There really isn’t a scenario that would prevent a farm from applying for a piece of a $349 billion pie designed to help cover certain costs during the COVD-19 crisis.
While the Paycheck Protection Program offers federally guaranteed loans to help small businesses, including farms, pay their employees, the money can be used for other costs as well.
During a webinar for agriculture producers hosted by Penn State Extension on Friday, April 3, a number of qualifying expenses were discussed, including rent, mortgage interest payments, existing debt interest and utilities. Loan amounts, which carry an interest rate of 1%, are based on the average monthly costs for a 12-week period beginning Feb. 15, 2019, or the average monthly payroll costs between March 1 and June 30, 2019. Loan payments are deferred for six months, but the interest still accrues during that time.
No collateral is required for the loan, which is a 2-year term, a credit check isn’t conducted and loan forgiveness is available.
“This is what makes the program so enticing,” said Carla Snyder of Penn State Extension. “You really don’t have anything to lose by applying.”
To be eligible for loan forgiveness, Snyder said employees must be rehired by June 20 of this year. Farms that have no employees can also apply under the self-proprietor/independent contractor phase of the program.
And even if you believe your farm hasn’t been directly impacted by the pandemic, Extension educator Dan Brockett said it’s still worthwhile to consider applying for a loan.
“Those in the dairy business, for example, that market has seen some quick spikes and valleys. We’re seeing some processing plants close,” he said. “You’re probably going to be affected.”
In fact, there likely isn’t a scenario that wouldn’t merit applying for a loan, Snyder said, including an operation that employs several employees or a farm that is run solely by a husband and wife, for example.
“Most individual farms are unique, and we’re getting questions from a diverse range of situations,” she said.
As a result, interest in the program from the farming community has been high. More than 325 farmers registered for the April 3 webinar, and in the days that followed she fielded approximately 70 calls and emails with additional questions about the loan, which is administered by the Small Business Administration.
“Most farmers don’t think they qualify because most SBA loans aren’t eligible for farms, but this one is,” Snyder said. “This loan isn’t based on what your business shows as income, but rather on your payroll.”
Operations with no employees should apply as well. Snyder said as long as a farmer has records indicating they paid themselves a salary or incurred other expenses such as rent, mortgage interest, utilities or outstanding debt interest, they can apply.
But she added there isn’t time to ponder the idea.
Snyder expects the $349 billion allocated for the program to be exhausted, and loans will be awarded on a first-come, first-serve basis. Loan applications must be submitted through a lender, such as a bank, credit union or FDIC-insured institution. Any fees charged by the lender will be covered by the federal government and not the borrower, she added.
“We’ve heard people say that their lender is not yet set up to accept applications, and we encourage them to go to another lender and keep trying,” Snyder said. “I would not push this off because this is being disbursed now and it can be exhausted.”
But Snyder cautioned that those applying for a loan must be prepared to pay it back, even though forgiveness for some or all of the amount may be available. Such an approach provides a safeguard for a farm’s financial plan, she said, and if some amount of forgiveness is granted, the borrower is already ahead of the game.
And that includes those farms that have adjusted to the impact of COVID-19 and are still operating as they always have.
“I would at least consider it,” Brockett said. “Show the documentation needed for payroll or expenses and do the application. It’s worth your time to spend an hour or two on this.”