding the PPP loan applications, please contact our team of Ag Experts.