The U.S. Small Business Administration issued a one-page application form aimed at simplifying the process of applying for forgiveness of Paycheck Protection Program loans, together with updated and revised forms that comply with the latest stimulus legislation.
Congress approved the COVID-19 relief package in the month of March, which provided $284 billion of funding to small businesses in need of loans. The funds were used to reduce the economic burden of the coronavirus epidemic. It included a requirement for the SBA to issue simplified forms within 24 days of the legislation being signed into law to simplify the process of applying for forgiveness. It also included conditions meant to encourage more loans from community banks, particularly for minority-owned businesses that struggled to get loans last year.
“The Small Business Administration met the requirement to issue the one-page form for PPP loan forgiveness by 24 days after 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 published updated forms.”
Forgiveness terms for the initial draw of PPP loans
Student Loan Forgiveness For Public Service Form – For eligible borrowers, First Draw PPP loans can be qualified to be forgiven. This is when the loan is disbursed within an 8 to 24-week period.
- The levels of compensation and employee pay are maintained
- The proceeds of the loan can be used to pay for the cost of payroll as well as other expenses that are eligible.
- At least 60% of profits are used to pay for payroll expenses
Second Draw PPP Loan Forgiveness Conditions
Second Draw PPP loans granted to eligible borrowers qualify for total loan forgiveness if they do so during the 8to 24 week time period after loan disbursement:
- The First Draw PPP loan requires that the employee and the compensation levels be maintained in an exact same way.
- The loan funds could be used to cover the cost of payroll as well as other eligible expenses.
- At least 60% of the proceeds are spent on payroll costs
- How and when to apply for loan forgiveness
After all loan’s proceeds have been used, a borrower can apply for forgiveness. The borrower can request forgiveness anytime up until the date of maturity of the loan. Borrowers who don’t request forgiveness within 10 month of the expiration date of the loan are able to receive the loan payment from their PPP lender.