September 22, 2021 - Small Business

SBA Issues Final Rule on Appeals Process for PPP Loan Review Decisions

The Small Business Administration (SBA) issued a final rule on Borrower Appeals of Final SBA Loan Review Decisions Under the Paycheck Protection Program on Thursday, September 16, 2021, that updates its interim final rule from August 27, 2020, and clarifies open issues. As we discussed previously, the SBA may review a borrower’s Paycheck Protection Program (PPP) loan application or loan forgiveness application at any time to determine (a) if the borrower was eligible for the loan, (b) whether the borrower calculated the loan amount correctly, or (c) whether the borrower is entitled to loan forgiveness amounts claimed in the forgiveness application. Should the SBA deny forgiveness, the final rule provides guidance to borrowers looking to appeal that determination at the SBA’s Office of Hearing and Appeals (OHA).

The rule explains that borrowers have 30 calendar days to appeal an official written decision by the SBA (as opposed to their lender) finding that the borrower (1) was ineligible for the PPP loan, (2) was ineligible for the amount received or that the borrower used the loan for unauthorized purposes, (3) is ineligible for loan forgiveness in the amount determined by the lender in its full or partial approval decision issued to SBA, and/or (4) is ineligible for loan forgiveness in any amount when the lender has issued a full denial decision to the SBA. Timeliness of appeal is now based solely upon the date the borrower receives the SBA’s final loan review decision.  Importantly, the final rule now extends the deferment period for repayment of the PPP loan until OHA issues a final decision of a timely appeal.

The borrower’s appeal must no longer establish the basis of OHA’s jurisdiction, but instead must include (1) a copy of the final SBA loan review decision being appealed and the date it was received; (2) a full and specific statement as to why the final SBA loan review decision is alleged to be erroneous, together with all factual information and legal arguments supporting the allegations; and (3) the name, address, telephone number, email address, and signature of the borrower or their attorney.  Failure to comply may result in dismissal and permits the SBA to move for a more definite statement or to otherwise comply with the above requirements. The final rule, however, clarifies that borrowers may not appeal a Notice of PPP Forgiveness Payment from the SBA. Rather, it may only appeal the SBA’s final loan review decisions in the limited circumstances described above. In other words, if the SBA remits to the lender the loan forgiveness amount set forth in the lender’s decision to the SBA, then the borrower cannot file an appeal at OHA.

A borrower also need no longer submit certain financial information required under the prior rule. Specifically, the borrower need not provide tax documents used previously to assess the borrower’s compliance with PPP requirements. Nor is a certificate of service required with the filing of an appeal or any subsequent documents. However, a borrower must provide their lender with a copy of the appeal to extend the deferment period while a final decision is pending.  The final rule clarifies that the SBA may, but need not, respond, and silence is neither an admission nor a waiver of any allegation. If the SBA does choose to respond, it must do so within 45 calendar days of the Notice and Order issuance. If necessary to avoid prejudice, the borrower may motion for supplemental pleadings upon review of the SBA’s response and/or the administrative record.

Under the final rule, the administrative record (which ostensibly would include the documents the SBA considered in its decision) is now due 20 calendar days after the OHA Judge issues the Notice and Order. Borrowers would then have 30 days to file any objections to the absence of any documents from the record and to serve them to the SBA. A non-waiver clause ensures that a disclosure of privileged or confidential information in the administrative record does not waive those rights.

Upon the close of the administrative record, the judge will issue his or her initial decision within 45 days thereafter, as practicable. The decision is an initial one, and the SBA Administrator may elect to review and/or reverse OHA’s initial decision within 30 days after service of the initial decision. The judge’s initial decision becomes the final SBA decision, however, 30 days after service on both parties, unless the SBA or the borrower file a request for reconsideration, or the SBA Administrator elects to review and/or reverse the initial decision. Importantly, the final rule notes that neither the initial nor the final decision by OHA are precedential.

Appeal from an OHA decision is to the applicable federal district court.  While appealing an OHA decision to federal district court is an available remedy, borrowers cannot appeal SBA final loan review decisions directly to district court without first appealing to OHA.

The rule is effective as of September 14, 2021, and applies to all appeals filed after the effective date and to those filed previously for which no Notice and Order has yet been issued. Borrowers may now immediately appeal applicable final SBA loan review decisions.