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Small Business Benefits and the CARES Act: What Farm and Food Producers Need to Know

The Coronavirus Aid, Relief, and Economic Security Act (CARES) or phase III of the federal stimulus package outlines additional benefits to small food and farm businesses.

Updated:

April 24, 2020

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Small Business Benefits and the CARES Act: What Farm and Food Producers Need to Know

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The Coronavirus Aid, Relief, and Economic Security Act (CARES) or phase III of the federal stimulus package was signed into law on Friday, March 27, 2020 and outlines additional benefits for small businesses across the country.

Paycheck Protection Program – Small Business Loans and Loan Forgiveness

Specifically, it outlines for a $349 billion "Paycheck Protection Program" through the Small Business Administration (SBA) to guarantee loans to small businesses who have been affected by the novel coronavirus and maintain their payroll levels. In some instances, these loans may qualify for forgiveness providing further benefit to small businesses across the country.

The initial fund of $349 billion to be allocated to small businesses through the Small Business Administration was exhausted last week on April 16th only 14 day after the application period opened.

It is expected that on April 24th this fund will be replenished with $310 billion.

Legislation outlines that federally guaranteed loan funds will be available through banks, credit unions and other lenders and business owners are encouraged to approach your local lender. These funds may be used for purposes including payroll costs, rent, utilities, and mortgage interest existing prior to February 15, 2020.

Many loan applications are already in the pipeline between lenders, to whom businesses must submit their application, and the Small Business Administration, who ultimately processes the loans. The allocation of these funds are on a first-come, first-served basis and are expected to be exhausted quickly. Therefore, interested small businesses, sole-proprietors and independent contractors eligible for these funds should contact their lender immediately to submit an application.

Who is Eligible to Apply?

Eligible businesses and organizations include those with less than 500 employees. Your number of employees is calculated based on full-time and part-time employees for one location including seasonal or temporary workers. Entities that may apply include businesses, 501(c)(3) nonprofit organizations, veterans' organizations, certain tribal business concerns, eligible self-employed individuals, independent contractors, sole proprietorships, and businesses in the accommodation and food services industry that have less than 500 employees per physical location.

How much can I apply for?

Maximum loan amount will be based on average monthly payroll costs for the business not to exceed 250% of your average monthly payroll costs or $10 million. Average monthly costs are calculated based on a one-year period prior to the loan disbursement date. If you are a business with seasonal employees, you may choose to calculate the average monthly payroll costs based on the 12-week period beginning February 15, 2019 or between March 1, 2019 and June 30, 2019. If you are a new business and were not previously operating between February 15, 2019 and June 30, 2019 your average payroll costs may calculated based on payroll costs between January 1, 2020 and February 29, 2020.

The calculation of payroll costs is based on the Small Business Administration definition and can include employee salary, wages and commissions, cash tips, payment for leave including vacation, sick, family or medial leave, group health benefits payments, retirement payments or the payment of state or local tax assessed on employee compensation. Sole proprietor compensation, wages or net income or independent contractor compensation may also be included in the calculation not to exceed $100,000. The calculation of payroll costs will not exceed a maximum of $100,000 per individual over the outlined calculated period above.

What can I use the loan funds to pay?

Loan funds shall be used for an eight-week period following the loan origination date for payroll costs, rent or mortgage interest payments, utilities or for paying interest on previously existing debt.

What are the terms of the loan?

Loan funds are federally guaranteed by the Small Business Administration (SBA) and will be issued by SBA approved lenders. The Small Business Administration encourages businesses to approach their local banks, credit unions and other lenders to apply Paycheck Protection Program loan funds. If your lender does not offer this service, you are encouraged to try another lender in your area to apply.

Access to available credit from other sources does not preclude you from applying for these loan funds. There is no application fee or closing costs nor is a personal guarantee required to access these funds. The SBA determined interest rate is 1% and the loan term is 2 years. The first six months of payments for these loans will be automatically deferred, however interest will accrue over this period at a rate of 1%.

Loan Forgiveness

A portion of your loan, calculated above as your payroll costs, mortgage interest, rent, and utility payments as outlined above are eligible for forgiveness between February 15, 2020 and June 30, 2020. All categories eligible for forgiveness must have been in place prior to February 15, 2020. Amounts forgiven for these items will not be seen as taxable income for your business.

