Paycheck Protection Program
This page provides information about the Paycheck Protection Program and guidance for Farm Credit System institutions for making loans under the program. We will regularly update this page with additional information and guidance, so please refer to it frequently. The date below indicates the last time an update was made to the page.
The page includes guidance from an informational memorandum (PDF) issued on April 7 (which updated and superseded guidance originally issued on April 3). It also contains guidance provided in a document titled Supplement to the FCA Informational Memorandum on the Paycheck Protection Program (PDF).
If a System institution has any questions on this guidance, please reach out to the examiner-in-charge for the institution.
Guidance for Farm Credit System institutions
On March 27, 2020, the President signed the Coronavirus Aid, Relief, and Economic Security Act (the CARES Act (PDF)) to provide emergency assistance and health care response for individuals, families, and businesses affected by the COVID-19 pandemic. (See P.L. 116-136.) The PPP, which was implemented by the U.S. Small Business Administration (SBA) with support from the U.S. Department of the Treasury, authorizes up to $349 billion in forgivable loans to small businesses to support payroll and certain other needs during the COVID-19 pandemic.
System institutions are eligible to participate in the PPP. System institutions that are already approved SBA 7(a) lenders are automatically approved to make PPP loans. All other System institutions will be eligible as you are approved and enrolled in the program.
Starting April 3, 2020, small businesses and sole proprietorships can apply for and receive loans to cover their payroll and certain other expenses through existing SBA lenders.
Starting April 10, 2020, independent contractors and self-employed individuals can apply for and receive loans to cover their payroll and certain other expenses through existing SBA lenders.
Any eligible borrower can apply through any participating System institution. All loan terms will be the same for everyone. Applications may be submitted under the PPP through June 30, 2020, or until funds made available for this purpose are exhausted.
The loan amounts will be forgiven provided the following conditions are met:
- The loan proceeds are used to cover payroll costs, as well as most mortgage interest, rent, and utility costs, over the eight-week period after the loan is made.
- Employee and compensation levels are maintained.
Loan forgiveness can be provided if the employer maintains or quickly rehires employees and maintains salary levels. Loan forgiveness will be reduced if full-time headcount declines or if salaries and wages decrease.
Payroll costs are capped at $100,000 on an annualized basis for each employee. Not more than 25% of the forgiven amount should be given for non-payroll costs. Loan payments will be deferred for 6 months.
All businesses with 500 or fewer employees may apply, including the following:
- Veterans’ organizations
- Tribal business concerns
- Sole proprietorships
- Self-employed individuals
- Independent contractors
Businesses in certain industries can have more than 500 employees if they meet applicable SBA employee-based size standards for those industries. For more information, see Size standards on the SBA website. We encourage each System institution to closely review size standards because many industries that the System finances are subject to more flexible size standards or use annual receipts. (See 13 CFR § 121.201.)
System institution leaders should closely review the Paycheck Protection Program page on the SBA’s website to ensure any PPP loans their institutions make meet program requirements. They should also review the SBA’s interim final rule announcing the PPP. To properly underwrite PPP loans, institutions must understand in detail the requirements and obligations of this program, given its unique nature. Failure to follow SBA guidelines and limits could cause difficulties in obtaining SBA loan forgiveness, which could result in losses to the institutions.
Yes. The PPP provides an opportunity for System lenders to access SBA’s loan guarantee and loan forgiveness authorities for covered loans related to payroll and certain other expenses of certain small businesses. The PPP has defined a small business to include agricultural operations.
Unless we specifically state otherwise in this supplementary guidance (PDF), which we will update as needed, the legislative and regulatory provisions that authorize the PPP do not in any way change the lending authorities and requirements applicable to System institutions as provided for under the Farm Credit Act and FCA regulations. This includes requirements governing loan and borrower eligibility, territorial concurrence, borrower rights, and capital requirements that are not specifically addressed in the legislation. Furthermore, we have determined that our regulations are functionally equivalent for purposes of § 3(a)(iii)(II) of SBA’s PPP interim final rule.
In addition, any loan made under the PPP would be risk-weighted at 0% under FCA’s capital framework. Section 7(a)(36)(O) of the Small Business Act as amended by section 1102(a) of the CARES Act (15 U.S.C. 636(a)(36)(O)) requires that PPP loans be risk-weighted at 0% under risk-based capital requirements.
FCA has reviewed the Paycheck Protection Program (PPP) set forth in section 1102 of the Coronavirus Aid, Relief, and Economic Security Act (the CARES Act (PDF), P.L. 113–116), the U.S. Small Business Administration’s (SBA) related interim final rule, and applicable guidance and forms provided by Treasury and SBA, and has determined that statutory borrower stock required in section 4.3A of the Farm Credit Act of 1971 does not apply to new borrowers from a System institution with respect to loans disbursed through the PPP.
FCA believes this determination implements the clear intent of the CARES Act to minimize costs (including fees) and that a lender will receive no direct benefit from the borrower for making a PPP loan (other than the stated interest rate). In addition, the interim final rule prescribes the same loan terms for all PPP loans. Requiring the purchase of stock is inconsistent with the program and the interim final rule.
PPP borrowers who do not acquire stock will not be eligible to receive patronage or vote in institution affairs. If a new PPP borrower engages in any other lending or membership activity of the System institution, the borrower must hold statutory borrower stock, as with any other credit or related service.
