The U.S. Small Business Administration has issued a one-page form that makes it easier to apply for forgiveness of Paycheck Protection Program loans. The form also contains newly updated forms to comply with the current 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 offset the economic impact of the coronavirus outbreak. The legislation required that the SBA issue simplified forms within 24 hours of the signing into law. This is to facilitate the application for forgiveness. It also included conditions that would encourage community banks to lend more particularly 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 loan forgiveness under the PPP 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 published additional updated forms.”
Forgiveness terms for the initial draw of PPP loans
Public Service Loan Forgiveness Fedloan – For eligible borrowers First Draw PPP loans are qualified for loan forgiveness. This applies if the loan disbursement occurs within an 8 to 24 week period.
- Employee and compensation levels are maintained
- The proceeds from the loan may be used to pay for expenses for payroll or other eligible expenses.
- At least 60% of proceeds go to expenses for payroll
Second Draw PPP Loan Forgiveness The terms
Second Draw PPP loans to qualified borrowers are eligible for loan repayment when the loan is repaid within an 8– to 24 week period.
- The levels of compensation and employee pay are maintained in the same way as 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 profits go towards expenses for payroll
- How to request loan forgiveness and the time to apply
After all loan’s proceeds have been used, a borrower can apply for forgiveness. Borrowers are able to apply for forgiveness at any time prior until the date of maturity of the loan. If the borrower does not apply for forgiveness within 10 years of the end of the period covered the PPP loans are no longer deferred and borrowers must make monthly payments to their PPP lender.