Information from Luke Kempen, director of Wisconsin Small Business Development Center at Eau Claire:
The SBDC office has received many calls and emails from farmers seeking assistance. They have created a post with information and updates devoted to farmers which includes a discussion of the PPP program for farmers. Although it mainly focuses on farmers, this information applies to typical business owners as well- look for the words ‘farmer’ and ‘business’ in the headings to help guide you. In addition, the Wisconsin Department of Workforce Development issued information on the Pandemic Unemployment Assistance Program for self-employed business owners and independent contractors and farmers. They also have updates on other small business items including what appears to be the first EIDL Advance Grants in process to be awarded in Wisconsin.
“The SBDC does not have many farm clients because we are funded by the SBA and the SBA programs typically do not apply to production agriculture businesses (farmers.) However, the CARES act specifically included farmers in the PPP loan program. While many of us are not farmers, either we grew up on a farm, know farmers and we all eat! Please help a farmer by sending this email on to any farmer you know and spreading the word.
SBA EIDL Loan Program Update
Last night and again this morning we had several clients report they have received an email from SBA regarding the EIDL loan program. The email explained the EIDL loan program grants. In addition, the Wisconsin Small Business Development Center at UW Green Bay reported last night that a client received an email yesterday from the SBA announcing an EIDL Advance Grant Award to their business. The client said the email stated he, “has received an EIDL Advance: $1,000 was dispersed per employee. 6 employees = $6k
SBA statement received by recipient stated:
|
The client confirmed the money was deposited into their bank account with the following notation:
“SBAD Treas 310 misc pay EIDL ADV”
Therefore, it appears that EIDL Grants are starting to be processed! If you receive a notice of an actual grant being awarded to your business, please let me know! Also, please, please, be on the lookout to scams and internet phishing. Early last week I had one client send me an email that looked “Official SBA” about EIDL but the wording seemed awkward and highly likely it was a “bad email”. Also he had not yet applied for EIDL.
Wisconsin Department of Workforce Development-Pandemic Unemployment Assistance Program Announced
The Wisconsin Department of Workforce Development (DWD) announced yesterday afternoon that self employed business owners including farmers can qualify for unemployment through the Pandemic Unemployment Assistance (PUA) Program. The announcement stated, “The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) Pandemic Unemployment Assistance (PUA) provides payment to workers not traditionally eligible for unemployment benefits (self-employed, independent contractors, workers with limited work history, and others) who are unable to work as a direct result of the corona virus public health emergency.”
DWD will open the application portal on Tuesday, April 21st. You can not apply until that date and the DWD asks that you hold off contacting them with your questions until April 21 as they continue to work on details and procedures with the federal Department of Labor.
DWD has provided updates on its website. I provide a link below to the website so you can review the information. I read through the information including the part of “who is eligible” and it appears eligibility is quite “broad”. Specifically, DWD states as eligible applicants,
“Self-employed/Independent Contractors/1099 filers/Farmers–and affected by COVID-19.”
Still, it appears more details need to be worked out by DWD before April 21. While this statement above is quite broad and encompassing, the wording from the PUA Program announcement talks about people, “ who are unable to work as a direct result of the corona virus public health emergency.”
In addition, it appears the PUA program will include a Wisconsin benefit of up to $370 per week and the federal CARES benefit of $600 per week.
Hopefully, further clarification is forth coming especially as this pertains to dairy farmers. While dairy farmers continue to “work” and operate their farms and milk their cows, all have suffered tremendous income loss as the price farmers receive for their milk has declined by nearly half. In addition, some farmers have been told to “dump milk”.
To read more and find out what to do on April 21st go to this link:
https://dwd.wisconsin.gov/uiben/pua/
Paycheck Protection Program for Farmers and Small Business Owners
I have been getting many calls from dairy farmers starting last week and continuing this week. Having grown up on a dairy farm (my brother still farms on our home place), I have a special place in my heart for their plight. Those of you who have been to my office have seen the picture of our home farm on my office wall. I am sure many of you have the same sentiments that I have and we all eat! Therefore, even if you are not a farmer, please forward this email on to any farmer you know and I welcome any calls or emails for assistance from farmers.
