CARES programs help soften economic blow for farmers during COVID-19 pandemic
MADISON – Nothing during the past half-century, has devastated our nation’s economy as severely and as quickly as the current coronavirus pandemic.
Thousands of businesses, large and small, were shut down, and millions of workers became jobless almost instantly.
The food-service industry became almost non-existent with the closing of schools and restaurants, which put even more pressure on an already fragile farm economy. We saw images of farmers dumping milk and plowing down crops in the field because their markets had all but disappeared.
Uncharacteristically, the federal government moved quickly to enact the Coronavirus Aid, Relief and Economic Security (CARES) Act into law in late March, allocating more than $2 trillion dollars in aid and financial assistance do deal with the health and economic impacts from the COVID-19 virus.
Overall, the CARES Act provides approximately $48.9 billion for United States Department of Agriculture programs. An important portion of this funding, $14 billion, is allocated as additional funding authority for the USDA Commodity Credit Corporation (CCC). The CCC funds were used to make the 2018 and 2019 market facilitation program payments to specific crop and livestock producers, as well as to fund other USDA programs.
The CARES Act also allocated $350 billion to the U.S. Small Business Administration for emergency loans to help small businesses keep paying employees and to keep their businesses from folding during these challenging times. The portion of the SBA relief package getting the most attention is the Paycheck Protection Program (PPP) which provides 100 percent federally guaranteed loans to small businesses to assist with those efforts.
Many Wisconsin farm operations and ag related businesses have already received PPP loans, and more are likely eligible — especially those with monthly payroll payments and those which have regular funds withdrawn for ownership and management payments.
The CARES Act also provides funding for SBA Economic Injury Disaster Loans (EIDL) for small businesses that incur financial hardship as a result of the coronavirus outbreak. The Pandemic Employment Assistance Program is available to farmers through the state Department of Workforce Development.
To provide Wisconsin farmers with additional information about these new programs, Joy Kirkpatrick and Corey Fanslau participated in a recent online seminar.
Kirkpatrick, Extension Farm Succession specialist with the Center for Dairy Profitability at UW-Madison, has been gathering the latest information, on a daily basis, from a variety of knowledgeable sources.
She stressed that these are all brand new programs that were not available to farmers until the past few weeks. “The guidance changes almost daily, and we still don’t have all the answers about how this will all play out in terms of tax implications and how loan portions will be forgiven. We are living with uncertainty.”
Corey Fanslau is a senior financial service officer with GreenStone Farm Credit Services. He shared his first-hand experience as an ag lender working with farmers on successful PPP applications.
From the GreenStone standpoint, it was a start and stop process, moving forward with the program. “We had to determine whether farms were eligible for this program, and how to access it from a farm credit standpoint, because we are not a depository bank with FDIC insurance, and not an SBA preferred lender. We’re an FSA preferred lender. Once we got that figured out we were able to put things together in fairly rapid order,” he recalled.
Paycheck Protection Program
PPP loan applications are made through SBA-approved banks and lending institutions. “Additional funding has been made available recently, with some money set aside for smaller, community financial institutions. So hopefully that will afford access to the program for some who weren’t able to access it during the first round,” Kirkpatrick said.
PPP basically covers 2.5 times the farm’s average monthly payroll cost. “If you have a fairly consistent number of year-round employees, just divide your eligible payroll costs by 12 and multiply by 2.5,” she said.
There also are tables to help calculate wages for seasonal employees. “For the loan to be forgivable, the amount of money in the applications needs to match the number of farm employees, and the compensation amounts of your payroll costs for the same period,” Kirkpatrick explained.
She noted that small businesses, with fewer than 500 employees, are eligible, and the some independent contractors and self-employed farmers also may qualify. “If a business had no employees and did not have a net income, it is not eligible.”
Fanslau pointed out that the PPP programs was not designed specifically for farmers. “It was designed more for smaller retail businesses that had a few employees, building rental or mortgage payments, and utility expenses, so it had to be adapted somewhat for farmers,” he said.
Covered by PPP
PPP loans can be used for payroll expenses, including wages and benefits, such as paid leave, healthcare, state and local taxes, and the employee’s portion of federal taxes can be included in the calculation.
Interest on mortgage obligations incurred before Feb. 15, rents and utilities before that date, are also covered, according to Kirkpatrick. “Housing stipends or allowances are considered as a part of payroll, but if that pushes the employee’s wage over $100,000, you would have to limit that employee to $100,000 as part of the application,” she noted.
