Paycheck Protection Program: Asserting Your Rights During Loan Forgiveness

The Small Business Administration (SBA) is about to embark on a massive undertaking that is unprecedented in its 67-year history—the assessment of loan forgiveness requests for more than $500 billion in Paycheck Protection Program (PPP) loans. Given the massive volume of loans (more than 5 million), and the complexity of the PPP’s eligibility and loan forgiveness rules, mistakes will be made by borrowers, lenders, and the SBA. As a borrower, knowing how to challenge those mistakes by lenders and the SBA is essential to ensuring that you receive the loan forgiveness to which you are entitled.

Review Process

Once a lender receives a borrower’s loan forgiveness application, it is “expected to perform a good-faith review, in a reasonable time, of the borrower’s calculations and supporting documents concerning amounts eligible for loan forgiveness.”i The lender must issue a decision to the SBA no later than 60 days after receiving the borrower’s complete loan forgiveness application.ⁱⁱ

If the lender denies the borrower’s loan forgiveness application, it must also notify the borrow in writing of its decision. SBA review is not automatic, and the borrower has 30 days after receiving this notice to request such a review.ⁱⁱⁱ

The SBA has up to 90 days to conduct its review. Upon commencement of its review, it will notify the lender in writing and the lender, in turn, must notify the borrower. At the conclusion of its review, the SBA will issue its decision to the lender and the lender is responsible for notifying the borrower.

Appeal Process

On August 11, the SBA issued an interim final rule detailing the availability of, and rules for, an appeal from an adverse loan forgiveness decision under the PPP.iv The rule establishes a new subpart L for 13 CFR part 134 which contains the procedure governing cases before the SBA’s Office of Hearings and Appeals (OHA).

Pursuant to 13 C.F.R. § 134.1204, a borrower seeking an appeal of the SBA’s decision must file its appeal petition within 30 calendar days after receiving notice of that decision. Failure to meet this 30 day requirement will result in dismissal by OHA as untimely.v An appeal may be up to 20 pages long and must include, among other things, a “full and specific statement as to why the SBA loan review decision is alleged to be erroneous, together with all factual information and legal arguments supporting the allegations.”^vi

Who may appeal?

Only the borrower on a loan for which SBA has issued a final SBA loan review decision has standing to appeal. An owner of a borrower does not have standing to appeal in his or her individual capacity.

What may be appealed?

Importantly, not all decisions may be appealed to OHA. First, only final SBA loan review decisions may be appealed. Thus, a lender’s decision is not immediately appealable to OHA. Second, not every final SBA loan review decision is appealable. Appeals may be taken if the SBA finds that a borrower (1) was ineligible for a PPP loan; (2) was ineligible for the PPP loan amount received or used the PPP proceeds for unauthorized uses; (3) is ineligible for PPP loan forgiveness in the amount determined by the lender in its full or partial approval decision issued to SBA (except for the deduction of any Economic Injury Disaster Loan advance in accordance with section 1110(e)(6) of the CARES Act); and/or (4) is ineligible for PPP loan forgiveness in any amount when the lender has issued a full denial to SBA.vii Thus, if a lender approves less loan forgiveness than the amount requested by the borrower and the SBA confirms the lender’s decision, the SBA’s final decision is not appealable to OHA.

Standard Used

The borrower carries the burden of proof, by a preponderance of the evidence, and must establish that the SBA’s loan review decision was based on clear error of fact or law.^viii

Discovery

The ability of a borrower, or the SBA, to seek additional information during an appeal is limited. The administrative record must include all relevant documents that the SBA considered in making its final decision or that were before the SBA at the time of the final decision.ix This does not, however, include all documents created by the SBA and the SBA may claim privilege over certain materials under the deliberative process privilege. If a borrower believes that the SBA has failed to produce required materials, it must file objections with OHA within 10 calendar days of receiving the administrative record. Additional discovery beyond the administrative record will only be permitted if the judge determines that the SBA, upon written submission, has made a showing of good cause for discovery.^x

Hearings

An oral hearing is not automatically held. Rather, either party must file a motion requesting an oral hearing and the judge must order such an hearing upon a finding that there is a genuine dispute of material fact that cannot be resolved without the taking of testimony and the confrontation of witnesses.^xi

Decision

The appeal is heard by either an Administrative Law Judge or an Administrative Judge, whose decision is an initial decision and subject to a reconsideration request. OHA decisions will be published on OHA’s website and create precedent for appeals involving the PPP.

Conclusion

Filing an OHA appeal is a legal process and is highly complex given the multifaceted nature of the administrative process and PPP rules. It is imperative that borrowers are aware of their obligations throughout the review and appeal process, as a slight misstep could cause a borrower to lose its right to challenge the SBA’s decision.

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