The U.S. Small Business Administration has released a 1-page form that simplifies the application for the cancellation of Paycheck Protection Program loans. The form is also updated with new forms that are in line with the most recent stimulus law.
Congress approved the COVID-19 relief package last month, which offered $284 billion in funding for small-scale businesses who needed loans. The funds were used to mitigate the economic effects of the coronavirus outbreak. The law required that the SBA release simplified forms within 24 hours after the bill’s passage into law. This is to facilitate the application for forgiveness. The legislation also contained conditions that would encourage community banks to lend more particularly to minority-owned businesses that had difficulty getting loans last year.
Ed Zollars, a partner with Thomas, Zollars & Lynch CPAs stated that the Small Business Administration fulfilled the requirement to issue the PPP form, which is one page long, for loan forgiveness within the first 24 hours of the date of the enactment of the Consolidated Appropriations Act, 20,21. The article was posted on the Current Federal Tax Developments blog of Kaplan Financial Education. “The agency also released new forms that were updated.”
Forgiveness terms in the first draw of PPP loans
Can Perkins Loans Be Forgiven – First Draw PPP loans granted to eligible borrowers qualify for full loan forgiveness if within the 8 to 24-week covered period following the loan’s disbursement
- Employee and compensation levels are ensured
- The loan proceeds can be used to pay the cost of payroll as well as other eligible expenses.
- A minimum of 60% of the funds go to the cost of payroll
Second Draw PPP Loan Forgiveness Conditions
Second Draw PPP loans made to borrowers who are eligible can be granted complete loan forgiveness, if within the 8to 24 week covered period following loan disbursement:
- The levels of compensation and employee pay are maintained in the same way as is required for the First Draw PPP loan
- The proceeds of the loan could be used to cover payroll costs or other expenses that are eligible.
- A minimum of 60% of proceeds are used for the cost of payroll
- What is the best time to apply for loan forgiveness
A borrower may apply for forgiveness after all loan proceeds for which the borrower has applied for forgiveness have been utilized. Borrowers are able to apply for forgiveness at any time prior until the date of maturity of the loan. If they do not file for forgiveness within 10 years of the date of expiration of the covered period, then PPP loans are not deferred any longer, and the borrower will be required to make monthly payments to their PPP lender.