Not covered is the cost of independent contractors, who receive a 1099 instead of a W2, and any employees whose principal address is not within the U.S.
Fanslau reported that during the first round of PPP funding, GreenStone Farm Credit processed 835 loans totaling just under $120 million. “During the second round of funding, we processed 464 loans totaling $18 million.”
PPP loans are entirely forgivable if all the conditions are meticulously followed.
“If the loan is used to cover those payroll costs, mortgage payments, rent and utility costs over the 8-week period after the loan is received, and your employee numbers and compensation levels are maintained, the loan is completely forgiven,” said Kirkpatrick. “Remember that no more than 25 percent can be used for anything other than payroll.”
If you are required to pay back a portion of the loan, the interest is 1% and begins accruing immediately, payments are deferred for six months, and the loan is due in two years.
Economic Injury Disaster Loans (EIDL) are made directly by the Small Business Administration and do not require approval by a local bank or lender. https://covid19relief.sba.gov/#,
“SBA has used these loans in the past for natural disasters, such as floods and tornadoes,” said Kirkpatrick, “But the CARES Act directed SBA to provided this type of loan to businesses affected by COVID-19.”
The loans could be for up to $2 million. “On May 4, online applications began for ag enterprises only, but it’s unknown how long that window will remain open or long before the available funds are gone,” she stated.
An EIDL can cover payroll, fixed debts, accounts payable, rents and other operating expenses. “But you have to be careful about the fixed debts because the money can’t be used to repay debts to the federal government,” Kirkpatrick warned.
According to current information, a farm profit is not necessary to be eligible for the EIDL. The interest rate is 3.75% for businesses, and the maximum term is 30 years.
SBA has established terms and conditions for repayment based on various factors including credit history and credit score. “Loans in excess of $25,000 must be secured by collateral, but the CARES Act waives the personal guarantees on loans if they’re less than $200,000 and the loan repayment is deferred for 12 months,” said Kirkpatrick.
Part of the EILD program includes an emergency cash advance that could be up to $10,000 and is considered a grant that doesn’t have to be repaid.
“The advance is limited to $1,000 per employee. If there are no employees, the advance is limited to $1,000 per owner,” explained Kirkpatrick.
“If you qualify for a PPP loan, and a EIDL, it’s possible that a portion of your EIDL could be deducted from the PPP that is potentially forgivable,” cautioned Fanslau.
Pandemic Unemployment is a temporary federal program that provides up to 39 weeks of unemployment benefits is for self-employed people. “It specifically says farmers are not eligible if they are still working and the only effect they are suffering from COVID-19 is loss of profit,” explained Kirkpatrick.
But there are some situations where farm families may be covered. “If you or someone in your household is diagnosed with COVID-19, or if you’re caring for someone with the illness and it makes you lose work time, you may be eligible, and you’re a primary caregiver for a child who’s not able to go to school, who loses work time where you would have a possibility of applying for the unemployment assistance,” said Kirkpatrick.
Pandemic unemployment payments are based on 1% of your 2019 income. Weekly benefits can range from $163 to $370, for 39 weeks, ending the last week of December. 2020.
There is also the more general federal Pandemic Unemployment Compensation which pays an additional $600 per week, and that’s available now until the week starting July 26.
To apply, it’s necessary to set up an account with the State Department of Workforce Development. https://my.unemployment.wisconsin.gov
Farmers need to have their Social Security number, drivers license and information from most recent tax year. Farmers also need to provide information on the total number of acres, and acres in CRP, livestock numbers and livestock sold due to COVID-19, and number of cows being milked.
“Keep in mind that unemployment benefits are subject to federal taxes, so having some money withheld from is recommended,” said Kirkpatrick.
According to Kirkpatrick, the Wisconsin Small Business Development Centers have been helpful in answering questions about the EIDL. https://wisconsinsbdc.org/centers
Fanslau advised those considering applying for a loan to simplify. “If the owners have healthcare but don’t offer it to their employees, it’s probably not a good idea to add that on the application. This warning also applies to retirement plans. The more you add, the more you’re going to potentially have to prove out,” he cautioned. “Know the risks as well as the potential benefits.and remember to protect yourself.”
For more information, contact the SBA website at https://bit.ly/36r9sV3 .