PPP loan application details announced
A big portion of the latest Covid-19 relief package that was passed by Congress in late December was directed to assist small businesses through another round of funding to reopen and strengthen the Payroll Protection Program (PPP) through the U.S. Small Business Administration (SBA).
PPP loans will be reserved for businesses with less than 300 employees, as well as for businesses that incurred at least a 25% loss of revenue due to Covid-19 in a specific quarter of the year in 2020, compared to the similar quarter in 2019. The PPP provisions allow for forgivable loans up to 2.5 times the average monthly payroll costs for the year. The maximum level for PPP loans will be $2 million, and PPP loans of less than $150,000 will have a simplified application process.
The latest legislation allows for some self-employed individuals to potentially re-apply for round No. 1 PPP loans, as well as to apply for round No. 2 PPP loans. SBA has announced that the re-opening of round No. 1 PPP loans will begin on Jan. 11, with round No. 2 PPP loan applications likely to begin in the near future.
Just as with previous PPP loans, this round of PPP loans will again be handled through local financial institutions. Farm business will again qualify for this new round of PPP loans, including farm operations that file taxes as a sole proprietorship. Following are some details and clarifications regarding farm-related PPP loan applications:
Clarification on round No. 1 of PPP loans: It appears that self-employed farmers (sole proprietorships) that did not qualify for the first round of PPP loan payments due to having a negative net farm profit on Schedule F of their 2019 Federal tax return may now apply for the first round of PPP loan payments. However, all details are not yet clear on this process.
Approximately 37% of farm operations, including many farmers in Southern Minnesota, did not qualify for the first round of PPP loan payments due to negative 2019 farm profits following the poor crop year in 2019. The revised PPP loan application for sole proprietorships is based on the gross farm income on the 2019 tax return, up to a maximum of $100,000.
Based on the PPP loan calculation formula, a farm operation could qualify for a maximum round No. 1 PPP loan payment of $20,833 ($100,000 divided by 12 times 2.5). Farmers that filed for round No. 1 PPP loans as sole proprietorship and received less than the maximum of $20,833 could be eligible to file for an additional round No. 1 PPP loan up to the maximum amount. The previous dollar amounts of round No. 1 PPP loans that were received and forgiven would be deducted from the maximum PPP loan amount for which these farmers are eligible. Farm operations with employees that filed as a partnership or corporation will likely not be affected much by this change.
Details for the new round No. 2 of PPP loans: Self-employed farmers could again potentially be eligible for round No. 2 PPP loans. The same $100,000 maximum gross income level and maximum PPP loan payment that existed in round No. 1 of PPP loans for farm operators filing as sole proprietorships will exist for the round No. 2 PPP loan applications.
However, farm operations will need to show at least a 25% decline in revenue for one quarter in 2020, compared to a similar quarter in 2019. For some farmers that were impacted by the poor crop year in 2019 and had less grain inventory to sell in early 2020, meeting the 25% reduction threshold will not be an issue. Farmers that had higher yields in 2019 could have a bit more difficulty meeting qualifications for round No. 2 PPP loans, depending on the timing of their grain sales and on government program income. It is likely that many livestock producers will be able to qualify for the latest PPP loan payments, due to the large mid-year losses in 2020.
There are still some unanswered questions regarding the latest round of PPP loans for farm operations, so watch for more details. For more details on PPP loan applications, farm operators and other businesses should contact their local ag lender or go to the SBA website at: www.sba.gov/.
General CRP sign-up underway
The United States Department of Agriculture (USDA) has announced an open sign-up period for the Conservation Reserve Program (CRP) from Jan. 4 through Feb.12.
This will be the second sign-up period for the General CRP program since the enactment of the 2018 Farm Bill and will be the 55th CRP sign-up period since the CRP program started in 1986. There is also an ongoing sign-up for the Continuous CRP program. The CRP program was established in the 1985 Farm Bill and just finished its 35th year of existence in 2020. The CRP program is targeted toward taking more environmentally sensitive crop land out of production, with a focus on protecting water quality, enhancing wildlife habitat, improving air quality and controlling soil erosion.
There were over 30 million acres in the CRP program from 1990 to 2010, with CRP acreage declining 2010 to the present. The maximum CRP acreage will now be gradually increased under the 2018 Farm Bill to a maximum of 27 million CRP acres by 2023.
Currently, there are just under 20.77 million acres enrolled in the CRP program, which includes 13.2 million acres under general CRP contracts, 6.5 million acres under continuous CRP contracts, and balance enrolled under special CRP programs. There are 3 million acres currently under a CRP contract that will be expiring on Sept. 30 that are eligible for re-enrollment into CRP during the current sign-up period.
Landowners may also want to consider putting new land into CRP during the general CRP enrollment period. To be eligible for CRP, the land must have been owned or operated for least 12 months prior to the end of the CRP enrollment period.
In addition, CRP eligibility requires that the land was planted or considered planted in four of the six years from 2012 to 2017. Farm operators and landowners may want to evaluate some difficult crop acres, which have been particularly exposed by extreme weather conditions in recent crop years, for potential enrollment into the CRP program.
Under the general CRP program, landowners submit bids to enroll land into the CRP program beginning on Oct. 1 following the 2021 crop year. The duration of the CRP contracts is for 10 to 15 years. The CRP bids will be evaluated and ranked based on the “environmental benefits index” (EBI) to determine which acres will be accepted into the CRP program in 2021. The EBI factors include:
- Wildlife habitat benefits resulting from the proposed cover on the CRP acres
- Water quality benefits from reduced erosion, runoff and leaching
- On-farm benefits from reduces erosion
- Long-term benefits that will likely endure beyond the CRP contract period
- Air quality benefits from reduced wind erosion
- Cost factor, as producers are allowed to submit rental bids for the proposed CRP acres
The 2018 Farm Bill established the maximum CRP rental rates at 85% of the average county rental rates for CRP acres enrolled under the general CRP program. Landowners may offer rental rates lower than the maximum rate under the general CRP program in order to enhance the likelihood of their CRP bid being accepted.
Landowners may also enroll eligible acres into the continuous CRP program, which is designed for the most environmentally sensitive land. The continuous CRP program does not require a competitive bidding process to have the acres accepted into CRP, and the annual rental rates are pre-set at 90% of the average county rental rate. The USDA Farm Service Agency (FSA) also provides cost-share assistance up to 50% of the total cost to establish the approved cover on acres that are accepted into the CRP program.
Kent Thiesse is a farm management analyst and senior vice president of MinnStar Bank in Lake Crystal, Minn.