The U.S. Small Business Administration issued a one-page application form that aims to simplify the application process for forgiveness of Paycheck Protection Program loans, along with newly updated and revised forms that comply with the latest stimulus legislation.
Congress approved the COVID-19 relief package in the month of March that provided $284 billion of funding for small-scale businesses who needed loans. The funds were used to reduce the economic burden of the coronavirus pandemic. The law requires that the SBA release simplified forms within the first 24 hours of the legislation’s signing into law. This is to facilitate the application for forgiveness. The legislation also contained conditions that would encourage community banks to make more loans, especially to minority-owned businesses who were unable to obtain loans in the past.
“The Small Business Administration met the requirement to issue the one page form for the forgiveness of PPP loans 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 issued more updated forms.”
Forgiveness terms for the initial draw of PPP loans
Loan Forgiveness Tax Calculator – For borrowers who are eligible, First Draw PPP loans are qualified to be forgiven. This applies when the loan payment is made within an 8 to 24-week timeframe.
- The levels of compensation and employee pay are maintained
- The loan proceeds can be used to pay payroll costs or other eligible expenses.
- At least 60% of proceeds are used to pay for payroll expenses
Second Draw PPP Loan Forgiveness Conditions
Second Draw PPP loans for eligible borrowers can be eligible for loan forgiveness if the loan is paid within an 8– to 24 week time frame.
- The First Draw PPP loan requires that the compensation and employee levels be maintained in an exact same way.
- The loan funds are used on payroll expenses and other eligible expenses; and
- Minimum 60% of proceeds go to the cost of payroll
- What is the best time to apply for loan forgiveness?
Once all of the loan proceeds have been used the borrower is eligible for forgiveness. Borrowers can request forgiveness at any time until the loan’s maturity date. Borrowers who do not request forgiveness within 10 months of the end date of the loan are eligible to receive loan payments from their PPP lender.