The U.S. Small Business Administration issued a one-page application form that aims to simplify the process of applying for the forgiveness of Paycheck Protection Program loans, along with newly updated and revised forms that conform to the requirements of the latest stimulus legislation.
The COVID-19 relief plan that Congress adopted last month revived the PPP with $284 billion of funds for small businesses that want forgiveness loans to help them to deal with the effects of economic collapse from the coronavirus pandemic. The legislation required that the SBA issue simplified forms within 24 hours of the legislation’s signing into law. This was done to simplify the process of applying for forgiveness. Additionally, it included conditions that encourage community banks to make more loans particularly to minority-owned businesses that had difficulty getting loans last year.
“The Small Business Administration met the requirements to release the one-page form for the forgiveness of PPP loans within 24 days 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 released new forms that were updated.”
Forgiveness terms for the initial draw of PPP loans
Student Aid Public Service Loan Forgiveness – First Draw PPP loans granted to borrowers who are eligible can be granted total loan forgiveness within the 8-to 24 week period that follows loan disbursement:
- It’s the same for compensation and employees.
- The loan funds are used on payroll costs as well as other expenses eligible for reimbursement; and
- At least 60% of profits go towards payroll costs
Second Draw PPP Terms of Loan Forgiveness
Second Draw PPP loans for eligible borrowers can be qualified for loan forgiveness if the loan is paid within an 8– to 24 week period.
- The First Draw PPP loan requires that the employee and compensation levels are maintained in the exact same way.
- The loan proceeds are used on payroll and other eligible expenses; and
- A minimum of 60% of profits are spent on payroll costs
- What is the best time to apply for loan forgiveness
Once all of the loan’s proceeds have been used the borrower is eligible to be granted forgiveness. Borrowers can apply for forgiveness at any time prior until the date of maturity of the loan. Borrowers who do not request forgiveness within 10 month of the expiration date of the loan will be able to receive payment from their PPP lender.