Commentary from Counsel | PPP Loan Forgiveness - Timely Appeal of Denials

The Paycheck Protection Program, or PPP, was one of the federal government’s earliest Covid-19 pandemic programs. The PPP loan program is administered by the U.S. Small Business Administration (SBA). According to the SBA, just under 11.5 million PPP loans were made, totaling about $792 billion. For many small businesses, including independent insurance agencies and countless agency clients, PPP loans were a lifeline during uncertain and disruptive economic times.

One of the key aspects of the PPP loan program was that, under certain circumstances, the loans would be forgiven. The process for seeking loan forgiveness has been underway for many months at this point, and nearly 8 million borrowers have filed forgiveness applications, with nearly 97% of the loans forgiven and repaid by the SBA. That is good news for those borrowers, but leaves thousands either unforgiven, or pending. Some of the pending PPP loan forgiveness applications will be granted, of course, but there will be no shortage of denials as well. It is important to understand that the SBA’s forgiveness decision is appealable, but borrowers must act quickly. In mid-September, the final rule covering Borrower Appeals of Final SBA Loan Review Decisions took effect, and it provides the framework for aggrieved borrowers to appeal to the SBA Office of Hearings and Appeals (OHA). Here are the key requirements to ensure an appeal is heard by OHA.

First, only the actual borrower on a loan, or its legal successor in interest, for which SBA has issued a final SBA loan review decision has standing to appeal the SBA loan review decision to OHA. This means that the lending bank cannot appeal on behalf of borrowers.

Second, SBA decisions are appealable only if SBA’s completed review of a PPP loan finds any of the following: • The borrower was ineligible for a PPP loan—this looks back at whether the loan should have been made in the first instance. A denial on this basis will mean that no portion of the loan is forgiven. • The borrower was ineligible for the PPP loan amount received or used the PPP loan proceeds for unauthorized uses. • The borrower is ineligible for PPP loan forgiveness in the amount determined by the lender (lenders processing forgiveness applications make recommendations for full or partial forgiveness amounts). In this situation, the SBA final loan review decision will disagree with the lender, but remember—only the borrower can appeal, the lender cannot do so. • The borrower is ineligible for PPP loan forgiveness in any amount when the lender has issued a full denial decision to SBA. Here too the SBA final loan review decision will differ from the lender’s recommendation, but in a way that is favorable to the borrower.

Finally, the appeal must be filed with OHA within thirty (30) calendar days after the borrower’s receipt of the final SBA loan review decision. This timing is critical, and because most forgiveness applications were handled through the same lender that made the loan, the borrower will most likely receive the final SBA loan review decision from the lender.

Within that framework, borrowers will need to consider their appeal options in light of a very deferential standard of review by OHA—the final SBA forgiveness decision will be altered only where the OHA administrative judge determines that the SBA’s decision was based on a clear error of fact or law. That said, with the volume of forgiveness applications being reviewed by the SBA, and the complexities of the PPP loan program in terms of eligibility and use of loan proceeds, borrowers should be prepared to quickly evaluate their appeal options with counsel and file their appeal by the 30-day deadline.

It is also important to note that the loan deferment period is extended during the pendency of the appeal, so borrowers will not enter repayment until their appeal is decided. The timeframe for OHA to decide an appeal of an SBA loan review decision is laid out in the final rule and could be as fast as 90 days, though there is ample discretion for the judge to extend certain deadlines. Considering the anticipated volume of appeals, it is likely that 90 days will be the exception, rather than the norm.

If your agency, or a client, is facing a full or partial denial of forgiveness of a PPP loan, act quickly to evaluate a potential appeal and consult with competent counsel to assist.

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570.473.4340 | jhartung@keystoneinsgrp.com keystoneinsgrp.com