The U.S. Small Business Administration has released a 1-page form which makes it simpler to request forgiveness of Paycheck Protection Program loans. It also includes newly revised forms that comply with the most recent stimulus legislation.
Congress approved the COVID-19 relief package in the month of March, which provided $284 billion of funding to small businesses that needed loans. The money was intended to offset the economic impact of the coronavirus pandemic. The law required that the SBA issue simplified forms within the first 24 hours of the signing into law. This was done to facilitate the application for forgiveness. The legislation also contained conditions that would encourage community banks to lend more specifically to minority-owned companies that had difficulty getting loans last year.
“The Small Business Administration met the requirements to release the single-page form for the forgiveness of PPP loans by 24 days after the date of the enactment of the Consolidated Appropriations Act, 2021,” wrote Ed Zollars, a partner with Thomas, Zollars & Lynch CPAs on his Current Federal Tax Developments blog for Kaplan Financial Education. “The agency also published new forms.”
Forgiveness terms for the first draw of PPP loans
Government Loan Forgiveness For Public Service – For those who qualify, First Draw PPP loans are suitable to be forgiven. This happens if the loan disbursement occurs within an 8 to 24-week period.
- This is also true for pay and benefits for employees.
- The loan proceeds are spent on payroll expenses and other eligible expenses; and
- At least 60% of the proceeds are used to pay for payroll expenses
Second Draw PPP Terms of Loan Forgiveness
Second Draw PPP loans made to borrowers who meet the criteria are eligible for total loan forgiveness if they do so during the 8to 24 week duration following loan disbursement:
- Employee and compensation levels are maintained in the same manner as is required for the First Draw PPP loan
- The proceeds of the loan could be used to pay for payroll costs or other eligible expenses.
- A minimum of 60% of the profits go towards the cost of payroll
- How and when to apply for loan forgiveness
When all of the loan’s proceeds have been used, a borrower can apply to be granted forgiveness. Borrowers can request forgiveness at any point up to the date of maturity. If the borrower does not apply for forgiveness within 10 years of the last day of the period covered the PPP loan payments are no longer deferred, and the borrower will be required to make monthly payments to their PPP lender.