The President signed the bipartisan House-passed Paycheck Protection Program (PPP) Flexibility Act that the Senate then proceeded to approve. The act makes changes to the popular small business loan program that will provide borrowers with greater flexibility for the forgiveness of their loans.
Specifically, the legislation will: expand the amount of time businesses have to spend the money from eight to 24 weeks; reduce the minimum that businesses need to spend from 75% to 60% if they want the full loan amount to be forgiven; extend the time period to rehire employees from June 30, 2020, to Dec. 31, 2020, while eliminating rehiring requirements, and clarify that employers in the PPP can also benefit from the Coronavirus Aid, Relief & Economic Security (CARES) Act payroll tax delay.
In a recent "Market Intel" report from the American Farm Bureau Federation, economists Veronica Nigh and Megan Nelson reported that $510.2 billion in PPP loans had been approved through May 30, 2020. This value has been spread across 4.476 million loans. Unfortunately, only $7.6 billion of those funds, or 1.5%, have been given to agriculture, forestry, fishing and hunting operations. The changes in the House and Senate bills could make the program more attractive to farmers and ranchers, the economists wrote.
At the end of April, the Internal Revenue Service ruled that expenses incurred by businesses that are paid with PPP loan proceeds are non-deductible and, thus, subject to taxation. While many believed the intent of Congress was for loan forgiveness to be non-taxable, the legislation did not explicitly state this. Without a legislative change, the loan amount and interest on the loan assistance will be taxed as income.
Since PPP details were first made available, many farmers have asked for a fuller definition of “rent,” Nigh and Nelson stated. While rent is understood as it relates to a storefront, farmers rent a wide variety of business-related items, including equipment, land and buildings. “Clarification that rent encompasses all these business-related items would be helpful,” they said.
Because 37% of farmers reported net losses from farming on their Schedule F, this has made many farmers ineligible for PPP benefits.
“If in addition to profits shown on Schedule F, if income from farm equipment trades, breeding livestock, all rental income and in-kind wages such as commodity wages were included in the calculation of income, more farmers would be eligible for PPP loans,” Nigh and Nelson added.
Michigan Farm Bureau national legislative counsel John Kran said several outstanding questions remain related to rental expenses, H-2A workers and the availability of additional funds for those shut out of the program.
According to Kran, if a farm is approved for PPP funds but spends less than 75% of the loan proceeds on payroll, the difference between the amount actually spent on payroll and the 75% threshold is not forgiven under the current PPP guidelines, which stipulate that PPP funds must be spent within eight weeks of receipt on qualifying expenses.
Michigan specialty crop producers are currently prohibited from including wages paid to H-2A workers in their PPP loan forgiveness calculations, since many of those workers fail to meet the “principal place of residence” test that requires PPP funds be used only for employees living in the U.S. for more than six months.
“Wages paid to H-2A workers are a considerable expense for non-mechanized commodities, and excluding them is counter to helping businesses with high payroll expenses,” Kran said.