The Paycheck Protection Program (PPP) is a guaranteed loan program for small businesses to keep their employees on the payroll. Eligible businesses include nonprofits, veterans, organizations, tribal business concerns, sole proprietorships, self-employed individuals and independent contractors with 500 or fewer employees. It is our understanding that this help does not apply to foreign workers under the visa programs like H-2A.
The Paycheck Protection Program (PPP) now allows certain eligible borrowers that previously received a PPP loan to apply for a Second Draw PPP Loan with the same general loan terms as their First Draw PPP Loan. New borrowers to the program may also be eligible.
This second round of PPP loans includes improvements that can benefit farmers:
- Allowable expenses that had been paid for with forgiven PPP loans may be taken as a business deduction for income tax purposes without limitation.
- The qualifying reduction in gross revenue was reduced from 50% to 25% between comparable quarters in 2019 and 2020. This much-needed change for producers who suffered multiple years of losses expands the number of farms that can qualify to participate.
- Gross income, instead of net farm income, will now be used for the loan requirement calculation for farmers who file as sole proprietors will allow many more producers to participate.
Farmers can apply for a Second Draw PPP Loan until March 31, 2021, or until funds are exhausted, through any existing SBA 7(a) lender or through any federally insured depository institution, federally insured credit union, eligible non-bank lender, or Farm Credit System institution that is participating in PPP. For most borrowers, the maximum loan amount of a Second Draw PPP Loan is 2.5x average monthly 2019 or 2020 payroll costs up to $2 million. Farmers should know that if they apply for PPP that it will not inhibit them from applying for CFAP.
A borrower is generally eligible for a Second Draw PPP Loan if the borrower:
- Previously received a First Draw PPP Loan and will or has used the full amount only for authorized uses
- Has no more than 300 employees; and
- Can demonstrate at least a 25% reduction in gross receipts between comparable quarters in 2019 and 2020
Second Draw PPP Loans made to eligible borrowers qualify for full loan forgiveness if during the 8- to 24-week covered period following loan disbursement:
- Employee and compensation levels are maintained in the same manner as required for the First Draw PPP loan;
- The loan proceeds are spent on payroll costs and other eligible expenses; and
- At least 60 percent of the proceeds are spent on payroll costs.
- Second Draw PPP funds can be used for:
- Payroll and benefits
- Mortgage interest
- Worker protection expenses related to COVID-19
(personal protective equipment and adaptions)
- Uninsured property damage costs due to 2020 looting and vandalism
- Certain supplier costs and expenses for operations
Borrowers will still owe money if:
- The loan amount is used for anything other than the eligible uses during the loan period
- The borrower does not maintain staff and payroll.