PPP Loan Forgiveness Status for 2023

As we near the end of 2023, small businesses continue to grapple with the long-lasting effects of the pandemic. The Paycheck Protection Program (PPP), introduced by the U.S. Small Business Administration (SBA), has been a lifeline for many businesses. If your business obtained a PPP loan during these challenging times, it’s essential to understand that you may still be eligible for loan forgiveness. In this blog post, we will explore the requirements and provide a step-by-step guide to applying for PPP loan forgiveness in 2023.

First Draw PPP Loan Forgiveness

If you received a First Draw PPP loan, you may qualify for full loan forgiveness if you meet the following conditions during the 8- to 24-week covered period after receiving the loan:

  • Maintain employee and compensation levels.
  • Use the loan proceeds for eligible expenses, including payroll costs and other qualified expenses.
  • Allocate at least 60% of the proceeds towards payroll costs.

Second Draw PPP Loan Forgiveness

For those who obtained a Second Draw PPP loan, full loan forgiveness is possible by meeting the following requirements during the 8- to 24-week covered period after loan disbursement:

  • Maintain employee and compensation levels as mandated for the First Draw PPP loan.
  • Utilize the loan proceeds for eligible expenses, including payroll costs and other qualified expenses.
  • Spend at least 60% of the proceeds on payroll costs.

Step 1: Utilize the Direct Forgiveness Portal (if eligible)

If your PPP loan amount is $150,000 or less and you used a participating lender, take advantage of the SBA’s Direct Forgiveness Portal. This portal streamlines the application process by allowing you to submit the forgiveness application directly to the SBA. However, if you do not have a participating lender, you will need to apply through your lender using the appropriate form.

Step 2: Gather the necessary documentation

Compile all the required paperwork for both payroll and non-payroll expenses incurred during the covered period. This may include bank account statements, tax forms, payment receipts, canceled checks, and account statements. Non-payroll expenses may encompass business mortgage interest payments, rent or lease payments, utility payments, operational expenditures, property damage costs, supplier costs, and worker protection expenditures.

Step 3: Submit the application

Once you have gathered all the necessary documentation, submit the forgiveness application. If you are eligible for the Direct Forgiveness Portal, use it to submit your application. Otherwise, submit the application and supporting documents to your lender as per their instructions.

Step 4: Await the decision and consider an appeal if necessary

Upon submission, the SBA or your lender is obligated to notify you of their decision within 60 days. If your loan is fully or partially forgiven, you may not be required to make further payments. However, if there is an outstanding amount, you will need to repay it with a 1% interest rate over the remaining loan term. In the event that your loan forgiveness is denied, you have the option to appeal the decision through the SBA’s Office of Hearings and Appeals (OHA) within 30 days.

PPP FAQs for 2023:

Q: How long does the SBA have to audit my PPP loan?

A: According to program guidelines, the SBA retains the discretion to review any PPP loan, regardless of size, at any time. However, based on document retention guidelines, it is unlikely that the SBA would review loans over $150,000 more than 6 years after forgiveness or full repayment, or review loans of $150,000 or less more than 4 years after submitting the forgiveness application to the SBA.

Q: How long should I keep my PPP loan documentation?

A: For loans over $150,000, borrowers are required to keep all supporting documentation for 6 years after forgiveness or full repayment. For loans of $150,000 or less, employment records and payroll documentation should be retained for 4 years, and all other documentation should be kept for 3 years after submitting the forgiveness application to the SBA.

Q: Is PPP loan forgiveness taxable in 2023?

A: At the federal level, PPP loan forgiveness is not taxable. However, it may be subject to state taxes. We recommend consulting with a tax advisor to determine your specific tax liability, if any.

Q: What happens during an SBA review after applying for forgiveness?

A: You can find detailed information about SBA reviews of PPP loans on the SBA’s official website.

Q: Can I still apply for PPP loan forgiveness if I haven’t done so yet?

A: In most cases, yes. You can submit an application for forgiveness any time before the loan maturity date. However, if you haven’t submitted an application within 10 months after the maximum covered period of 24 weeks (known as the Payment Deferral Period), you will be required to start making monthly payments of principal and interest. We encourage you to complete the forgiveness process as soon as possible, as the majority of PPP loans have already surpassed their deferral period end date.

Q: Are there alternative sources of small business capital now that PPP has ended?

A: We recommend exploring the SBA 7(a) program, which offers loans of up to $250,000. You can conveniently apply for these loans through various financial institutions. Consult with your preferred lender to learn more about the application process and eligibility criteria.

Remember to consult with a qualified tax advisor or legal professional for personalized guidance related to your specific situation.

What if I Lose My Appeal?

Any appeal denied in the Office of Hearings and Appeals will have to go to a higher court. Why? Because SBA is a federal agency. The process of going to federal court can be extremely tedious and expensive due to the strict regulations. 

To avoid the costly and time-consuming process of going to the federal district court, we recommend hiring a qualified attorney to make sure you’re building a strong appeal for your business.

While each case is unique and this is not an indication of success in other cases nor a promise of results, our team at Milikowsky Tax Law has extensive experience in government audits and cases involving government entities from IRS to SBA and CSLB.  

Contact Milikowsky Tax Law and learn how we can help.