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September 2020

SBA Issues Rule Setting Forth Procedure to Appeal Denial of a PPP Loan Forgiveness Application

September 9, 2020

On August 25, 2020, the United States Small Business Administration (“SBA”)  issued a new interim final rule to establish procedure for appealing a denial of loan forgiveness under the Paycheck Protection Program (“PPP”).  As set forth in prior updates, a borrower submits its application for loan forgiveness to its lender.  The lender then makes a determination to approve, deny, or deny without prejudice pending SBA review on the application for forgiveness.  If the lender denies for any reason, the borrower must request SBA review of the application for forgiveness.  In the event the SBA review results in a denial of forgiveness, the borrower must follow the procedures set forth in the newly issued interim final rule, which can be found here.

The reasons for denial could include ineligibility for the PPP loan, ineligibility for an amount received, ineligibility in whole or part of the forgiveness amount requested (such as misuse of funds), or a breach of any of the certifications made in the loan application or the application for forgiveness.

The procedure for appealing a denial of loan forgiveness is as follows:

1.         Upon receipt of a denial from the SBA, the borrower must file an appeal with the SBA Office of Hearings and Appeals within thirty (30) days. The clock begins upon the earlier occurrence of the SBA’s determination of its final denial, or notification from the lender of the final SBA denial.

2.         The borrower must be represented by an attorney of record to present an appeal.

3.         The maximum length of the appeal petition cannot exceed twenty (20) pages, not including exhibits or attachments.

4.         The appeal must include the following exhibits or attachments (i) the final SBA determination of denial; (ii) a statement of why the decision is wrong; (iii) the relief being sought; (iv) the initial loan application and note; (v) the loan forgiveness application; (vi) signed copies of all payroll tax filings with the IRS and state; (vii) federal tax returns and schedules; (viii) payroll reports, employee wage reports, and unemployment insurance tax filings; (ix) receipts of all non-payroll costs; and (x) the name, address, phone number, and email of the attorney of record. The appeal should also include all documentation that supports the contention that the SBA finding was erroneous.

Upon receipt of the appeal, the SBA Office of Hearings and Appeals will assign the appeal to an administrative judge. The administrative judge will issue an initial decision within forty-five (45) days.  The administrative law judge is limited to determining whether the SBA decision was based on clear error of fact or law, and the borrower carries the burden of proof.  The administrative judge will either affirm, reverse, or remand the SBA decision.

If the administrative judge denies the appeal, the borrower must request review by the SBA administrator or reconsideration within thirty (30) days.  Failure to request that review will result in the initial decision becoming final, and precluding any right to judicial review. 

Finally, the rule precludes a borrower’s right to recover any attorney’s fees, even if successful.

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Banking & Finance

Jonathan M. Boulahanis
W. Kent Carter
Craig S. Heryford

Banking & Finance