The information in this publication is provided only for educational purposes and to inform the reader of relevant topics. This is not to be perceived or utilized as formal tax or legal advice. It is up to the reader to seek the necessary and appropriate tax and legal professionals that specialize in these areas for specific guidance.
The CARES (Coronavirus Aid, Relief, and Economic Security) Act was recently signed into law providing emergency relief for individuals and businesses that have been negatively impacted by the novel coronavirus outbreak. You may have heard stories about emergency loans, cash for individuals, and cash for small businesses. While the details on how the relief programs will be implemented are forthcoming, below are some steps you can take right now if your business needs cash.*
1. Talk to Your Current Lender
Reach out to someone who is familiar with your operation – your current lender. Many lenders have options available for loan payment deferments, credit limit increases, and possible interest rate reductions. Your lender is invested in your business and wants to help you succeed.
2. Apply for a Federal Small Business Administration (SBA) Disaster Relief Loan
There are two loan programs referenced in the CARES Act: Economic Injury Disaster Loans (EIDL) and Paycheck Protection Program (PPP) loans.
SBA Economic Injury Disaster Loans (EIDL)
In the past, farmers (other than cooperatives, aquaculture, and nursery operations) have not been eligible for EIDL programs. This may change with the CARES Act EIDL allocated funds, but no official declaration has been made by the SBA at this point. If agricultural businesses are eventually allowed to apply for this program, it is better to apply online on the SBA website.
The general details of this loan are:
- Loan limits: $2,000,000 with collateral; $25,000 without collateral.
- Loan terms: Interest rates of 3.75% fixed and amortization of up to 30 years.
- Recent start-up businesses are eligible but are not prioritized ahead of existing businesses.
- There are EIDL advances available of up to $10,000 that do not need to be repaid, even if the grantee is subsequently denied an EIDL.
- While the EIDL advance is forgivable, the EIDL itself is not forgivable.
Paycheck Protection Program (PPP) Loans
The Paycheck Protection Program (PPP) loans are currently open to agricultural operations. The ruling on this loan product has just been released, and the application process will take some time. If your bank is an approved SBA lender, it will be much better to apply through them. You can learn more about PPP loans by visiting the SBA website.
The general details of this loan are:
- Loan limits of 2.5 times average monthly payroll costs, capped at $10,000,000.
- Interest rate is capped at 4%.
- Collateral and personal guarantees are waived under this loan program.
- Loan proceeds can be used to fund payroll and other overhead costs like mortgage interest, rent, and utilities. However, businesses must use 75% of loan proceeds for payroll expenses.
- This loan is categorized as a forgivable loan, but there are restrictions on what can be forgiven.
3. Contemplate the Impact of Additional Debt
Some of these SBA loan packages may include a debt forgiveness option. However, you must consider the impact of additional debt to your operation and how that affects your future if this debt is not forgiven.
*As always, make these decisions with the assistance of your professional advisors: your accountant, your tax advisor, and your attorney. These loan products are constantly changing as well. Be sure to have the most up to date information. This article was last updated on April 6, 2020.
Visit the Clemson Extension Agribusiness Team’s COVID-19 Resources website if you need additional agribusiness related resources or assistance. Other resources addressing COVID-19 related to agribusiness will be posted as they become available.
- The Coronavirus Aid, Relief, and Economic Security (CARES) Act, H.R. 748, 116th (2020). https://www.congress.gov/116/bills/hr748/BILLS-116hr748enr.pdf.
The Clemson Agribusiness Center
Sandhill Research and Education Center
900 Clemson Road, Columbia, South Carolina 29229
NOTE: Due to the time-sensitive nature of this information, this publication was not put through the formal Land-Grant Press peer-review process.