By Demetrius Robinson & Justine Lara Konicki
The Small Business Administration (SBA) has officially begun accepting Paycheck Protection Program (PPP) forgiveness applications from lenders. While it is unknown how many applications have already been submitted, we do know that more than 4.9 million PPP loans were made through the Paycheck Protection Program. While the focus for most businesses is on the forgiveness process, the question becomes: what happens if your forgiveness request is denied or only approved for partial forgiveness?
On Aug. 11, 2020, the Small Business Administration released guidance on the appeals process for certain SBA loan review decisions under the PPP. Specifically, the Interim Final Rule (IFR) provides guidance on what is appealable, the process for appeals and the necessary information required in the appeal petition.
What is Appealable?
Under the IFR, only certain SBA loan decisions may be appealed. The SBA has designated the Office of Hearings and Appeals (OHA) as the department that will be responsible for hearing and adjudicating appeal petitions.
Although the SBA may review a PPP loan of any amount and for any reason, under the IFR, a borrower may only appeal an official, written final decision from the SBA that relates to a borrower’s ineligibility:
- For a PPP loan;
- For a particular PPP loan amount;
- For PPP loan forgiveness in the amount determined by the lender in its full or partial approval decision issued to SBA;
- For PPP loan forgiveness in any amount when the lender has issued a full denial decision to SBA; or
- Used the PPP loan proceeds for unauthorized uses.
Borrowers cannot appeal any decisions made by a lending institution to OHA, as only decisions by the SBA can be appealed to the OHA. However, borrowers continue to have the option of appealing certain decisions directly to the SBA or utilizing existing legal remedies.
SBA Appeal Eligibility
If a borrower meets the necessary requirements as outlined, they may file an appeal petition to OHA. A borrower must meet certain criteria in order to file an appeal petition with the OHA, including:
- Be the borrower in which a final SBA loan review decision has been made, and
- File the appeal petition within 30 days after either receipt of the final SBA loan review decision or notification by the lender of a final SBA loan review decision, whichever is earlier.
SBA Appeal Petition Requirements
In filing an appeal petition, an appellant must outline or include the following information in their appeal petition:
- The basis for OHA’s jurisdiction (i.e. appeal timely filed and is an appealable decision of the SBA);
- Copy of the SBA loan review decision or a description of that decision (if unavailable);
- A full and specific statement as to why the SBA loan review decision was erroneous (should include factual information and legal arguments);
- Signed copies of filed IRS payroll tax returns, state quarterly business, and individual employee wage reporting, and unemployment insurance tax filings (for relevant periods of time);
- Signed copies of applicable IRS federal tax returns including schedules (i.e. Schedule C);
- Name, address, telephone number, email address and signature of appellant or legal counsel; and
- A request for relief.
If appellants are unable to provide all the requested information, then an explanation of why such information is unavailable or why it is not relevant to the appeal must be provided. In addition, appellants must serve a copy of the appeal petition to the Associate General Counsel of the SBA and include a signed certificate of service with the petition.
The IFR has outlined that the standard for review of an appeal of a final SBA loan review decision is based upon a clear error of fact or law with the burden being on the appellant to prove their case by a preponderance of the evidence. Therefore, petitioners have a higher hurdle in order to reverse a decision made by the SBA.
While the appeals process appears to likely follow a standard administrative appeals process, it is important to note that an appellant, if mutually agreed by the SBA, can enter into an alternative dispute resolution process in order to resolve the appeal petition. In addition, once a final decision has been made by OHA, an appellant retains the right to appeal the decision to a federal district court.
Other Considerations
Under the Paycheck Protection Program, borrowers were granted a loan payment deferral period before being required to make payments on any PPP loan proceeds. Under guidance articulated under the IFR, borrowers who have exceeded the deferral period and are appealing any decision related to forgiveness will still be responsible for making payment of any remaining loan balance while going through the appeals process. The SBA has not granted a deferral of any payments or interest during the appeals process. However, it is important to note that the IFR outlines that OHA should issue a decision on the appeal petition within 45 days after the appeal record has been finalized.
Due to the legal similarity of an administrative appeal, borrowers would be encouraged to seek legal counsel prior to filing an appeal in order to ensure they have exhausted their administrative requirements, complied with applicable guidelines, and have submitted the appeal consistent with the IFR.
In these uncertain times, businesses must be well informed about their options and how to navigate through the Payroll Protection Program. If you have questions related to the PPP program and appeals, please feel free to contact Demetrius Robinson (djr@kjk.com or 614.427.5749) or any of our PPP compliance professionals.