Is Public Service Loan Forgiveness Worth It

The U.S. Small Business Administration has issued a one-page form that makes it easier to apply for forgiveness of Paycheck Protection Program loans. The form is also updated with new forms that are in line with the current stimulus law. 

Congress approved the COVID-19 relief package in the month of March and provided $284 billion of funding to small businesses that needed loans. This money was used to mitigate the economic effects of the coronavirus pandemic. The legislation required that the SBA release simplified forms within the first 24 hours of the legislation’s signing into law. This was to facilitate the application for forgiveness. Additionally, it included conditions that would encourage community banks to make more loans, especially to minority-owned businesses that had difficulty getting loans last year.

Is Public Service Loan Forgiveness Worth It

“The Small Business Administration met the requirements to release the single-page form for loan forgiveness under the PPP within 24 days of the date of enactment of the Consolidated Appropriations Act, 2021,” wrote Ed Zollars, a partner at Thomas, Zollars & Lynch CPAs, on his Current Federal Tax Developments blog for Kaplan Financial Education. “The agency also published the updated forms.”

First Draw PPP Loan forgiveness terms

Is Public Service Loan Forgiveness Worth It – First Draw PPP loans made to borrowers who are eligible can be granted full loan forgiveness if during the 8- to 24 week period that follows loan disbursement:

  • Employee and compensation levels are ensured
  • The loan proceeds are used on payroll and other eligible expenses; and
  • A minimum of 60% of the profits go towards payroll costs

Second Draw PPP Conditions for loan forgiveness

Second Draw PPP loans to eligible borrowers are qualified for loan forgiveness if the loan is paid within an 8 24-week period.

  • Pay and worker levels are maintained in the same manner in accordance with the First Draw PPP loan
  • The loan proceeds are spent on payroll expenses and other eligible expenses; and
  • A minimum of 60% of the profits are spent on payroll costs
  • How do I request loan forgiveness and when to apply

A borrower may apply for forgiveness once all loan proceeds to which the borrower wants forgiveness have been used. The borrower can apply for forgiveness at any point up to the loan’s maturity date. If the borrower does not apply for forgiveness within 10 years of the date of expiration of the period covered and the loan is not renewed, PPP loans are not deferred any longer, and the borrower will be required to make monthly payments to their PPP lender.

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