Yes, self-employed farmers are eligible for the Paycheck Protection Program (PPP). This program, created under the CARES Act in 2020, provides forgivable loans to small businesses, including farms. While much of the focus has been on payroll expenses, self-employed farmers can also apply for PPP loans based on their gross income.
This article will provide you with the information you need to understand if you qualify for the PPP as a self-employed farmer and how to apply for the loan,
Key Points:
- Self-employed farmers are eligible for PPP loans based on their gross income.
- The application deadline for the PPP is March 31, 2021.
- To apply, you will need to provide documentation of your gross income, such as tax returns or bank statements.
- The loan amount is based on 2.5 months of your farm’s total annual gross income, with a maximum amount of $20,833.
- You can use the loan funds for eligible expenses, such as payroll, rent, utilities, and mortgage interest.
- The loan is forgivable if you use the funds as required.
Understanding Eligibility for Self-Employed Farmers
During the COVID-19 pandemic, the Paycheck Protection Program (PPP) was developed to assist small businesses, including farms. For eligible businesses, the program offers forgivable loans that can be used to pay for payroll, rent, utilities, and other approved expenses.
As a self-employed farmer, you have to fulfill the following requirements in order to be qualified for the PPP:
- You must be a self-employed farmer with a principal place of residence in the United States.
- You must have had a farm in operation as of February 15, 2020.
- Your farm must have had an average annual gross income of $1 million or less.
- You must have 500 or fewer employees.
If you meet these criteria, you are eligible to apply for a PPP loan based on your gross income. The loan amount is based on 2.5 months of your farm’s total annual gross income, with a maximum amount of $20,833.
Applying for the PPP as a Self-Employed Farmer
To apply for the PPP as a self-employed farmer, you will need to provide the following documentation to your lender:
- Documentation of your gross income, such as tax returns or bank statements.
- A copy of your Schedule C (Form 1040) if you are a sole proprietor.
- A copy of your Form 1099-MISC if you received income from self-employment.
- Documentation of your payroll expenses, if any.
You can apply for the PPP through any SBA-approved lender You can find a list of SBA-approved lenders on the SBA website
The application deadline for the PPP is March 31, 2021.
Using and Forgiving the PPP Loan
If you are approved for a PPP loan. you can use the funds for eligible expenses such as:
- Payroll
- Rent
- Utilities
- Mortgage interest
- Other eligible expenses
The loan is forgivable if you use the funds as required. You will need to apply for forgiveness through your lender.
Additional Information for Self-Employed Farmers
In addition, the following should be considered if you are a self-employed farmer thinking about applying for the PPP:
- You can use the funds from the PPP loan to pay yourself a salary.
- You can use the funds from the PPP loan to pay for health insurance premiums.
- You can use the funds from the PPP loan to pay for retirement contributions.
- You cannot use the funds from the PPP loan to pay for personal expenses.
- You cannot use the funds from the PPP loan to pay for taxes.
- You cannot use the funds from the PPP loan to pay for business expenses that were incurred before February 15, 2020.
If you have any questions about the PPP, you can contact the SBA or your lender.
The COVID-19 pandemic has affected self-employed farmers; one helpful resource for them is the Paycheck Protection Program. In order to help pay for your business expenses, you should think about applying for the PPP if you meet the eligibility requirements.
Frequently Asked Questions
Q: What is the difference between the First Draw and Second Draw PPP loans?
A: The First Draw PPP loan is available to farms that have not yet received a PPP loan. The Second Draw PPP loan is available to farms that have already received a First Draw loan.
Q: What is the difference between the PPP loan for self-employed farmers and the PPP loan for other small businesses?
A: The PPP loan for self-employed farmers is based on gross income, while the PPP loan for other small businesses is based on payroll expenses.
Q: How do I apply for forgiveness of my PPP loan?
A: You can apply for forgiveness of your PPP loan through your lender. You will need to provide documentation of your eligible expenses.
Additional Resources
Farms with no employees can still benefit from the Paycheck Protection Program
Self-employed farmers can apply for PPP loan funds based on their 2020 gross income. Application deadline is March 31.
In 2020, the CARES Act established the Paycheck Protection Program (PPP), which offers small businesses—including farms—forgiveable loans. Much has been made of the provisions that focus on payroll expenses. However, PPP loans are also available to self-employed farmers based on gross income. This was one of several updates provided by the Consolidated Appropriations ACT (CAA) in December of 2020.
The CAA established a Second Draw loan for farms that had previously received a First Draw loan and reopened applications for First Draw loans to farms that had not yet received one. First Draw loans are open to most farms that experienced a negative economic impact due to COVID-19. In order to qualify for a second draw loan, the business must have seen a decrease of 5% in gross receipts in any quarter of 2020–2021 as opposed to the same quarter in 2019.
The owner compensation component of new PPP loans for sole proprietors and single-member LLCs is determined by the gross income of the farm. The owner compensation portion of the loan amount is 2. 5 months of the farm’s total annual gross income. Thus, the maximum amount of this portion of the PPP loan is $20,833. Farms with gross income under $100,000 may be eligible for a lower amount.
First Draw loans under the CARES Act were based on net income, rather than gross income. If First Draw loans for sole proprietors or single-member LLCs are still outstanding, they might be eligible to have the loan amount adjusted to reflect their gross income.
Other business entities are subject to different loan amount calculations. Partnerships and multi-member LLCs are also eligible for the owner compensation portion of the PPP loan amount. However, their amount is based on net income up to $100,000 per member. The only factor used to determine loan amounts for S and C corporations is payroll expenses; however, business owners may also be eligible for coverage.
The provisions of the PPP loans for the loan amount allocated to owner compensation are nearly identical to those for payroll expenses. The money must be used for approved costs within eight to twenty-four weeks of the loan funds being received. At least 60% of the funds must be spent on payroll and/or owner compensation. The remaining funds must be spent on qualifying operating expenses. After the funds are exhausted, the farmer can apply for forgiveness of the loan. As much as 100% of the loan may be forgiven if the funds are spent as required. As a result, the loan is closed without repayment once forgiveness is approved by the Small Business Administration.
The PPP loan program is administered by SBA-approved lending institutions. Applications for the loan funds, as well as for forgiveness, are conducted by these lenders. Interested farmers should contact their lender or check the SBA website for an approved lender. The deadline for both first and second draw loan applications is March 31.
Additional information on the PPP and other coronavirus relief programs can be found at the SBA website. Please contact Michigan State University Extension farm business management educator with concerns or questions.