A Commodity Wage Redo

We have mentioned in several posts (including the last one) that some banks may try to resize the allowed PPP loan for farmers if it includes commodity wages.  The SBA IFRs continue to refer to line 5 Medicare Wages of Form 943.

Farmers who originally applied for a PPP loan in 2019 using commodity wages may find that their loan has been “resized” to reflect only cash wages.  This would be based on 2019 payroll.

However, the CAA now allows farmers to use either 2019 or 2020 payroll to “size” their original first draw PPP loan.  In this case, a farmer may be able to prove a higher amount of cash wages based on Line 5 of the 2020 Form 943.  This would allow the farmer to “prove” to the bank that they should be able to maintain the original PPP and have it be fully forgiven.

Here is an example:

ABC Farmco had cash payroll costs of $100,000 in 2019 and paid $30,000 of commodity wages.  It originally got a PPP loan of $27,000.  During 2020, ABC Farmco paid cash wages of $150,000.  The bank indicated that the payroll costs loan limit should be limited to $100,000 in 2019.  However, ABC Farmco can now qualify for a maximum PPP first draw loan of $31,250 and receive an extra $4,250.

Many farmers who received a PPP loan based on commodity wages in 2020 elected to pay cash wages during the covered period.  The ability to use either 2019 or 2020 wages may help them get full forgiveness.