The U.S. Small Business Administration has released a form of one page that simplifies the application for forgiveness of Paycheck Protection Program loans. The form is also updated with new forms that comply with the latest stimulus law.
Congress approved the COVID-19 relief plan last month and included $284 billion of financing for small-scale businesses who needed loans. The money was intended to reduce the economic burden of the coronavirus outbreak. The law requires that the SBA release simplified forms within 24 hours of the legislation’s signing into law. This was to facilitate the application for forgiveness. Additionally, it included conditions to encourage banks in the community to lend more particularly to minority-owned businesses who were unable to obtain loans in the past.
“The Small Business Administration met the requirements to release the one-page form for PPP loan forgiveness within 24 hours of the date of 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 issued new forms that were updated.”
Forgiveness terms for the initial draw of PPP loans
Osap Debt Reduction Loan Forgiveness – First Draw PPP loans granted to borrowers who meet the criteria are eligible for complete loan forgiveness if they do so during the 8- to 24-week covered period following loan disbursement:
- Employee and compensation levels are ensured
- The loan proceeds are spent on payroll costs and other eligible expenses; and
- At least 60% of proceeds go to the cost of payroll
Second Draw PPP Conditions for loan forgiveness
Second Draw PPP loans given to eligible borrowers qualify for complete loan forgiveness, if within the 8to 24-week time period after the loan’s disbursement
- The levels of compensation and employee pay are maintained in the same way as is required for the First Draw PPP loan
- The loan proceeds are spent on payroll as well as other eligible expenses and
- A minimum of 60% of the proceeds are spent on payroll costs
- What is the best time to apply for loan forgiveness
A borrower can apply for forgiveness after all loan proceeds to which the borrower has applied for forgiveness have been used. Borrowers may apply for forgiveness at any time until the date of maturity. If borrowers do not apply for forgiveness within 10 months of the end of the time period that was covered, then PPP loan payments are not deferred any longer, and the borrower will be required to make payment to their PPP lender.