FOCUS ON AG
January 11, 2021
PPP LOAN APPLICATION DETAILS ANNOUNCED
A big portion of the latest COVID relief package that was passed by Congress in late December was directed to assist small businesses through another round of funding to reopen and strengthen the Payroll Protection Program (PPP) through the U.S. Small Business Administration (SBA). The PPP loans will be reserved for businesses with less than 300 employees, as well as for businesses that incurred at least a 25% loss of revenue due to COVID-19 in a specific quarter of the year in 2020, compared to the similar quarter in 2019. The PPP provisions allow for forgivable loans up to 2.5 times the average monthly payroll costs for the year. The maximum level for PPP loans will be $2 million, and PPP loans of less than $150,000 will have a simplified application process.
The latest legislation allows for some self-employed individuals to potentially re-apply for round #1 PPP loans, as well as to apply for round #2 PPP loans. SBA has announced that the re-opening of round #1 PPP loans will begin on January 11, with round #2 PPP loan applications likely to begin in the near future. Just with previous PPP loans, this round of PPP loans will again be handled through local financial institutions. Farm business will again qualify for this new round of PPP loans, including farm operations that file taxes as a sole proprietorship. Following are some details and clarifications regarding farm-related PPP loan applications:
- Clarification on Round #1 of PPP loans — It appears that self-employed farmers (sole proprietorships) that did not qualify for the first round of PPP loan payments due to having a negative net farm profit on Schedule F of their 2019 Federal tax return may now apply for the first round of PPP loan payments. However, all details are not yet clear on this process. Approximately 37 percent of the farm operations, including many farmers in Southern Minnesota, did not qualify for the first round of PPP loan payments due to negative 2019 farm profits following the poor crop year in 2019. The revised PPP loan application for sole proprietorships is based on the gross farm income on the 2019 tax return, up to a maximum of $100,000. Based on the PPP loan calculation formula, a farm operation could qualify for a maximum round #1 PPP loan payment of $20,833 ($100,000 divided by 12 times 2.5). Farmers that filed for a round #1 PPP loan as a sole proprietorship and received less than the maximum of $20,833 may be eligible to file for an additional round #1 PPP loan up to the maximum amount if the original PPP loan has not been forgiven. On the other hand, if farmers received a round #1 PPP loan in 2020, which has already been forgiven, they would not be eligible for an additional round #1 PPP loan; however, they would still be eligible to apply for round #2 if they qualify. Farm operations with employees that filed as a partnership or corporation will likely not be affected much by this change.
- Details for the new Round #2 of PPP loans — Self-employed farmers could again potentially be eligible for round #2 PPP loans. The same $100,000 maximum gross income level and maximum PPP loan payment that existed in round #1 of PPP loans for farm operators filing as sole proprietorships will exist for the round #2 PPP loan applications. However, farm operations will need to show at least a 25 percent decline in revenue for one quarter in 2020, compared to a similar quarter in 2019. For some farmers that were impacted by the poor crop year in 2019 and had less grain inventory to sell in early 2020, meeting the 25 percent reduction threshold will not be an issue. Farmers that had higher yields in 2019 could have a bit more difficulty meeting qualifications for round #2 PPP loans, depending on the timing of their grain sales and on government program income. It is likely that many livestock producers will be able to qualify for the latest PPP loan payments, due to the large mid-year losses in 2020.
There are still some unanswered questions regarding the latest round of PPP loans for farm operations, so watch for more details. For more details on PPP loan applications, farm operators and other businesses should contact their local ag lender or go to the SBA website at: www.sba.gov/
GENERAL CRP SIGN-UP UNDERWAY
The United States Department of Agriculture (USDA) has announced an open sign-up period for the Conservation Reserve Program (CRP) from January 4 through February 12, 2021. This will be the second sign-up period for the General CRP program since the enactment of the 2018 Farm Bill and will be the 55th CRP sign-up period since the CRP program started in 1986. There is also an ongoing sign-up for the Continuous CRP program. The CRP program was established in the 1985 Farm Bill and just finished its 35th year of existence in 2020. The CRP program is targeted toward taking more environmentally sensitive crop land out of production, with a focus on protecting water quality, enhancing wildlife habitat, and improving air quality, as well as controlling soil erosion.
There were over 30 million acres in the CRP program from 1990 to 2010, with CRP acreage declining from that time until the current time. The maximum CRP acreage will now be gradually increased under the 2018 Farm Bill to a maximum of 27 million CRP acres by 2023. Currently, there are just under 20.77 million acres enrolled in the CRP program, which includes 13.2 million acres under General CRP contracts, 6.5 million acres under Continuous CRP contracts, and balance enrolled under special CRP programs. There are 3 million acres currently under a CRP contract that will be expiring on September 30, 2021 that are eligible for re-enrollment into CRP during the current sign-up period.
Landowners may also want to consider putting new land into CRP during the General CRP enrollment period. To be eligible for CRP, the land must have been owned or operated for least 12 months prior to the end of the CRP enrollment period. In addition, CRP eligibility requires that the land was planted or considered planted in four of the six years from 2012 to 2017. Farm operators and landowners may want to evaluate some difficult crop acres, which have been particularly exposed by extreme weather conditions in recent crop years, for potential enrollment into the CRP program.
Under the General CRP program, landowners submit bids to enroll land into the CRP program beginning on October 1, 2021, following the 2021 crop year. The duration of the CRP contracts is for 10 to 15 years. The CRP bids will be evaluated and ranked based on the “environmental benefits index” (EBI) to determine which acres will be accepted into the CRP program in 2021. The EBI factors include:
- Wildlife habitat benefits resulting from the proposed cover on the CRP acres.
- Water quality benefits from reduced erosion, runoff, and leaching.
- On-farm benefits from reduces erosion.
- Long-term benefits that will likely endure beyond the CRP contract period.
- Air quality benefits from reduced wind erosion.
- Cost factor, as producers are allowed to submit rental bids for the proposed CRP acres.
The 2018 Farm Bill established the maximum CRP rental rates at 85 percent of the average county rental rates for CRP acres enrolled under the General CRP program. Landowners may offer lower rental rates lower than the maximum rate under the General CRP program in order to enhance the likelihood of their CRP bid being accepted. Landowners may also enroll eligible acres into the Continuous CRP program, which is designed for the most environmentally sensitive land. The Continuous CRP program does not require a competitive bidding process to have the acres accepted into CRP, and the annual rental rates are pre-set at 90 percent of the average county rental rate. The USDA Farm Service Agency (FSA) also provides cost-share assistance up to 50 percent of the total cost to establish the approved cover on acres that are accepted into the CRP program.
For more information on the General or Continuous CRP, or to find out the maximum county CRP rental rates, landowners should contact their local FSA office or go to the FSA website at: www.fsa.usda.gov/crp
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Note — For additional information contact Kent Thiesse, Farm Management Analyst and Sr. Vice President,
MinnStar Bank, Lake Crystal, MN. (Phone — (507) 381-7960)
E-mail — kent.thiesse@minnstarbank.com) Web Site — http://wwwSite — http://www.minnstarbank.com/