What Is A Forgivable Loan

The U.S. Small Business Administration has released a 1-page form that simplifies the application for forgiveness of Paycheck Protection Program loans. The form is also updated with new forms that are in line with the latest stimulus legislation. 

Congress approved the COVID-19 relief package last month and included $284 billion of financing to small businesses that needed loans. The funds were used to mitigate the economic effects of the coronavirus outbreak. It also included a requirement that the SBA to issue streamlined forms within 24 days of the bill being adopted to make the application process for forgiveness, along with conditions meant to encourage more bank loans by community banks, particularly for minority-owned businesses who were unable to obtain loans last year.

What Is A Forgivable Loan

Ed Zollars, a partner with Thomas, Zollars & Lynch CPAs, stated that the Small Business Administration fulfilled the requirement to publish the PPP form, which is one page long, for loan forgiveness within the first 24 hours of the date of enactment in the Consolidated Appropriations Act, 20,21. The article was posted on the Current Federal Tax Developments blog of Kaplan Financial Education. “The agency also published new forms.”

Forgiveness terms in the first draw of PPP loans

What Is A Forgivable Loan – For borrowers who are eligible, First Draw PPP loans are qualified to forgive loans. This applies when the loan payment is made within an 8 to 24-week timeframe.

  • Pay and worker levels are kept at a constant level.
  • The loan proceeds are used on payroll expenses and other eligible expenses; and
  • A minimum of 60% of the funds go to the cost of payroll

Second Draw PPP Conditions for loan forgiveness

Second Draw PPP loans to eligible customers are eligible for loan forgiveness if the loan is paid within an 8 24-week time frame.

  • The First Draw PPP loan requires that the employee and compensation levels be maintained in the identical manner.
  • The loan proceeds are spent on payroll and other expenses that are eligible and
  • Minimum 60% of profits go towards expenses for payroll
  • How do I apply for loan forgiveness , and the time to apply

A borrower may apply for forgiveness after all loan proceeds to which the borrower is requesting forgiveness have been utilized. The borrower can request forgiveness any time up until the date of maturity of the loan. Borrowers who don’t request forgiveness within 10 month after the date they will be able to repay the loan are eligible to receive loan payments from their PPP lender.

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