Note: The statutory minimum borrower stock requirement under section 4.3A of the Farm Credit Act of 1971 is $1,000 or 2% of the loan amount, whichever is less.
System institutions may extend credit under the PPP loan program to applicants who are eligible to receive financing under the Farm Credit Act and FCA regulations. System institutions may consider a PPP loan as either addressing a direct financing need or an “other credit need” of an eligible borrower, consistent with previously provided FCA guidance.
Yes, an applicant must waive the right to distressed loan restructuring, the right to credit reviews, and the right of first refusal to receive a PPP loan from a System institution. Normally applicants cannot be required to waive these rights in exchange for a loan from the System, but the unique structure of PPP loans means a System institution cannot offer a PPP loan without the waiver. System institutions should therefore explain to applicants that PPP financing cannot be extended without the written waiver.
See FCA regulation 617.7010(b), which explains how to waive these rights for loans guaranteed by the SBA under the 7(a) loan guarantee program, which covers PPP loans.
The waiver should not be part of the loan contract itself because the terms and conditions of the contract are controlled by the SBA. Instead, the waiver may be either entirely separate or incorporated into other loan notice and disclosure documents (as long at the borrower signs the waiver language section).
We encourage institutions to inform borrowers that SBA guarantees offer similar borrower protections as those being waived.
Yes, section 8.9 of the Farm Credit Act requires institutions to give borrowers advance written notice if their loans will be pooled and sold to the secondary market. They must also inform the borrowers that the sale of their loans will result in a loss of certain borrower rights. This information must be separate from other information on loan terms and conditions, but not necessarily in a separate document.
The notice must also inform the borrower that, within three days of a loan commitment, the borrower has the right to refuse the sale of his or her loan into the secondary market.
Yes, consistent with the second question above, System institutions may extend credit under the PPP loan program to applicants who are eligible to receive financing under the Farm Credit Act and FCA regulations. While existing FCA guidance on eligibility and scope of financing requires the full- or part-time farmer-owner to sign as an obligor on the other business loan, the CARES Act (PDF) and the SBA’s related interim final rule (PDF) do not allow for personal guarantees. Therefore, FCA does not require full- or part-time farmers to cosign or guarantee PPP loans.
This exception applies only to PPP loans. Under FCA regulations 12 C.F.R. §613.3005, “loans to farmers shall be on an increasingly conservative basis as the emphasis moves away from the full-time bona fide farmer to the point where agricultural needs only will be financed for the applicant whose business is essentially other than farming.”
Furthermore, FCA does not require the full- or part-time farmer to have an existing lending relationship with the System institution. The full- or part-time farmer, either directly or indirectly, must own the majority (i.e., 50% or greater) interest of the entity being financed. This applies whether or not the farmer is already a borrower of the institution. This guidance again applies only to PPP loans.
When a System institution makes a PPP loan using this guidance, the institution must certify in the loan file that the PPP loan meets all other FCA requirements for eligibility and scope of financing.
First, the institution should notify its FCA examiner-in-charge if it is participating, or plans to participate, in the PPP.
Second, the institution should complete the questionnaire we have developed to collect information on each institution’s PPP lending activities for each two-week period. Lending activities represent the total volume and number of loans that the institution has approved and closed. Total volume reported would be the sum of the principal amount of all PPP notes.
FCA’s chief data officer sent out the first PPP questionnaire on Friday, April 17, along with instructions for completing and submitting it. This questionnaire covered PPP loans made and closed from April 6 to 17. Originally, we had asked to receive responses to this questionnaire by April 30 (that is, within 14 days of issuing it), but we have since extended the deadline for the first questionnaire to May 7.
All subsequent questionnaires will be due within 14 days of the date of issuance. However, if this timeline is burdensome, we can exercise some flexibility. The second questionnaire, which will cover PPP loans made and closed from April 18 to May 1, will be sent on May 8, and will be due by close of business May 21.
The following information will be collected in the PPP questionnaire:
- Number and volume of PPP loans originated to new borrowers
- Number and volume of PPP loans originated to existing borrowers
Number and volume of PPP loans closed will be collected by loan type. A PPP loan is made through the borrower’s eligibility to receive financing from a System institution. Therefore, the loan type assigned to a PPP loan should be consistent with the loan type that the borrower would receive if he or she were receiving a similar non-PPP loan.
We would expect that PPP loans made to a bona fide farmer or rancher (under § 613.3000) would be reported under the “production and intermediate term” loan type (even if the PPP loan is to an existing borrower who currently only has a real estate mortgage loan).
Below is an example of the reporting template:
Loan Type Number of Loans Volume of Loans Real Estate Mortgage Production and Intermediate Term Farm-Related Business Processing and Marketing Cooperatives Communication Energy Water/Waste Disposal Rural Residents Other
Probably. Based on the SBA’s draft interim final rule, a lender may make a PPP loan to one of its directors only when the director owns less than a 30% equity interest in that lender and when the same loan process is followed for any of the lender’s similarly situated customers or accountholders. The SBA strictly prohibits prioritizing a director’s application or reducing the processing time for a director’s application.
Therefore, a System association may make a PPP loan to one of its directors as long as the director currently owns no more than 30% of the association’s equity and the loan is provided in a similar manner as other PPP loans made by the association. FCA recognizes that a situation in which a director holds equity of 30% or more in a System institution is unlikely to arise.