PPP Round 2 Funding Insights for Your Farming Operation

The Economic Aid Act of 2021, signed into law on December 27, 2020, made changes to the original Paycheck Protection Program, “PPP” and added another round of funding, PPP Round 2. We are writing you to provide guidance on how the changes may impact your farming operation.

The changes in the Economic Aid Act of 2021 made funding more accessible for farming operations that file their taxes on a Schedule F 1040. Previously, operations did not qualify for PPP Round 1 funding if they did not have payroll and did not show a net profit (line 34) on their Schedule F. Operations that did not receive PPP Round 1 funding can now apply for funding using the following calculations:

Schedule F 1040 Farmers with no employees:

o Step 1: Find Schedule F Line 9, Gross Income – If this amount is over $100,000,

reduce it to $100,000.

o Step 2: Divide the amount from Step 1 by 12.

o Step 3: Multiply the amount from Step 2 by 2.5.

Example: If the Schedule F Line 9 Gross income is over $100,000, the calculated loan is $20,833.

Schedule F 1040 Farmers with employees:

o Step 1: Find Schedule F Line 9, Gross Income – If this amount is over $100,000,

reduce it to $100,000.

o Step 2: Sum Lines 15, 22, and 23 – these lines represent the farm’s payroll costs.

o Step 3: Add amounts from Step 1 and Step 2 together.

o Step 4: Divide amount from Step 3 by 12.

o Step 5: Multiply the amount from Step 4 by 2.5.

Example: Schedule F Line 9 over $100,000. Lines 15,22, and 23 add up to $24,000. The calculated PPP loan is $25,833.

If a 1040 Schedule F farm received a PPP Round 1 loan less than the maximum amount allowed based on the calculation above, they may request a recalculation of their loan based upon gross income with the original lender to receive an increased loan amount if forgiveness has not been already granted. No changes were made to the calculation for farming operations that file a 1065 (Partnership), 1120S (S-Corporation), or 1120C (C-Corporation) for PPP Round 1 or Round 2.

PPP Round 2:

· To qualify for PPP Round 2, borrowers must have received PPP Round 1 and demonstrate that they have or will expend all PPP Round 1 funds. A PPP Round 1 loan does not require forgiveness prior to applying and receiving PPP Round 2.

· Borrowers must demonstrate a reduction in revenues of 25% in any quarter of 2020 compared to the corresponding quarter in 2019.

· If your operation now qualifies for PPP round 1 based on the changes outlined above, you may be able to also qualify for PPP Round 2 if you can demonstrate the reduction in revenue.

· If the above qualifications are met, 1040 Schedule F farmers will use the same calculations outlined on page 1. 1065 (Partnerships), 1120S (S-Corporations), and 1120C (C-Corporations) will use the same calculations they used for PPP Round 1.

Borrowers must make several certifications as part of the application. One certification states “Current economic uncertainty makes this loan request necessary to support ongoing operations of the Applicant.” This is a certification we want to highlight, but it is one you as the borrower must make.

Steps to move forward in the process:

· If you did not receive any PPP Round 1 funding and believe you now qualify or are eligible for an increased amount, contact your lender.

· Gather and summarize gross income by quarter for 2020 and 2019 and determine if you meet the 25% reduction in gross income. If there is a 25% reduction in revenue, contact your lender.

We are here to help and look forward to serving your operation. If you need further assistance or have questions, please reach out to your trusted advisor at ELO.

With Respect and Appreciation,

ELO CPAs & Advisors

PPP Applications can be found at www.sba.gov.

PPP Round 1 - https://www.sba.gov/document/sba-form-2483-ppp-first-draw-borrower-application-form

PPP Round 2 – https://www.sba.gov/document/sba-form-2483-sd-ppp-second-draw-borrower-application-form

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