Many small businesses that received Paycheck Protection Program (PPP) loans are now near or past the end of their “covered period”–meaning that it’s time to apply for loan forgiveness. Determining eligibility for loan forgiveness is much more complex than expected. The Small Business Administration (SBA) has released a streamlined application that can be used by business owners who borrowed $50,000 or less.
What do small business clients need to know about obtaining loan forgiveness under the paycheck protection program?
PPP loan forgiveness is determined based on how the small business client spent the loan proceeds. Importantly, at least 60 percent of the loan must be used for payroll costs (note that this 60 percent threshold was reduced from 75 percent under the CARES Act by the Paycheck Protection Program Flexibility Act (PPPFA), passed in early June 2020).
The small business administration (SBA) has also released a form version of the loan forgiveness application, but that form was released before enactment of the PPPFA. Every PPP lender can use its own version of the SBA form application. At the most basic level, after the small business owner completes the application for loan forgiveness, the lender has sixty days to decide whether the borrower qualifies. The SBA then has an additional ninety days to providing funding for the lender.
Importantly, the original SBA loan forgiveness application mentions the original eight-week period, which has now been extended. Presumably, the application will be updated to reflect this change.
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