The U.S. Small Business Administration has released a 1-page form that simplifies the application for 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 and offered $284 billion in funding for small-scale businesses who needed loans. The funds were used to reduce the economic burden of the coronavirus epidemic. The law required that the SBA provide simplified forms within the first 24 hours after the bill’s passage into law. This is to facilitate the application for forgiveness. It also included conditions that would encourage community banks to lend more specifically to minority-owned companies who had a difficult time getting loans in the past.
Ed Zollars, a partner with Thomas, Zollars & Lynch CPAs said that the Small Business Administration fulfilled the requirement to publish the PPP form, which is one page long, for loan forgiveness within the first 24 hours from the date of enactment in the Consolidated Appropriations Act, 20,21. This was published on the Current Federal Tax Developments blog of Kaplan Financial Education. “The agency also published the updated forms.”
Forgiveness terms for the first draw of PPP loans
Loan Forgiveness Grants – For those who qualify, First Draw PPP loans can be suitable to forgive loans. This is when the loan payment is made within an 8 to 24 week period.
- Pay and worker levels are ensured
- The loan proceeds can be used to pay for expenses for payroll or other eligible expenses.
- A minimum of 60% of the funds go to expenses for payroll
Second Draw PPP Terms of Loan Forgiveness
Second Draw PPP loans granted to borrowers who are eligible can be granted complete loan forgiveness, if within the 8– to 24-week duration following the loan’s disbursement
- Pay and worker levels are kept in the same way as required for the First Draw PPP loan
- The loan funds could be used to cover expenses for payroll or other eligible expenses.
- Minimum 60% of profits go towards the cost of payroll
- What is the best time to apply for loan forgiveness
After all loan funds have been utilized the borrower is eligible for forgiveness. Borrowers can request forgiveness at any time up to the date of maturity. If they do not file for forgiveness within 10 years of the end of the time period that was covered the PPP loans are not deferred any longer, and the borrower will be required to make loan payments to their PPP lender.