Back to Basics, Continued— CARES Act PPP Loan Eligibility for Consumer Finance Companies—Again!

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I wrote several weeks ago concerning the denials being issued to consumer finance companies by the U.S. Small Business Administration. See Dentons - Back to Basics, Continued—Where Do We Now Stand on the Question of Eligibility of Consumer Finance Companies for PPP Loans? Loans that have previously been made to finance companies and funded by lenders, are being turned down for “eligibility,” on the basis that the consumer finance company borrower is ineligible for such a loan under the CARES Act Paycheck Protection Program. These denials are not based on the ineligibility of “forgiveness” of the loan. These denials are not based on the loans being “second draw’ loans. Rather, they are based upon the SBA’s position that the consumer finance company is ineligible for the loan ab initio (from the beginning) under the CARES Act PPP. Turn-down notices are being delivered and received throughout the United States daily.

However, not all finance company borrowers are receiving the same treatment. Many have had their loans forgiven. To say that the SBA is responding inconsistently is an understatement. What is no exaggeration though, is the concern that if a consumer finance company intends to challenge such a denial, such challenge is more problematic and certainly more costly, if the challenge is not made through the SBA’s Office of Hearings and Appeals Portal.

There is a system set up within the SBA to challenge adverse determinations by the SBA specifically with respect to PPP loans. That system, however, requires a challenge to be filed within 30 days of final notice by the lender to the borrower, of the denial by the SBA. If this deadline is missed, the next logical step in acting to overturn an adverse SBA determination may be to file a lawsuit against the SBA through the judicial process—something that is most certainly more costly and very time-consuming.

There is very good law on the side of challenging the SBA’s ineligibility determination. However, the challenge must be pursued if it is going to be heard. Regrettably, too many finance companies are just now understanding that the ineligibility determination is something that can be questioned.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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