PPP Loans Reopen With Benefits for Self-Employed Farmers

With the latest Pandemic Relief Bill, signed into law on Dec. 27, 2020, sole-proprietor farmers gained an opportunity to participate or revise an existing loan in the Small Business Administration's (SBA) Paycheck Protection Program (PPP).

This article will primarily focus on a program change that affects the self-employed earnings portion of the PPP loan calculation, opening an opportunity for many farmers without payroll costs on their 2019 Schedule F, and/or did not have a profit on their 2019 Schedule F. Farmers can now look at their gross farm income on their Schedule F (line 9) up to $100,000. Previously, calculations were based off the net farm profit on line 34.

Do you qualify? Consider if you fit either of these categories:

• Farmers who did not receive a PPP loan last year may now be eligible for a First Draw PPP loan under new rules on sole proprietors.

• Farmers who previously received a PPP loan (and have not had it forgiven yet) may submit a revised PPP application if the new rules would've resulted in an increased loan amount. For instance, farmers that had a Schedule F loss for 2019 can go back and use up to $100,000 of gross farm income (if they had that much) in the application.

Examples

Let's walk through some common examples for farmers that now qualify.

Farmer Joe filed a Schedule F with his 1040 personal income tax return for 2019. He did not show a profit, and he did not have any payroll expenses. Consequently, Joe didn't qualify to receive PPP loan funds under the 2020 rules. However, using the new rules passed in late December, Joe did have gross farm income on his Schedule F of at least $100,000.

Based on the PPP loan calculation, he is eligible for a First Draw PPP Loan for up to $20,833. Here is the math: $100,000 divided by 12 months, then multiplied by 2.5 = $20,833.

Farmer Dave filed the same type of return as Joe, but he did have payroll and did receive PPP funds in a First Draw Loan in 2020, AND Dave has not had that loan forgiven yet. He showed a loss on his 2019 Schedule F too, BUT he still had more than $100,000 gross farm income even after reducing it by payroll costs used for his original PPP loan application.

In this case, Dave can apply for an increase to his First Draw PPP Loan for $20,833.

Those two examples are for those that are maxed out at using no more than $100,000 for gross farm income for their application. Farmers with less farm income still qualify, but will receive a smaller loan amount. To calculate, take gross farm income (line 9 of the Schedule F) divided by 12, multiplied by 2.5 to determine loan application amount.

To apply for a First Draw PPP Loan or a First Draw PPP Loan Increase, talk to a lender by March 31, 2021. For new First Draw PPP loan applications, you can use either your 2019 or 2020 Schedule F.

Another point

One final point to consider: At application, you must attest to the following statement – "Current economic uncertainty makes the loan request necessary to support the ongoing operations of the Applicant."

A key component of the PPP program is they are forgivable loans. Borrowers must use loans on qualifying expenses to be eligible for forgiveness. For sole proprietor farmers with no payroll, many tax professionals recommend that the farmers write a check to themselves to validate the use of the funds. Loan forgiveness will not count as income on Federal tax returns in this special case (thanks to Congress), but at the time of this writing, forgiveness is taxable income at the PA and local levels.

If you received a PPP loan in 2020, you may now be eligible for a Second Draw PPP Loan as long as you meet certain criteria. Find more information about PPP at agchoice.com/SBALoans.

About AgChoice

AgChoice Farm Credit specializes in providing farm and country property loans and financial services.