IBA Compliance Connection

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Are we correct that large agricultural producers are not eligible for the Small Business Administration’s (SBA) Paycheck Protection Program (PPP)?

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An agricultural producer with more than 500 employees likely would not be eligible for a PPP loan. However, we believe that an agricultural producer that has 500 or fewer employees and meets certain other criteria would eligible for a PPP loan.

The SBA’s interim final rule on PPP loans provides that an entity is eligible for a PPP loan if it has 500 or fewer employees who are U.S. residents (or it is “a business that operates in a certain industry and meet[s] the applicable SBA employee-based size standards for that industry”). The entity also must be a “small business concern,” as defined in the Small Business Act, subject to the SBA’s affiliation rules, and operating and paying employee salaries as of February 15, 2020.

Generally, a “small business concern” may include farming and agricultural related industries and “shall be deemed to be one which is independently owned and operated and which is not dominant in its field of operation.” A “small business concern” also may include a small agricultural cooperative “whose size does not exceed the size standard established by the [SBA] for other similar agricultural small business concerns.”

The SBA’s affiliation rules describe when business concerns and entities will be considered affiliates of each other, and for PPP eligibility purposes, affiliates must be included in the calculation of an applicant’s employees.

Consequently, if an agricultural producer, together with its affiliates, has 500 or fewer employees and meets the criteria for a small business concern, we believe it could be eligible for a PPP loan. Additionally, we note that an agricultural producer with more than 500 employees may be eligible for a PPP loan if it meets the SBA’s employee-based size standards for its industry, which for most agricultural producers is based on annual receipts not exceeding $1 million.

For resources related to our guidance, please see:

  • SBA, PPP Interim Final Rule (“You are eligible for a PPP loan if you have 500 or fewer employees whose principal place of residence is in the United States, or are a business that operates in a certain industry and meet the applicable SBA employee-based size standards for that industry, and: i. You are: . . . A small business concern as defined in section 3 of the Small Business Act (15 USC 632), and subject to SBA’s affiliation rules under 13 CFR 121.301(f) unless specifically waived in the Act . . . and ii. You were in operation on February 15, 2020 and either had employees for whom you paid salaries and payroll taxes or paid independent contractors, as reported on a Form 1099-MISC.”)
  • Small Business Act, 15 USC 632(a)(1) (“For the purposes of this Act, a small-business concern, including but not limited to enterprises that are engaged in the business of production of food and fiber, ranching and raising of livestock, aquaculture, and all other farming and agricultural related industries, shall be deemed to be one which is independently owned and operated and which is not dominant in its field of operation.”)
  • Small Business Act, 15 USC 632(j) (“For the purposes of this Act, the term ‘small agricultural cooperative’ means an association (corporate or otherwise) acting pursuant to the provisions of the Agricultural Marketing Act (12 U.S.C. 1141j), whose size does not exceed the size standard established by the Administration for other similar agricultural small business concerns. In determining such size, the Administration shall regard the association as a business concern and shall not include the income or employees of any member shareholder of such cooperative.”)
  • SBA Regulations, 13 CFR 121.105(a) (“How does SBA define ‘business concern or concern’?

(1) Except for small agricultural cooperatives, a business concern eligible for assistance from SBA as a small business is a business entity organized for profit, with a place of business located in the United States, and which operates primarily within the United States or which makes a significant contribution to the U.S. economy through payment of taxes or use of American products, materials or labor.

(2) A small agricultural cooperative is an association (corporate or otherwise) acting pursuant to the provisions of the Agricultural Marketing Act (12 U.S.C.A. 1141j) whose size does not exceed the size standard established by SBA for other similar agricultural small business concerns. A small agricultural cooperative's member shareholders are not considered to be affiliates of the cooperative by virtue of their membership in the cooperative. However, a business concern or cooperative that does not qualify as small under this part may not be a member of a small agricultural cooperative.”)

  • SBA Regulations, 13 CFR 120.103 (“Are farm enterprises eligible? Federal financial assistance to agricultural enterprises is generally made by the United States Department of Agriculture (USDA), but may be made by SBA under the terms of a Memorandum of Understanding between SBA and USDA. Farm-related businesses which are not agricultural enterprises are eligible businesses under SBA's business loan programs.”)
  • SBA, PPP Affiliate Interim Final Rule (“Are affiliates considered together for purposes of determining eligibility? In most cases, a borrower will be considered together with its affiliates for purposes of determining eligibility for the PPP. Under SBA rules, entities may be considered affiliates based on factors including stock ownership, overlapping management, and identity of interest. 13 CFR § 121.301.”)
  • SBA Regulations, 13 CFR 121.301(f) (“Concerns and entities are affiliates of each other when one controls or has the power to control the other, or a third party or parties controls or has the power to control both. It does not matter whether control is exercised, so long as the power to control exists. Affiliation under any of the circumstances described below is sufficient to establish affiliation for applicants for SBA's Business Loan . . . Programs. For this rule, the Business Loan Programs consist of the 7(a) Loan Program, the Microloan Program, the Intermediary Lending Pilot Program, and the Development Company Loan Program (“504 Loan Program”). . . . The following principles apply for the Business Loan . . . Programs: (1) Affiliation based on ownership. . . . (2) Affiliation arising under stock options, convertible securities, and agreements to merge. . . . (3) Affiliation based on management. . . . (4) Affiliation based on identity of interest . . . (5) Affiliation based on the newly organized concern rule in this paragraph (f)(5) . . . (6) Affiliation based on totality of the circumstances . . . (7) Affiliation based on franchise agreements. . . . (8) Determining the concern's size. In determining the concern's size, SBA counts the receipts, employees (§ 121.201), or the alternate size standard (if applicable) of the concern whose size is at issue and all of its domestic and foreign affiliates, regardless of whether the affiliates are organized for profit.”)
  • SBA Regulations, 13 CFR 121.201 (“What size standards has SBA identified by North American Industry Classification System codes? The size standards described in this section apply to all SBA programs unless otherwise specified in this part. The size standards themselves are expressed either in number of employees or annual receipts in millions of dollars, unless otherwise specified. The number of employees or annual receipts indicates the maximum allowed for a concern and its affiliates to be considered small. . . .”)