On March 27, 2020, President Trump signed into law the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) to “provide emergency assistance and health care response for individuals, families, and businesses affected by the 2020 coronavirus pandemic.” In addition to creating and expanding loan programs for which farmers and ranchers may be eligible, the CARES Act appropriated funding to the United States Department of Agriculture (the “USDA”) and the Commodity Credit Corporation (“CCC”) to be used to provide relief to the agricultural industry in light of the COVID-19 pandemic.
PAYCHECK PROTECTION PROGRAM LOANS
The CARES Act includes an expansion of the so-called 7(a) loan program administered through The United States Small Business Administration (the “SBA”) to include Paycheck Protection Program loans (“PPP Loans”), which are intended to provide eligible businesses with up to eight weeks’ worth of cash to be used for payroll costs, rent, utilities, and interest on mortgage loans. The recipient of a PPP loan may request forgiveness of a certain portion of the loan proceeds, and any forgiven amount is excluded from the recipient’s gross income.
Historically, farmers and ranchers have not been able to apply for loans from the SBA; however, the CARES Act provides that, as long as farmers and ranchers meet the eligibility requirements, they are eligible for PPP loans. More detailed information regarding eligibility requirements and the application process for PPP Loans can be found on our website and in the SBA’s Frequently Asked Questions, which were most recently updated on April 28, 2020.
CORONAVIRUS FOOD ASSISTANCE PROGRAM
On Friday, April 17, 2020, U.S. Secretary of Agriculture Sonny Perdue announced a new USDA program, referred to as the Coronavirus Food Assistance Program (“CFAP”), which will provide assistance to farmers, ranchers, and consumers in response to the COVID-19 pandemic. CFAP will provide $16 billion in direct support to agricultural producers where prices and market supply chains have been impacted by COVID-19. Additionally, the USDA will partner with regional and local distributors, whose workforce and supply chain have been significantly impacted by the closure of many restaurants, hotels, and other foodservice entities, to purchase $3 billion in fresh produce, dairy, and meat, to be procured monthly. The distributors and wholesalers will then provide a pre-approved box of fresh produce, dairy, and meat products to food banks, community and faith-based organizations, and other non-profits organizations.
While final details of CFAP have yet to be announced, it is expected that the direct payments to producers will be calculated in two parts: (i) 85% of actual losses incurred by producers due to a commodity price reduction greater than 5% from January 1, 2020, to April 15, 2020, and (ii) 30% of expected losses from April 15, 2020, through the next two quarters. Payments will be limited to $125,000 per commodity and $250,000 per individual or entity. To be eligible, individuals or entities must have an adjusted gross income of less than $900,000, with at least 75% of their income derived from agriculture.
Of the $16 billion provided for direct payments, it is anticipated that roughly $9.6 billion will be directed toward the livestock industry (i.e., $5.1 billion for beef, $2.9 billion for dairy, and $1.6 billion for hogs); $3.9 billion toward producers of row crops; $2.1 billion toward specialty crop producers; and $500 million for other crops.
The USDA has indicated that farmers should be able to “sign up” for payments in early May, although it is not yet clear what that will entail, with payments being distributed towards the end of May. We will continue to monitor the status of CFAP and will provide an update once additional details are released regarding the program.
COMMODITY CREDIT CORPORATION FUNDING
The CARES Act appropriated $14 billion to the CCC, which can be used either to support their existing programs or to provide COVID-19-specific relief. It is likely that these funds will be split between existing CCC programs and CFAP. An existing CCC program that may benefit from the funds is the Marketing Assistance Program, through which the CCC offers marketing assistance loans to provide commodity crop farmers with interim financing at harvest time to meet cash flow needs without having to sell their commodities when market prices are low. Under this program, farmers store production at harvest facilitates, which allows for more orderly marketing of commodities throughout the year. The CCC recently announced that the interest rate on such loans dispersed during April with a term of less than one year is 1.625% (compared to 2.5% in March). Additionally, the CARES Act granted the USDA the ability to extend the term of marketing assistance loans from nine months to twelve months. On April 9, 2020, the USDA announced that this extension would be automatic for existing loans in good standing with a maturity date of March 31, 2020, or later or new crop year (2019 or 2020) loans requested by September 30, 2020.
ECONOMIC INJURY DISASTER LOANS
Under Section 7(b)(2) of The Small Business Act, the SBA is authorized to extend Economic Injury Disaster Loans (“EIDLs”) to small businesses, private non-profit organizations, and small agricultural cooperatives in an area affected by a disaster which causes substantial economic injury. The Coronavirus Preparedness and Response Supplemental Appropriations Act, 2020 declared the coronavirus outbreak to be a disaster permitting the SBA to extend EIDLs. In response, the governors of Nebraska, Iowa, and many other states have qualified with the SBA so that their residents may apply directly to the SBA for EIDLs. Prior to the passage of the Paycheck Protection Program and Health Care Act (“PPP and HCE Act”) on April 24, 2020, the SBA was taking the position that farmers and ranchers were not eligible to apply for EIDLs. However, the PPP and HCE Act expanded the eligibility requirements for EIDLs to include agricultural enterprises, which are small businesses engaged in the production of food and fiber, ranching, and raising of livestock, aquaculture, and all other farming and agricultural-related industries.
Application for EIDLs may currently be made on the SBA’s website, and the information required of businesses and sole proprietors is listed in the page preceding the actual application. These loans may be used to pay fixed costs (such as rent), payroll, accounts payable, and other bills that cannot be paid due to the effects of coronavirus, but cannot be used for certain purposes, such as refinancing debt, making payments on loans owed to another federal agency, paying tax penalty obligations, repairing physical damage, or to pay dividends to shareholders. Additional information about EIDLs can be found here.
The Agriculture and Agribusiness attorneys at Dvorak Law Group have the knowledge and experience to efficiently assist our clients with financing needs. Please contact Dvorak Law Group for specific questions and recommendations regarding how SBA loans may assist your business.
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