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August 17, 2020 - Small Business, Coronavirus

SBA Issues Promised Appeals Procedures for PPP Loan Review Decisions

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

As we previously reported, when the Small Business Administration (SBA) issued its first Interim Final Rule on SBA Loan Review Procedures and Related Borrower and Lender Responsibilities back in May,[1] SBA explained that it could 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. This rule also stated that borrowers would have a chance to appeal SBA’s determination, promising to provide further guidance on that process in the future. That guidance came earlier this week when SBA issued an interim final rule detailing the procedures for the appeal process at the SBA’s Office of Hearings and Appeals (OHA).

The rule explained that borrowers have 30 days to appeal an official written decision by the SBA 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 SBA. Importantly, a borrower’s appeal of SBA’s decision will not extend the deferral period of the SBA loan.

The rule also clarifies that only the borrower, not the individual owners of a borrower or lenders, may bring an appeal. Moreover, borrowers cannot file an OHA appeal of any decision made by a lender, though it can request SBA (not OHA) to review the lender’s decision to deny a forgiveness application in full. If SBA remits to the lender the loan forgiveness amount set forth in the lender’s decision to SBA, then the borrower cannot file an appeal at OHA.

The borrower’s appeal petition must include the basis for OHA’s jurisdiction, including evidence that the borrower filed the petition within 30 days of receiving the official written decision or notice by the lender of the SBA, whichever is earlier. The borrower should include a copy of the loan review decision or a description of the decision if a copy is unavailable. Assigned with the burden of proof, the borrower’s petition must also present a full and specific statement, including all factual information and legal arguments, as to why a preponderance of the evidence shows the SBA loan review decision is clearly erroneous.

A borrower must also submit certain financial information with its appeal petition. Specifically, the borrower must submit signed copies of its payroll tax filings reported to the Internal Revenue Service (IRS) for the relevant period. If not a part of the original PPP loan forgiveness application, the borrower must also submit state quarterly business and individual employee wage reporting and unemployment insurance tax filings for the relevant period. For self‑employed individuals or partners in a partnership, the borrowers must also submit their federal tax returns with the appropriate schedules, or an explanation as to why they are not relevant or available.  The SBA determined that submission of this financial information, or an explanation as to why they are not relevant or not available, is appropriate to support SBA’s efforts to assess the borrower’s compliance with the PPP requirements set forth in the statute, rules, and guidance.

Only SBA (and not any other party) will be given the opportunity to respond to appeal petitions before the close of record. And, according to the interim final rule, the Judge will issue his or her decision within 45 calendar days after the close of record, as practicable. The Judge’s decision on the appeal is an initial decision. However, unless a request for review or a request for reconsideration is filed, an initial decision shall become the final decision of SBA 30 calendar days after its service. OHA’s decision will be published, although borrowers will have an opportunity to request that portions of the decision be redacted. Importantly, the rule explains that OHA’s decision relates only to the PPP program and will not apply to the 7(a) Loan Program, generally, or any interpretation of SBA’s regulations at part 120 or 121 (i.e., SBA’s regulations covering business loans and small business size status).

You may submit comments, identified by number SBA-2020-0042, through the Federal eRulemaking Portal:

[1] On June 22, 2020, SBA issued revisions to this rule for consistency with the Paycheck Protection Program Flexibility Act (“PPP Flexibility Act”); see 85 Fed. Reg. 38304 (June 26, 2020).