The U.S. Small Business Administration has released a 1-page form that makes it easier to apply for forgiveness of Paycheck Protection Program loans. It also includes newly revised forms to comply with the most recent stimulus law.
Congress approved the COVID-19 relief plan last month that included $284 billion of financing to small businesses that needed loans. The funds were used to offset the economic impact of the coronavirus epidemic. The legislation required that the SBA issue simplified forms within 24 hours after the bill’s passage into law. This was done to make it easier to apply for forgiveness. Additionally, it included conditions that would encourage community banks to lend more particularly to minority-owned businesses who were unable to obtain loans last year.
“The Small Business Administration met the requirement to issue the one-page form for PPP loan forgiveness by 24 days after the date of enactment of the Consolidated Appropriations Act, 2021,” wrote Ed Zollars who is a partner of Thomas, Zollars & Lynch CPAs on his Current Federal Tax Developments blog for Kaplan Financial Education. “The agency also published updated forms.”
First Draw PPP Conditions for loan forgiveness
Fed Loan Forgiveness – For eligible borrowers First Draw PPP loans are eligible for loan forgiveness. This happens when the loan payment is made within an 8– to 24 week period.
- The levels of compensation and employee pay are ensured
- The loan proceeds are used on payroll expenses and other expenses that are eligible and
- A minimum of 60% of the proceeds are spent on payroll costs
Second Draw PPP Terms of Loan Forgiveness
Second Draw PPP loans to eligible borrowers can be qualified for loan forgiveness when the loan is paid within an 8to 24 week time frame.
- Pay and worker levels are maintained in the same way as is required for the First Draw PPP loan
- The proceeds of the loan could be used to pay for expenses for payroll or other eligible expenses.
- Minimum 60% of profits go towards payroll costs
- What is the best time to apply for loan forgiveness
A borrower may apply for forgiveness after all loan proceeds to which the borrower has applied for forgiveness have been used. Borrowers can apply for forgiveness at any time prior to the maturity date of the loan. If borrowers do not apply for forgiveness within 10 years of the end of the time period that was covered and the loan is not renewed, PPP loan payments are no longer deferred and the borrower will be required to make loan payments to their PPP lender.