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. The form also contains newly updated forms that comply with the latest stimulus law.
Congress approved the COVID-19 relief package in the month of March, which offered $284 billion in funding to small businesses in need of loans. The money was intended to mitigate the economic effects of the coronavirus pandemic. The law requires that the SBA release simplified forms within 24 hours of the legislation’s signing into law. This is to make it easier to apply for forgiveness. The legislation also contained conditions that would encourage community banks to make more loans, especially to minority-owned businesses who had a difficult time getting loans in the past.
“The Small Business Administration met the requirements to release the one-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 at Thomas, Zollars & Lynch CPAs on his Current Federal Tax Developments blog for Kaplan Financial Education. “The agency also released additional updated forms.”
Forgiveness terms in the first draw of PPP loans
Obama Care Loan Forgiveness Program – For eligible borrowers, First Draw PPP loans are qualified for loan forgiveness. This happens when the loan payment is made within an 8– to 24-week timeframe.
- Employee and compensation levels are maintained
- The loan proceeds can be used to pay the cost of payroll as well as other eligible expenses.
- Minimum 60% of funds go to payroll costs
Second Draw PPP Loan forgiveness terms
Second Draw PPP loans given to borrowers who meet the criteria are eligible for full loan forgiveness if during the 8to 24-week covered period following loan payment:
- The levels of compensation and employee pay are kept in the same way as required for the First Draw PPP loan
- The loan proceeds are used on payroll expenses and other expenses that are eligible and
- At least 60% of profits are spent on payroll costs
- When and how do I apply for loan forgiveness
When all of the loan funds have been utilized, a borrower can apply to be granted forgiveness. Borrowers may apply for forgiveness at any point up to the loan’s maturity date. If borrowers do not apply for forgiveness within 10 month of the expiration date of the loan will be able to receive the loan payment from their PPP lender.