Guide to PPP loans for farmers and ranchers (new 2021 rules!)

In this 8-minute read:

  • Can farmers, ranchers, and other agricultural producers get the PPP loan?
  • Calculating your maximum PPP loan amount
  • How should farmers and ranchers spend the PPP funds in order to receive loan forgiveness?
  • When and how can farmers and ranchers apply for PPP loan forgiveness?

The coronavirus pandemic has impacted millions of businesses. Many have had to close their doors for good, many have seen huge financial losses, and many have even seen growth in their industries. Your farm or ranch may fit into any one of these categories, and if you are still in business and chugging along, you may qualify for financial assistance via the PPP

The Paycheck Protection Program was enacted in 2020 through the CARES Act and gives small businesses and self-employed individuals the chance to receive COVID-19 stimulus funding to help during this time. 

Read on to see how this program can help your farm or ranch, if the program is currently available. 

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Can farmers, ranchers, and other agricultural producers get PPP loans?

Many farmers, ranchers, and other agricultural producers are eligible to receive the PPP loan. There are a couple of requirements that you must meet though in order to apply. 

You may be eligible for a first draw PPP loan if your business: (1) has fewer than 500 employees, or (2) fits within the applicable revenue-based size standard under 13 C.F.R. 121.201

If you don’t fit into either of those requirements, then you may be eligible if you meet the SBA’s “alternative size standard” for small businesses. This means that your business currently: (1) has a maximum net worth of no more than $15 million, and (2) has an average net income of no more than $5 million after Federal income taxes (excluding any carry-over losses) for two full fiscal years before the application date. 

In addition to these revenue and size standards, your business must also have been in operation as of February 15, 2020. Self-employed farmers and ranchers without employees may also apply if they meet the requirements outlined in this section. 

If you have already received a first draw loan for your farm or ranch and wish to receive a second draw loan, then you must meet the following requirements:

  • You must have fewer than 300 employees
  • You must have spent your first PPP loan on authorized expenses by the time your second draw loan is disbursed
  • You must be able to show a revenue reduction of at least 25% when comparing any quarter in 2020 to 2019

Calculating your maximum PPP loan amount for farmers/ranchers with and without employees

Because farmers and ranchers have different forms for their tax filings, the way you calculate your maximum loan amount is going to look a little different from other businesses or self-employed individuals. Follow the guides below for calculating your first draw PPP loan amount with or without employees. 

Are you a self-employed farmer without employees?

Then your PPP loan calculation will look like this:

  1. Acquire your 2019 or 2020 IRS Form 1040 Schedule F. For 2021, you may use your gross income to determine your loan amount. Specifically, for self-employed farmers and ranchers who file IRS Form 1040 Schedule F, calculate your gross income using line 9. If this exceeds $100,000, reduce this to $100,000. 
  2. Take the number from Step 1 and divide it by 12 to get your average monthly profits. 
  3. Multiply your average monthly profits by 2.5 to get your maximum PPP loan. 
  4. If you took out an EIDL (Economic Injury Disaster Loan) in 2020, you can add any outstanding amount of that loan made between January 31, 2020 and April 3, 2020 to your maximum loan amount. Just don’t include any advance that you received on that loan, since that doesn’t have to be paid back. 

Example Calculation:

Annual gross profit: $84,000
Average monthly profit: $7,000
Multiply by 2.5:  $17,500
Outstanding amount of EIDL: $2,000
Maximum loan amount: $19,500

Are you a self-employed farmer or rancher with employees?

Your PPP loan calculation will be the same as Schedule C filers with employees, with several exceptions. 