This past weekend I spent time searching and researching USDA and other government sites to learn more about the programs specific for farms. Also, yesterday the USDA issued information that I spent an hour reviewing. Quite frankly, most of this information falls short of substance and I have not found much financial help for farmers. Also, typically Small Business Administration (SBA) programs do not apply to production agriculture business operations (farmers). Therefore, the SBA’s EIDL loan program is NOT available to farmers. However, Congress specifically mandated that the Paycheck Protection Program (PPP) be made available to farmers. Therefore, if you are a farmer, I highly recommend that you apply for the PPP loan program. You can only apply for the PPP loan one time! Also if you are a farmer I recommend you check out and see if you can also apply for the PUA (unemployment compensation program) described above.
Below is a discussion of the PPP as it relates to farmers. Again 99% of what I state below also applies to the regular small business owner and I encourage you to read the sections applicable to you. I section off the discussion by business type to help you sort through what is applicable to you.
Farmers (small businesses) operating as “S” or “C” Corporations with Employees:
Farmers operating as “S” or “C” Corporations with employees would apply for PPP the same as most other businesses with employees. The application is done through a participating bank. Applications started on April 3 and continue to move forward. Attached is a pdf of the sample application”.
The key box on the most current application is the “Average Monthly Payroll” box found in Section D of the latest PPP application. (Be aware that there have been a couple updates to the application over the past two weeks and banks may be using different versions. Still this box is common on all applications.) If you operate as an “S” or C corp. you need to calculate the payroll for all employees including your own W-2 payroll as the owner. This process is straight forward and spelled out on the application and your bank should be able to walk you through this process.
Farmers (small businesses) Operating as an LLC or Sole Proprietorship with Employees (Including spousal farm commodity wages.)
Farmers operating as an LLC or Sole Proprietorship with employees would apply for PPP generally the same as most other businesses with employees. The application is done through a participating bank. Applications started on April 3 and continue to move forward. Attached is a pdf of the sample application”.
The key box on the most current application is the “Average Monthly Payroll” box found in Section D of the latest PPP application. (Be aware that there have been a couple updates to the application and banks may be using different versions. Still this box is common on all applications.) In determining the amount for this box, first, you would include the wages paid to employees. (This would include wages you may be paying your spouse as a “commodity wage”…spouse is allocated a portion of the milk production from the farm as wage and gets a separate milk check from the milk plant as a commodity wage. This “commodity wage” would be considered as payroll expense and should be added into the PPP application payroll calculation.)
The final piece to this box is to add the farmer’s/business owner’s earnings. However as an owner you are not getting a wage or salary so you have to determine this amount. Unfortunately, the SBA and Treasury provide little if any guidance on how to determine this amount. The guidance that is provided states:
“For a sole proprietor or independent contractor: wages, commissions, income, or net earnings from self-employment, capped at $100,000 on an annualized basis for each employee.”
Therefore, for a farmer/business owner, it appears the most logical first choice approach to determine the amount would be to take your business “Net Profit or Loss” Line 31 on your Schedule C (business) or “Net Farm Profit or Loss” Line 34 Schedule F (farm) from your 2019 tax return and divide it by 12 months to determine your “Average Monthly Payroll” amount as the farmer/owner. Then add this amount to the rest of the payroll amounts for employees.
However, the reality is many farmers (and business owners) may have had little to negative net farm income on their 2019 Schedule F tax return. Farms typically are capital intensive businesses with significant depreciation expense that is used to bring taxable net income down. Therefore, using the unadjusted net farm profit or loss from your Schedule F alone may not be appropriate.
It would seem reasonable and logical that one would at least addback the non-cash depreciation expense to the net farm profit or loss amount to arrive at the owner’s part of the “Average Monthly Payroll” amount. By adding back depreciation, one would better reflect the amount of cash income that would be available for the farmer to use for living expenses. Also, documentation of cash distributions or “draws” or guaranteed payments for the year could be another option to calculate the owner’s portion.
Ultimately, the bank that you are working with to apply for the PPP loan will have to accept how you calculated the amount. If you decide to take the approach of adding back depreciation to net farm profit and need to convince the banker to accept your logic, you are welcome to show your banker this email but again…it is NOT “official guidance”. I will continue to look for more clarity on this and will update if I find any. I can tell you that several bankers have asked me how to calculate this and I gave them my thoughts as above.
In any case, because your business can only apply one time for a PPP loan, you need to combine the payroll and the owner’s self-employment income on the same one application.
