Paycheck Protection Program Update from La. Farm Bureau
By Brian Breaux
Louisiana Farm Bureau Federation
The Consolidated Appropriations Act, 2021 (CAA), signed into law by President Trump on December 27, 2020, included $284 billion in new funding for the Paycheck Protection Program (PPP), that had previously expired on Aug. 8, 2020. The Payroll Protection Program (PPP) was created by the CARES Act legislation and administered by the Small Business Administration (SBA) to provide direct assistance to small businesses struggling to make employee payroll during the COVID-19 pandemic.
The PPP originally received $349 billion in funding in 2020 but due to the sheer number of eligible U.S. businesses that applied for PPP loans, the first round of PPP funding was exhausted within two weeks. A second round of PPP loans followed in 2020 with $310 billion in funding that was that was exhausted as well. Since Round 2 ended in August 2020, there have been no PPP loans available.
PPP Reactivation
The reactivation of the Payroll Protection Program (PPP) loan program is good news for farmers, ranchers and businesses. The Small Business Administration (SBA) began accepting First Draw PPP loan applications on January 11, 2021 and Second Draw PPP loan applications on January 13, 2021. Therefore, the PPP program is available to you whether this is your first time (First Draw PPP Loan) to apply for a PPP loan or if you participated in the PPP loan program in 2020 (Second Draw PPP Loan).
Loan details – First Draw and Second Draw PPP Loans
SBA will forgive loans if all employee retention criteria are met, and the PPP loan funds are used for eligible expenses.
PPP loans have an interest rate of 1%.
The maximum PPP loan amount is: $2 million for Second Draw PPP Loan
$10 million for First Draw PPP Loan
Loans issued prior to June 5, 2020 have a maturity of two years.
Loans issued after June 5, 2020 have a maturity of five years.
Loan payments will be deferred for borrowers who apply for loan forgiveness until SBA remits the borrower's loan forgiveness amount to the lender.
If a borrower does not apply for loan forgiveness, payments are deferred 10 months after the end of the covered period for the borrower’s loan forgiveness (either 8 weeks or 24 weeks).
No collateral or personal guarantees are required.
Neither the government nor lenders will charge small businesses any fees.
General PPP Loan Terms
The First and Second Draw PPP loans follow the same general loan terms as follows:
-At least 60% of PPP loan must be used for payroll including benefits
-40% or less of PPP Loans can be used to pay for:
o Mortgage interest,
o Rent,
o Utilities,
o Worker protection costs related to COVID-19,
o Uninsured property damage costs caused by looting or vandalism during 2020,
o Certain supplier costs and expenses for operations.
Second-draw PPP loans have some restrictions that first-draw loans do not. You cannot receive a second-draw loan of up to $2 million unless:
You have received and used (or will use) all proceeds from a first-draw loan by the time you receive (or expect to receive) second-draw loan proceeds.
You have 300 or fewer employees.
You can demonstrate that you experienced a loss of at least 25% of gross receipts in any quarter during 2020 compared to the same quarter in 2019.
You spend all proceeds from your first-draw loan on eligible expenses.
Who may qualify?
The following entities affected by Coronavirus (COVID-19) may be eligible:
Sole proprietors, independent contractors, and self-employed persons such as farmers and ranchers
Any small business concern that meets SBA’s size standards (either the industry size standard or the alternative size standard)
Any business, 501(c)(3) non-profit organization, 501(c)(19) veterans organization, or tribal business concern (sec. 31(b)(2)(C) of the Small Business Act) with the greater of: 500 employees, or that meets the SBA industry size standard if more than 500
Any business with a NAICS code that begins with 72 (Accommodations and Food Services) that has more than one physical location and employs less than 500 per location
To complete a PPP loan application, you will need to provide:
Basic identifying information about your business
Business TIN number
Average monthly payroll cost (2019 reference year but 2020 can be used)
Documentation relating to headcount over time
Information on owners (with stakes of at least 20%)
How the money will be used
How and when to apply
You can apply for a First Draw PPP Loan or Second Draw PPP Loan until March 31, 2021 or until PPP funds are exhausted.
Maximum loan amount - Increased assistance for accommodation and food services businesses
For most borrowers such as farmers and ranchers, the maximum loan amount of a Second Draw PPP Loan is 2.5x average monthly 2019 or 2020 payroll costs up to $2 million.
Greater PPP loan assistance is available for those in the Accommodation and Food Services sector (use NAICS 72 to confirm). The maximum loan amount for a Second Draw PPP Loan is 3.5x average monthly 2019 or 2020 payroll costs up to $2 million.
Second Draw PPP Loan forgiveness terms
Second Draw PPP Loans made to eligible borrowers qualify for full loan forgiveness if during the 8 to 24 week covered period following loan disbursement if:
Employee and compensation levels are maintained in the same manner as required for the First Draw PPP loan
The loan proceeds are spent on payroll costs and other eligible expenses
At least 60 percent of the proceeds are spent on payroll costs
A borrower can apply for forgiveness once all loan proceeds for which the borrower is requesting forgiveness have been used
Borrowers can apply for forgiveness any time up to the maturity date of the loan.
If borrowers do not apply for forgiveness within 10 months after the last day of the covered period, then PPP loan payments are no longer deferred, and borrowers will begin making loan payments with interest to their PPP lender.
Eligibility of using H-2A worker wages to calculate PPP loan amount
The PPP reactivation information that we have read provides no further clarification on using H-2A worker wages to calculate PPP loans. PPP loans are limited to those whose principal residence is the US. The question is whether an H-2A workers principal residence the US?
FAQ Question #33 does provides some guidance. Answer: PPP applicants and lenders may consider IRS regulations (26 CFR § 1.1211(b)(2)) when determining whether an individual employee’s principal place of residence is in the United States.”
IRS regulations (26 CFR § 1.1211(b)(2)) states, “(2) Principal residence. In the case of a taxpayer using more than one property as a residence, whether property is used by the taxpayer as the taxpayer’s principal residence depends upon all the facts and circumstances. If a taxpayer alternates between 2 properties, using each as a residence for successive periods of time, the property that the taxpayer uses a majority of the time during the year ordinarily will be considered the taxpayer’s principal residence.”
However, “in addition to the taxpayer’s use of the property, relevant factors in determining a taxpayer’s principal residence, include, but are not limited to: (i) The taxpayer’s place of employment; (ii) The principal place of abode of the taxpayer’s family members; (iii) The address listed on the taxpayer’s federal and state tax returns, driver’s license, automobile registration, and voter registration card; (iv) The taxpayer’s mailing address for bills and correspondence; (v) The location of the taxpayer’s banks; and (vi) The location of religious organizations and recreational clubs with which the taxpayer is affiliated.”
Please contact your lender if you are interested in a PPP loan and contact me if you have any questions.
Brian Breaux
Senior Commodity/Public Policy Director Louisiana Farm Bureau Federation, Inc. E-Mail: brianb@lfbf.org Cell: 225-603-0924