Your forgiveness amount can be reduced based on the number of employees laid off or those who have undergone salary reduction of more than 25% prior to February 15, 2020 or between February 15, 2020 and June 30, 2020.

Eligibility for loan forgiveness will be based on verification of the number of retained employees on payroll, their compensation amounts and documentation of other eligible expenses between February 15, 2020 and June 30, 2020.

If you have already laid off employees or reduced salary to employees after February 15, 2020 and rehire them and/or reinstate their salary levels no later than June 20, 2020 you will avoid additional reduction in your loan forgiveness amount.

What if I already obtained an Economic Injury Disaster Loan through Phase I – the Coronavirus Preparedness and Response Supplemental Appropriations Act?

If you already obtained an Economic Injury Disaster Loan (EIDL) through the Small Business Administration, you are still eligible to receive a Paycheck Protection Act loan allowable through the CARES Act. Businesses will be given the option to refinance their EIDL loan into a Paycheck Protection Act loan thereby enabling you to apply for loan forgiveness. However, you cannot take out both an EIDL loan and a Paycheck Protection Act loan for the same purpose. If you already have an existing EIDL loan for purposes other than those outlined in the Paycheck Protection Act your EIDL loan will remain for those purposes as a loan.

Employee Retention Tax Credits

If you do not qualify or wish to participate in the Small Business Administration Paycheck Protection Program as outlined above, you may qualify for small business tax relief under the CARES Act. Section 2301 of the CARES Act outlines the employee retention tax credits (ERTC) program which provides refundable payroll tax credits for 50% of qualified wages paid by employers to employees during the period of March 13, 2020 to December 31, 2020.

Who is Eligible for the Tax Credit

Business eligible for the tax credit include those whose operations were either fully or partially suspended due to COVID-19 related shut-down order or businesses whose gross receipts declined by more than 50% as compared to the same quarter in 2019.

For businesses with less than 100 full-time employees, all employee wages qualify for credit regardless of if the business was subject to a shut-down order.

The amount of credit awarded will not exceed applicable employment taxes as reduced by IRC Section 3111(e), IRC Section 3111(f) and Sections 7001 and 7003 of the Families First Coronavirus Response Act, which provide for tax credits for qualified sick and family leave wages. ERTC tax credits will apply after a reduction in employment taxes is applied by other available credit programs, such as those mentioned above.

Deferred Tax Payments for Employers

Phase III of the federal stimulus bill or CARES Act also extends the deadline for employers to make social security tax payments on your 2020 payroll. Currently, employer payroll tax is comprised to two parts, social security tax at a rate of 6.2% and Medicare tax at a rate of 1.45%. The CARES Act allows for a deferred payment schedule for the social security potion of payroll taxes on employee salaries beginning March 27, 2020 to December 31, 2020. The new deadlines for making social security payroll tax payments includes a 50% payment of your business's tax liability is due by December 31, 2021 and the remaining 50% payment due December 31, 2022.

Self-employed individuals, who pay a higher rather than that of employers for social security tax will also be granted the same deferment schedule for 50% of their tax liability under the CARES Act. This means for self-employed individuals 50% of your social security taxes will be due on the normal schedule and 50% will be due on the deferred schedule as outlined in the CARES Act.

Deferred tax payments for employers in the current business climate frees up cash flow, otherwise directed to federal tax payments, to sustain operations in 2020.

Expanded Funding for USDA Programs

The CARES Act dedicates $9.5 billion in assistance to agricultural producers and an additional $14 billion in funding to the USDA to create an aid package for farmers who have seen a crash in commodity prices due to the COVID-19 pandemic.

The $9.5 billion administered by the USDA is specifically dedicated to providing financial assistance to specialty crop growers, livestock producers and dairy farmers.

The $14 billion goes to replenish the Commodity Credit Corporation, which is a funding mechanism within the USDA, that covers programs such as Price Loss Coverage and Dairy Margin Coverage, natural resource conservation program, disaster assistance programs and the Market Facilitation Program.

Although, phase III of the federal stimulus bill or the CARES Act was signed into law on March 27, 2020 many funded departments and programs are still organizing mechanisms for businesses and producers to apply for funds. Please reach out to your local lenders, the Small Business Administration and the USDA for follow up information about how to access benefits outlined in the CARES Act for your farm or business.

Updated April 23, 2020