Farmers (small business owners) Operating as an LLC or Sole Proprietorship with No Employees
Farmers Operating as an LLC or Sole Proprietorship without employees would apply for PPP using the same application as businesses with employees. The application is done through a participating bank. Applications started on April 10 and continue to move forward. Attached is a pdf of the “sample application”:
The key box on the most current application is the “Average Monthly Payroll” box found in Section D of the latest PPP application. (Be aware that there have been a couple updates to the application and banks may be using different versions. Still this box is common amount all applications.) Because you operate without any employees you need to determine and calculate your self- employment income for this box. Unfortunately, the SBA and Treasury provide little if any guidance on how to do this. The guidance that is provided states:
“For a sole proprietor or independent contractor: wages, commissions, income, or net earnings from self-employment, capped at $100,000 on an annualized basis for each employee.”
Therefore, for a farmer/business owner, it appears the most logical first choice approach would be to take your business “Net Profit or Loss” Line 31 on your Schedule C (business) or “Net Farm Profit or Loss” Line 34 Schedule F (farm) from your 2019 tax return and divide it by 12 months to determine your “Average Monthly Payroll” amount as the farmer/owner.
However, the reality is many farmers (and business owners) may have had little to negative net farm income on their 2019 Schedule F tax return. Farms typically are capital intensive businesses with significant depreciation expense that is used to bring taxable net income down. Therefore, using the unadjusted net farm profit or loss from your Schedule F (or Schedule C) may not be appropriate.
It would seem reasonable and logical that one would at least addback the non-cash depreciation expense to the net farm profit or loss amount to arrive at the owner’s part of the “Average Monthly Payroll” amount. By adding back depreciation, one would better reflect the amount of cash income that would be available for the farmer to use for living expenses. Also, documentation of cash distributions or “draws” or guaranteed payments for the year could be another option to calculate the owner’s portion.
Ultimately, the bank that you are working with to apply for the PPP loan will have to accept how you calculated the amount. If you decide to take the approach of adding back depreciation to net farm profit and need to convince the banker to accept your logic, you are welcome to show your banker this email but again…it is NOT “official guidance”. I will continue to look for more clarity on this and will update if I find any. I can tell you that several bankers have asked me how to calculate this and I gave them my thoughts.
Seasonal businesses determining average monthly payroll
I have had questions on seasonal businesses and calculating the PPP loan. One way to determine a seasonal businesses payroll is to calculate the average monthly payroll from March 1, 2019 – June 30, 2019. A second approach is to calculate the eight-week period preceding June 30, 2019. In either case you need to use the “season period” that matches up with right now when your business is affected by COVID 19 shutdown. In other words, you should not use a different season of the year that does not match up with this current time of year. Work with your lender to choose your approach.
Other Farm Business Resources
Below are some further links and information blurbs that farmers may find helpful.
Farming enterprises are eligible for PPP but not EIDL.
SBA has size standards for eligible PPP businesses. For farms, Businesses listed under “Sector 11 – Agriculture, Forestry, Fishing and Hunting” are based on “Size standards in millions of dollars” and maxed at $1,000,000.
Other helpful links:
- Farm Management Home Page: https://farms.extension.wisc.edu/
- Farm Management during COVID-19: https://farms.extension.wisc.edu/coronavirus/
- Extension COVID-19 Finances for farmers: https://farms.extension.wisc.edu/coronavirus/#finances
- PPP fact sheet for farmers: https://farms.extension.wisc.edu/ppp-and-farmers/
- PPP Video-What farmers need to know: https://www.youtube.com/watch?v=PCc6fATnA-w&feature=youtu.be
- Managing COVID-19 Risk on a Dairy Farm: https://farms.extension.wisc.edu/managing-covid-19-instigated-risk-on-the-dairy-farm-be-optimistic-but-plan/
USDA Resource Guide 4/13/2020 –Looks nice but basically only talks about regular USDA programs with some mention of PPP but very little details. Also details on how to prevent getting corona virus.
https://www.rd.usda.gov/sites/default/files/USDA_COVID-19_Fed_Rural_Resource_Guide.pdf ”
Contact information for Luke Kempen:
Luke Kempen
Director
Wisconsin Small Business Development Center at UW-Eau Claire
Email: kempenls@uwec.edu
Phone: 715-836-5902
