Deadline Approaching for Next Round of Paycheck Protection

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The COVID-19 Economic Relief Bill that was passed by congress and signed by President Trump in December allocated an additional $284 billion for the Paycheck Protection Program (PPP). The deadline to apply for these loans is March 31.

The PPP is intended to help small businesses, including farms, remain in operation and keep employees paid during this period of economic impact that the COVID-19 pandemic has caused. The program provides forgivable loans to small businesses to pay employees. Eligible businesses can get loans of up to $10 million to cover 2.5 times the average monthly payroll costs, measured over the 12 months preceding the loan origination date, plus an additional 25% for non-payroll costs. Payroll costs include salaries, commissions and tips; employee benefits (including health insurance premiums and retirement benefits); state and local taxes; and compensation to sole proprietors or independent contractors. It also includes non-payroll costs which include interest on mortgage obligations, rent and utilities. These loans have an interest rate of 1%, but the portion that covers eligible expenses is forgivable as long as the company maintains staff and payroll.

There are some improvements in this program that were not in the first PPP offering. There is a clarification that allowable expenses that had been paid for with forgiven PPP loans may be taken as a business deduction for income tax purposes without limitation. This is very important for farmers because the 2020 regulations denied PPP participants the ability to deduct these expenses. The bill also feduced the qualifying reduction in gross revenue from 50% to 25%  between comparable quarters in 2019 and 2020. This change for producers expands the number of farm and ranch families that can qualify to participate.

Previously the only approved expenses that could be paid from these funds were payroll, mortgage interest, rent and utilities. The new bill includes worker personal protective equipment and adaptive costs as approved expenses for loan forgiveness. By changing the requirement to gross income from net farm income for the loan qualification calculations for farmers and ranchers who file as sole proprietors, it will allow many more producers to participate. The previous program left many self-employed farmers ineligible because they had reported losses Also, there is a new streamlined process for producers applying for loan forgiveness under the program for loans under $150,000.

Sources: American Farm Bureau Federation