The U.S. Small Business Administration has released a 1-page form which makes it simpler to request the cancellation of Paycheck Protection Program loans. The form is also updated with new forms that are in line with the latest stimulus law.
Congress approved the COVID-19 relief package in the month of March that provided $284 billion of funding to small businesses that needed loans. The money was intended to mitigate the economic effects of the coronavirus outbreak. The law required that the SBA provide simplified forms within 24 hours of the signing into law. This is to make it easier to apply for forgiveness. It also included conditions that would encourage community banks to make more loans, especially to minority-owned businesses who were unable to obtain loans last year.
“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 the 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 first draw of PPP loans
PPP Loan Forgiveness Form 3508s – First Draw PPP loans granted to borrowers who are eligible can be granted full loan forgiveness if within the 8 to 24-week covered period following loan disbursement:
- It’s the same for pay and benefits for employees.
- The loan proceeds are used on payroll expenses and other expenses that are eligible and
- A minimum of 60% of the proceeds go to payroll costs
Second Draw PPP Loan Forgiveness Conditions
Second Draw PPP loans granted to borrowers who are eligible can be granted total loan forgiveness if they do so during the 8to 24 week covered period 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 proceeds are spent on payroll costs and other expenses that are eligible and
- At least 60% of proceeds go to expenses for payroll
- What is the best time to apply for loan forgiveness
When all of the loan funds have been utilized the borrower is eligible to be granted forgiveness. Borrowers may apply for forgiveness at any time until the date at which the loan matures. If the borrower does not apply for forgiveness within 10 months after the date of expiration of the time period that was covered and the loan is not renewed, PPP loan payments are not deferred any longer, and borrowers will begin making payment to their PPP lender.