That calculation will look something like this:

  1. Compute your 2019 or 2020 payroll by adding the following:
    • The difference between IRS Form 1040 Schedule F line 9 (gross profit) and the sum of Schedule F lines 15, 22, and 23 (employee payroll). If this amount is over $100,000, reduce it to $100,000;
    • Gross wages and tips paid to your employees whose principal place of residence is in the United States, computed using IRS Form 943 from each quarter, plus any pre-tax employee contributions for health insurance or other fringe benefits excluded from taxable Medicare wages & tips; subtract any amounts paid to any individual employee that exceeds $100,000 on an annualized basis and any amounts that are paid to employees whose principle place of residence are outside of the United States; and 
    • Employer contributions to employee group health, life, disability, dental, and vision insurance (portion of Schedule F line 15 attributable to those contributions); retirement contributions (Schedule F line 23); and state and local taxes assessed on employee compensation. 
  2. Take the number that you got in Step 1 and divide that by 12 to get your average monthly amount. 
  3. Multiply your average monthly amount by 2.5.
  4. Add any outstanding amount of an EIDL made between January 31, 2020 and April 3, 2020 that you wish to refinance. Do not include any advance from your EIDL since that doesn’t have to be repaid. 

If you have employees, your maximum loan amount cannot exceed $10 million for first draw PPP loans. 

How should farmers and ranchers spend the PPP funds in order to receive loan forgiveness?

When you receive your PPP loan (or at least know how much you can receive), you can start planning out how you can spend those funds. There are certain requirements you must follow though in order to receive full loan forgiveness. 

Payroll costs

First, it’s important to know that to get full loan forgiveness, at least 60% of your PPP loan must go towards payroll costs. If you have employees, you must maintain payroll/compensation levels to receive full loan forgiveness, and this includes your own compensation as well. If you don’t have any employees, then you can use up to 100% of your loan to pay your own income. Learn about important 2021 exceptions to the “maintaining employees and compensation rule.”

If you have employees and/or you elect to only spend the required 60% of your loan on payroll, the other 40% may be spent on the following expenses. 

Mortgage, rent, utilities

Farming definitely comes with property expenses. You can spend your PPP loan costs on any mortgage, rent, or utilities related to your farming or ranching business that you could deduct from your regular business taxes. 

Interest payments on debts

If you have any debts related to your business (credit cards, equipment financing, business loans, etc.) you can use your PPP loan to help cover the interest payments on those debts. 

Operational expenditures

You can also use your PPP loan to help pay for any business software or cloud computing services that help you facilitate essential business functions: payment processing, invoicing, sales and billing, accounting, inventory management, expense tracking, and product or service delivery. 

Supplier costs

You can use your PPP funds to cover any supplier costs associated with contracts or purchase orders that were in place before the first day of your covered loan period. 

Worker protection

COVID-19 has brought with it new expenses that most employers haven’t had to worry about in the past. Any costs associated with protecting your employees, customers, and yourself from the spread of COVID-19 can be covered by the PPP loan. This might include PPE, sneeze guards, cleaning supplies, and business expansions to maintain social distancing. 

Property damages

In 2020, public disturbances and riots caused significant property damages to many businesses across the United States. If your business was impacted by this (maybe you have an office in town that you manage your sales from), you can use your PPP loan to help pay for any damages that weren’t covered by insurance. 

You might like: Tracking PPP expenses to maintain forgiveness (tools and tips!)

When and how can farmers and ranchers apply for PPP loan forgiveness?

Once you have spent your PPP loan funds, you can (and definitely should) apply for loan forgiveness. You have within 10 months of the last day of your covered loan period to apply. 

To apply for loan forgiveness, you should first check if your lender has opted-in to the new SBA PPP Direct Forgiveness Portal. If your PPP loan was for $150,000 or less, AND if your lender has opted-in to the use of the platform, you will be able to submit your PPP loan forgiveness application online directly to the SBA, using the electronic equivalent of SBA Form 3508S. For full details, read our post about the new SBA PPP Direct Forgiveness Portal and other recent rule changes.

If the above doesn’t apply to you, contact your PPP lender and complete the correct application form. There are a few different applications now, so they will make sure you get the right one. (See new PPP application and forgiveness forms here.) Gather any documentation that you might need to verify how you spent your PPP loan (receipts, cancelled checks, bank statements, invoices, etc.). Then turn all of that back into your lender and they will help you complete your forgiveness application and submit it to the SBA. 

Once a decision has been made regarding your forgiveness application, your lender will inform you of that decision. 

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