Does SBA Understand Farming
By Paul Neiffer Principal CliftonLarsonAllen Walla Walla, Washington Email T. 509.823.2920
It was very apparent from the beginning of the PPP loan process that SBA did not understand farming. I know I listened to a webinar where a SBA manager indicated farming did not qualify since they would get their stimulus from UDSA which was wrong.
It took SBA several weeks to finally provide guidance on PPP loans and farming. However, this guidance was very general and really did not address farm specific issues.
One of those issues that are appearing right now is loan forgiveness on commodity wages. Farming is about the only industry that uses commodity wages; but the reporting of those wages is different from cash wages. Whether paid in cash or commodities, these wages are compensation and qualifies as payroll costs for obtaining a PPP loan (at least based on the CARES Act). However, the guidance from SBA continues to refer to line 5 of Form 941 which is Medicare wages.
This is an appropriate form and line for non-farm businesses to use. This incorporates almost all of the compensation paid to employees. If they used line 1, it would then be reduced from 401(k) deferrals and other items. If they used line 3 (social security wages), it would be reduced for wages in excess of the social security wage base.
But farmers do not file a Form 941. They file a Form 943 which SBA has never referred to in their guidance. Using box 5 of 943 will not accurately report total farm wages since commodity wages are not part of this line. Instead, SBA should allow farmers to use line 1 of Form 943 and then add in any other deferrals that are deducted in arriving at line 1 wages (401(k), SIMPLE, etc.). They would then reduce it for wages in excess of $100,000, wages to H2A workers, etc.
The problem with this delay by SBA is that banks are interpreting the guidance from SBA to indicate if wages are not reported in box 5 of Form 943, then those wages were not eligible for a PPP loan. Even if the farmer elects to pay cash wages during the covered period, loan forgiveness will be reduced by the commodity wages shown on the 2019 Form 943 by the bank, this the bank is denying loan forgiveness even though the farmer spent all of the proceeds on cash wages and qualifying costs.
This is wrong. Under the CARES Act, commodity wages is compensation just like cash wages. We understand that Congress gave cash to farmers via the PPP loan and farmers need to pay cash wages to get loan forgiveness instead of commodity wages; but penalizing a farmer for paying commodity wages in 2019 is not right.
Our suggestion for any farmer who paid commodity wages in 2019 is to not apply for any forgiveness yet. You should wait for SBA to get their guidance on this subject to the bank and we are actively trying to help get this done.