Two programs from the federal Coronavirus Aid, Relief, and Economic Security (CARES) Act have special significance to small-scale producers. The programs include nearly $360 billion in forgivable loans to help small businesses cover expenses like payroll, rent, mortgage, utilities, or other obligations that cannot be met due to the unexpected losses in revenue associated with the COVID-19 outbreak.
It’s been less than two weeks since the bill passed, so there are a lot of unanswered questions still. Below are the best information and resources that we have at this time.
Unfortunately, as we discuss below, farmers may be locked out of one of the key programs. So, whether or not you need one of these programs for yourself, please read all the way to the end of this alert to the “Take Action” section and add your voice!
Paycheck Protection Program (PPP)
The Paycheck Protection Program allows small businesses to get a loan to cover their existing payroll. Businesses can apply for up to 2.5 times their average monthly payroll, up to $10 million. And if they have the same number of employees at the same pay rates as of eight weeks after the loan, whatever portion of the loan was applied to payroll will be forgiven (i.e. not have to be paid back). The loan can also cover mortgage interest, rent, and utilities – but the amount of the loan forgiveness will be reduced if more than 25% of the loan proceeds are used on these or similar non-payroll expenses.
Businesses with fewer than 500 employees, as well as 501(c)(3) nonprofit organizations, can apply. Farms are eligible, but they might be required to meet the SBA’s revenue cap for farms, namely having less than $1 million in annual revenues. (Whether the revenue cap applies or not is unclear.)
SBA requires that farms and agricultural businesses first explore Farm Service Agency (FSA) loan programs, particularly if the applicant has a prior or existing relationship with FSA. For more information on FSA loans, READ MORE HERE.
Applications for PPP forgiveable loans are done through private banks and lenders, including Farm Credit. PPP loans cannot be used to cover payroll for foreign workers on H-2 visas or independent contractors.
Economic Injury Disaster Loans (EIDL)
The CARES Act also provided $10 billion to expand SBA’s Economic Injury Disaster Loan (EIDL) program, including adding emergency grants of up to $10,000 that do not need to be repaid. Unlike PPPs, EIDLs can cover a broad range of business-related expenses. An EIDL loan and emergency grant can be used to pay fixed debts, payroll, accounts payable, and other bills that a business cannot pay because of the ongoing COVID-19 crisis.
As with the PPP, small businesses and non-profit organizations with fewer than 500 employees are generally eligible to obtain an EIDL. But small farms and other “agricultural enterprises” might be excluded.
Historically, SBA has said that “agricultural enterprises” are ineligible for EIDLs. Agricultural enterprises include “those small business concerns engaged in the production of food and fiber, ranching, and raising of livestock, aquaculture, and all other farming and agricultural-related industries.” However, agricultural cooperatives, nurseries, and aquaculture businesses historically are eligible for EIDLs, as are restaurants and food manufacturers.
So the question becomes whether the historical exclusion of agricultural enterprises applies to the expanded EIDLs provided for under the CARES Act.
In order to apply for and receive an EIDL, applicants must self-certify that they are eligible to receive a disaster assistance loan by completing the COVID-19 Economic Injury Disaster Loan Application. Applications for an EIDL are done directly through SBA’s website.
Last Thursday, Rep. Antonio Delgado (D-NY) and 85 other members of Congress wrote SBA to urge the agency to ensure that farmers can access the EIDL Program. You can read the letter HERE.
Did your U.S. Representative sign the letter? Call and thank them!
Is your Representative NOT on the letter? Call and urge them to send their own letter to SBA in support of allowing small farmers to access the EIDL program.
This may require Congress to make legislative changes, so it’s important that your elected Representative hear from you that supporting our small farms through this crisis is important!
You can look up who represents you and find their contact info HERE.
Fountainhead is a national, non-bank direct lender that has excellent information on its website about both EIDL and PPP and the pros and cons of each.