One of the most attractive aspects of the Paycheck Protection Program loans that were included in the 2020 Coronavirus Aid, Relief and Economic Security Act (CARES Act) was an employer’s ability to apply to have its loan forgiven at the end of the term.

But what if the lender or the Small Business Administration (SBA) denies a borrower’s forgiveness application? All is not lost. Businesses can appeal the determination, but it’s important to act quickly and with the advice of legal counsel.

The process is complex and time sensitive.

CARES Act Loan Forgiveness

Under the CARES Act, the SBA was given authority to provide forgiveness up to the total amount of qualifying loans guaranteed under the PPP if certain conditions were met. And to date, one could say lenders have generally been very forgiving.

According to the SBA’s weekly summary, as of October 24, 2021, the federal government had issued nearly 11.5 million PPP loans with a value of more than $792 billion. To date, 70% (8,058,418) of all PPP loans have submitted forgiveness applications and 68% of all PPP loans have been fully or partially forgiven, totaling $587.3 billion in forgiveness.

But that also means that more than 30% of all PPP loans have not been fully or partially forgiven.

Borrowers whose loan forgiveness applications have been denied do have recourse. On September 16, 2021, the SBA issued a final rule titled “Borrower Appeals of Final SBA Loan Review Decisions Under the Paycheck Protection Program,” providing the procedures for appealing a final SBA loan review decision.

Who May Appeal

Borrowers that have received a final SBA loan review decision may appeal the decision within 30 calendar days after receiving the final notice. For the decision to be appealable, the decision must be that the borrower either:

• was ineligible for a PPP loan
• was ineligible for the loan amount received, or used the proceeds for “unauthorized uses”
• is ineligible for PPP loan forgiveness in the amount determined by the lender in its full or partial approval decision issued to the SBA
• is ineligible for PPP loan forgiveness in any amount when the lender has issued a full denial decision to SBA

The appeal must be filed with SBA’s Office of Hearings and Appeals (OHA). However, a borrower cannot appeal a lender’s decision regarding its PPP loan forgiveness application directly to the OHA. The OHA does not have jurisdiction over decisions made by lenders concerning a PPP loan. To dispute a decision made by the lender, the borrower must contact the lender directly. The SBA will then review the request and issue a final loan review decision. The OHA has jurisdiction over appeals where the SBA has provided the borrower with a PPP final loan review decision.

Appeal Requirements

When filing an appeal to the OHA, the borrower will be asked to provide the following:

• a copy of the final SBA loan review decision being appealed
• a full and specific statement as to why the SBA loan review decision is alleged to be erroneous, with all factual information and legal arguments supporting the allegations
• the name, address, telephone number, and email address of the borrower or the borrower’s attorney

The SBA has determined that an OHA decision should be based on a review of the administrative record, the appeal petition, any response, any reply or supplemental pleading and filings related to objection to the administrative record. Neither discovery nor oral hearings will be permitted. For this reason, it is critical that the appeal be complete. The maximum length of an appeal petition (not including attachments) is 20 pages. A table of authorities is required only for petitions citing more than 20 cases, regulations or statutes.

After the appeal is filed, the borrower should receive the first order from the OHA. The borrower may also be instructed to provide more information, with a strict deadline.

It is important to note that the OHA may dismiss any appeal that is incomplete, untimely, beyond its jurisdiction, does not, on its face, allege specific facts that if proven to be true, warrant reversal or remand of the SBA loan review decision, or is otherwise deficient.

Unless it appears that the appeal will be dismissed, the OHA judge assigned to the borrower’s appeal will issue a notice and order setting a date for:

• the production of the Administrative Record by the SBA
• the date the borrower can object to the Administrative Record
• the date the SBA may respond to the appeal (the date the record closes)

Decision Timeline

Within 45 calendar days after the close of record the judge will issue their decision and it will be served upon the borrower and the SBA through the OHA Case Portal. The decision will contain findings of fact and conclusions of law, the reasons for the findings and conclusions and any relief ordered. The decision becomes final if there is no request for reconsideration or SBA administrator review within 30 calendar days after the judge’s initial decision.

The SBA or borrower has 10 calendar days after service of the decision to file a request for reconsideration with the judge. The judge may also reconsider a decision on their own initiative within 20 calendar days of service.

A reconsidered initial OHA decision becomes the final decision of the SBA 30 calendar days after its service unless the SBA Administrator chooses to review and/or reverse the initial OHA decision.

The SBA Administrator has the ability to review and/or reverse initial and reconsidered OHA decisions within 30 days of service. If the Administrator elects to review and or reverse an initial OHA decision and a timely request for reconsideration of the Judge’s initial decision is also filed by the borrower, the Administrator will consider the request. In either case, the Administrator’s decision will become the final decision of the SBA upon issuance, within 30 calendar days of service of each such decision. Final decisions may be appealed to the appropriate federal district court only.

Timely Appeal Filing

It is critical that any business seeking to appeal a loan forgiveness denial act quickly and with the advice of informed counsel. The process is complex and time-sensitive, and any errors may jeopardize the ability to obtain PPP loan forgiveness.

For this reason, borrowers that have received an SBA loan decision should consult immediately with an attorney. In light of the SBA requirements, it is important to ensure that any appeal is complete, timely filed and is not otherwise deficient. Minor errors could lead to a full denial of PPP loan forgiveness.

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