OMAHA (DTN) -- A Small Business Administration loan program set up in the coronavirus stimulus package is getting overrun with demand, while farm groups and members of Congress keep pushing SBA to allow farmers to apply for a separate disaster loan program that also got a boost in the stimulus bill.
Applications for the Paycheck Protection Program (PPP) just opened Friday for businesses and sole proprietors. But the $349 billion set aside for the Small Business Administration was quickly being drained as small businesses rushed to their bankers to get signed up for the 1%-interest loans.
The PPP provides forgivable loans largely tied to helping cover worker wages and is open to farmers. The American Farm Bureau Federation and others have encouraged farmers to apply for the PPP loans. The loans are available through banks and agricultural lenders such as Farm Credit institutions.
"Under the SBA, farmers are entitled to the same as other small-business people for help there," said Sen. Charles Grassley, R-Iowa.
The quick run on the program prompted U.S. Treasury Secretary Steven Mnuchin on Tuesday to ask Congress to provide another $250 billion for the program. The Washington Post reported that Senate Majority Leader Mitch McConnell, R-Ky., could call for a Senate vote by unanimous consent on the program as early as Thursday.
At a White House event Tuesday, President Donald Trump said more than 250,000 businesses had already applied for PPP loans and more than $70 billion in loan volume had already been processed. Still, the CEOs of at least two community banks told the president at the event that as many as one-third of community banks were not able to take part in the loan program right now.
The PPP opened to businesses April 3, but smaller firms such as independent contractors and self-employed individuals will be eligible to apply for the loans on April 10.
The demand for the loans was quick. As early as Saturday, the International Community Bankers Association was warning officials that hundreds of lenders could not get into the SBA system to process loans.
The loans are largely open for businesses with fewer than 500 employees with eligibility of up to $10 million. The loans are largely meant to cover up to 2.5 times the average monthly payroll costs for a business based on the average from the year prior to the loan application. The loan can also include another 25% of non-payroll costs such as interest on mortgage, rent and utilities.
The loans can be forgiven, but for that to happen, SBA states that at least 75% of any loan must apply to payroll, meaning retaining or rehiring workers. Loan payments are also deferred for six months, and no collateral is required. Forgiveness is based on the employer either maintaining workers or quickly rehiring them.
Though the PPP loans are generally set up for companies with fewer than 500 employees, companies with larger payrolls can still qualify, based on the size standard of its primary industry. The loans also are open to non-profit organizations as well.
Lenders are allowed to consider businesses such as farmers who only employ workers seasonally if that includes an eight-week stretch from Feb. 15 to June 30 and the farmer or business shows they had seasonal employment over that same timeframe in 2019. However, payments made to independent contractors do not count as part of a business' eligible payroll.
Paul Neiffer, a principal for CliftonLarsonAllen, also wrote that commodity wages meet the definition under the law for compensation that would count for loan applications. Neiffer stated more clarity may be needed from SBA regarding how a commodity wage was spent.
PPP loans also are restricted to supporting paid employees who principally live in the U.S. That rules out using wages paid for H-2A guest workers.
Still, AFBF and some lawmakers continue pushing SBA to open up another loan and grain program, the Economic Injury Disaster Loan program to farmers. SBA so far has rejected those calls because the EIDL loans are comparable to other loans offered to farmers by the Farm Service Agency.
Besides loans, the stimulus package also included up to $10,000 in funds to small businesses that do not need to be repaid. Unlike the PPP loans, the Economic Injury Disaster Loans are not tied to payroll.
Senators and congressmen from Florida, Kansas, Michigan, New York, North Dakota, Ohio and Oregon are among those who have written SBA Administrator Jovita Carranza over the past few days calling on SBA to open up the EIDL loans to farmers.
Grassley on Tuesday seemed surprised by SBA's interpretation.
"I don't know why there would be separate things for farmers involving small business because I was told that farmers would qualify the same way as other small-business people, so it would seem to me the same rules would apply to both," Grassley said.
SBA did not respond to emails from DTN on Tuesday seeking clarity about farmers and the EIDL program.
For more on the SBA Paycheck Protection Program, visit: https://www.sba.gov/….
To learn more about the SBA Economic Injury Disaster Loan, visit: https://www.sba.gov/….
Chris Clayton can be reached at Chris.Clayton@dtn.com
Follow him on Twitter @ChrisClaytonDTN
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