Almost six months after the inception of the Paycheck Protection Program (“PPP”), many borrowers are ready to submit or have already submitted their PPP loan forgiveness requests.
Although lenders and borrowers still face uncertainty about PPP rules, the general process of obtaining a PPP loan forgiveness is known. With each passing week, we can expect lenders to process more PPP loan cancellation requests and more Small Business Administration (“SBA”) decisions to be made.
This article discusses the options available to a borrower if the SBA makes an unfavorable loan review decision. But first, it’s important to remember the general framework of how the PPP loan cancellation process works and when an SBA loan review can take place. A borrower who has received a PPP loan can request a loan forgiveness through the lender who issued the PPP loan. To request a forgiveness, a borrower must complete and submit a loan forgiveness request (Form SBA 3508, Form SBA 3508EZ, or a lender equivalent) to the lender no later than ten months after the last day of the borrower’s period. Loan cancellation is primarily based on the borrower’s use of the PPP loan for eligible salary and non-salary costs during the borrower’s eight or 24 week period covered, subject to certain reductions to decrease salaries or employee salaries or decrease the borrower’s average number of full-time equivalent employees compared to a previous period. Upon receipt of a loan forgiveness request, the lender has 60 days to make a decision to the SBA. During these 60 days, the lender must (i) confirm receipt of the borrower’s certificates, (ii) confirm receipt of documents attesting to salary and non-salary costs, (iii) confirm the borrower’s calculations, and ( iv) Confirm that the borrower correctly applied the rule that at least 60% of the requested loan waiver amount is attributable to eligible labor costs. The onus is on the borrower to provide accurate calculations, but lenders are required to perform a good faith review. If the lender identifies miscalculations or a significant lack of supporting documentation, the lender should work with the borrower to correct any issues. Once the lender has made a decision to forgive the loan, it forwards the decision to the SBA.
After several months of documenting the use of a PPP loan and following constantly updated SBA guidelines, completing a loan forgiveness application should be an accomplishment for any borrower. Yet, once the lender makes its loan forgiveness decision to the SBA, the SBA has 90 days to remit the appropriate forgiveness amount to the lender, subject to any review by the SBA of the borrower’s PPP loan. . We wrote a previous article on the SBA’s Mandatory Loan Review for All PPP Loans Over $ 2 Million (Including Affiliate Loans). However, the SBA can undertake a review at any time for a PPP loan of any size. While we await further guidance in this area, our current interpretation is that any PPP loan borrower may be subject to SBA review of borrower eligibility, PPP loan usage, and loan cancellation at any time at the sole discretion of the SBA. In fact, the SBA requires a borrower to keep their PPP loan documentation for up to six years after the date the loan is canceled or paid off in full. Every borrower, especially borrowers who have received PPP loans over $ 2 million, should have a general understanding of what an SBA loan review is and how to appeal an adverse decision.
The Right to Appeal an SBA Loan Review
To understand the possibility of appealing an SBA loan review, a borrower should know the potential parties involved in a loan forgiveness decision. These parties are (i) the lender; (ii) SBA; and (iii) the SBA Office of Hearings and Appeals (“OHA”). The lender receives the borrower’s loan forgiveness request, decides on the loan forgiveness amount, and forwards their decision to the SBA. The SBA remits the loan forgiveness amount requested by the lender and / or reviews the loan. The SBA may review a loan during the 90 days it has to remit the forgiveness amount, at the request of a borrower who has been refused full forgiveness of the loan by the lender, or at any time the SBA decides to undertake a review. OHA will accept a timely appeal filed by a borrower for an SBA loan review (defined below).
An SBA loan review is a formal written decision issued by the SBA that concludes that a borrower (1) was not eligible for a PPP loan; (2) was not eligible for the PPP loan amount received or used the PPP loan for unauthorized purposes; (3) is not eligible for loan forgiveness for the amount determined by the lender (except for the deduction of any economic disaster loan advance); or (4) is not eligible for full loan forgiveness when the lender has decided that the loan forgiveness should be refused entirely. This definition is of paramount importance because alone SBA loan review decisions can be appealed to the OHA. A decision that is not the result of an “SBA loan review” cannot be appealed to the OHA. For example, if the lender refuses the complete cancellation of the loan, the borrower has 30 days to ask the SBA to review the lender’s decision. The SBA can refuse this request. If the ASB accepts the request and confirms the lender’s decision, so the borrower has the right to appeal from the OHA. If the lender partially approves the forgiveness of the loan and partially refuses the forgiveness of the loan and the SBA remits the amount of the partial forgiveness of the loan, there is no call option for the borrower. Rather, the borrower should start making payments on the outstanding balance of the PPP loan amount that has not been forgiven.
How to appeal an SBA loan review decision
If a borrower faces an unfavorable SBA loan review decision, they must respond quickly. In order to appeal the SBA’s loan review decision to the OHA, a borrower must file a petition with the OHA within 30 calendar days of receiving the final decision or after being notified by the lender of the final decision.. The petition must include, among other requirements, a complete and specific statement as to why the SBA’s loan review decision is alleged to be wrong, as well as all factual information and legal arguments supporting the allegations. The petition must also include signed copies of payroll tax returns actually reported to the Internal Revenue Service (“IRS”) and payroll and unemployment insurance tax returns actually reported to the relevant state, if they are not provided with the PPP loan forgiveness request. This is because the SBA allows a borrower to have more than ten months to submit a loan forgiveness request, but only 30 days to appeal an SBA loan review decision. It is important to note that a call from a borrower does not extend the deferral period of the PPP loan. Further, only the borrower – and not the borrower’s individual owners – has standing to appeal. Again, the basis for an appeal of an SBA loan review decision will not necessarily be loan cancellation calculations, but rather issues of eligibility, certifications, or authorized use.
Once the OHA receives a timely appeal, it will assign the case to an administrative judge or administrative judge. From there, the SBA will file the administrative record with the OHA and serve it on the borrower. The OHA will issue a decision within 45 calendar days of the case being closed. The standard of review is whether the SBA’s loan review decision was based on a manifest error of fact or of law. The OHA may uphold, reverse, or return the SBA’s loan review decision. There are additional appeal options available to a borrower once the OHA has made their decision.
While not all borrowers face an adverse SBA loan review decision, some borrowers inevitably will. Given the constraints of time and the administrative appeal process, it is imperative that borrowers begin to understand the appeal process before receiving notice of an SBA loan review decision.