PPP forgivable loans are back- Producers may be eligible for another round!
The Paycheck Protection Program, or “PPP,” was a lifeline for small businesses across the country in 2020 including many farm and ranch operations. Well, it is back in a new and improved form for 2021, and it will offer a valuable opportunity for farms and ranches that continued to suffer a decline in revenue later in 2020. For example, any business dependent on weddings like cut flower producers and agritourism operations should take an especially close look at this opportunity, as well as anyone who was dependent on restaurant sales for the majority of their revenue.
The basic aspects of the program remain unchanged: 1) Businesses struggling from COVID-related economic damage can apply for loans to cover 2.5 times their payroll expenses, 2) They can use the loans to cover payroll plus limited other expenses and 3) If they meet certain criteria, these loans can be forgiven (meaning, businesses don’t have to bother paying back the loans, hooray!).
Let’s also review the key changes which include opportunities to get PPP for the first time, modify your existing PPP loan, or get a second round of PPP funds. Here’s what we’ve got:
- Greater flexibility in the “coverage period” – applicants can choose the time period during which they will use their PPP money, and this can be anywhere between 8 and 24 weeks after receiving the loan.
- More eligible expenses – it’s not just rent and utilities that producers can apply their PPP loan towards. Folks can now use loan money to cover costs of purchasing “goods” essential to the business operation, PPE (personal protective equipment), software or cloud-based systems to improve business functionality (e.g. Zoom), and, in a nod to the social unrest of 2020, property damage from “vandalism and looting due to public disturbances.”
- A chance to modify an existing PPP loan – folks that have already received a PPP loan, may be able to modify the loan. For example, say due to rule changes, an applicant could have received more money. They now have the chance to go back and get it.
- More flexibility for seasonal businesses – Businesses are eligible to apply for PPP so long as the business was in operation during any 12-week period between February 15, 2019 and February 15, 2020.
- A second bite at the apple – If you are returning for more PPP, you are eligible if you have less than 300 employees and saw at least a 25% drop in revenue.
Also, farmers will be happy to have clarity around some issues which were causing confusion about whether the PPP would even work for them. The Small Business Administration (SBA) issued “interim final rules” on January 6, and these rules provide such clarification. For one thing, it was unclear whether farmers were even eligible for the new PPP round. These rules clarify that they are indeed eligible, and that farmers reporting income on Schedule F will use Line 9 gross income to calculate their maximum PPP loan amount. Starting on page 37 of the rules, the SBA explains how to make this calculation if you are a farmer or rancher with no employees, and then if you are a farmer or rancher who does have employees.
The second clarification is perhaps the most exciting because it makes the PPP loan a far more worthwhile endeavor than previously thought. The new PPP program clarifies two things that were very confusing before, given the various IRS notices that were issued last year. These are 1) whether PPP loans that were forgiven would be taxable income to businesses, and 2) whether business expenses that PPP loans covered could still be tax-deductible. Well, here you have it, folks: PPP loans that are forgiven are NOT taxable income and business expenses that are paid for with PPP loans ARE DEDUCTABLE expenses. This is helpful to know that taking a PPP loan will not cause farmers unintended tax consequences.
Whether producers have an old PPP loan, are jumping in the PPP pool for the first time, or are considering a second loan, there’s something to be found for everyone.
When to apply? Now! The new application process for first-time PPP borrowers started Monday, January 11th and on January 13th, businesses looking for another infusion can apply. It runs until March 31, 2020 but is on a first-come, first-served basis.
Your best strategy for getting a loan is to get some working knowledge of the rules and process and to talk to a qualified accountant about your specific situation (or possibly tax attorney if your situation is quite complex). But, there’s no need to wait until you know every little detail to submit your application! You can always decline to sign the final loan documentation if you change your mind.
Go to the SBA website for more information and to read the rules. Go to this Forbes article for more in-depth information about the new and improved program. For even more detailed information direct from tax attorneys providing educational information on PPP, see this video and review these slides, which include a copy of the new application.