Facts for Full or Partial Denial of PPP Pardon Application
Public data from the Small Business Administration (SBA) indicates that more than 98% of the total value of Paycheck Protection Program (PPP) loans requested by borrowers were canceled by the SBA (approximately $692 million were canceled out of the $700 million requested). However, over the past month there has been an increase in the number of pardon applications denied by the SBA. Borrowers should be aware that such denials are subject to appeal and consider challenging forgiveness denials if they believe the SBA’s decision was wrong.
For borrowers who receive a full or partial denial of their PPP forgiveness application, here are six things to keep in mind:
1. Do not assume that the SBA has carefully reviewed its documentation or correctly applied its rules and guidelines.
Given that there were over 11 million PPP loans issued in 2020 and 2021, it was inevitable that a significant number of forgiveness requests would be denied. Likewise, it was inevitable that the SBA would make mistakes when reviewing such an influx of loans and requests for forgiveness. The SBA appears to be denying PPP forgiveness requests at a faster rate in 2022, and many of these denials appear to violate the SBA’s own rules and guidelines. Borrowers received denial letters based on the SBA’s misapplication of its own Interim Final Rules (IFRs), misapplication of SBA Affiliate Rules, communication issues between the SBA and lenders, and even the SBA confusing a borrower’s information with an unrelated borrower’s information. . Accordingly, borrowers should not simply accept the SBA’s decision if there is any chance that it was made in error.
2. There is a 30-day time limit to appeal pardon denials to the SBA’s Office of Hearings and Appeals (OHA).
If SBA chooses to deny a borrower’s request for forgiveness, in whole or in part, SBA will send the borrower’s lender a Final Loan Review Decision. Lenders must then communicate this decision to the borrower within five working days. The SBA’s final rule on “Borrower appeals against final SBA loan review decisions under the Paycheck Protection Program” states that a borrower has 30 calendar days after “receipt of the SBA’s final loan review decision” to appeal the SBA’s decision to the OHA. To see 13 CFR § 134.1202(a). As a result, the 30-day period begins to run from the date a borrower receives the decision from their lender, rather than from the date shown on the final loan review decision.
3. Appeals of SBA final decisions are submitted through the OHA Case Portal and must include specific information.
Borrowers who choose to appeal the SBA’s final loan review decision must do so by submitting an appeal through the OHA’s Case Portal. There is no set format for the appeal, so borrowers or their attorneys can prepare a letter or written narrative outlining the reasons for the appeal. However, the appeal must meet the following minimum requirements:
Contain a complete and specific statement explaining why the SBA’s final loan review decision is wrong, along with all factual information and legal arguments supporting the statement;
Do not exceed 20 pages (excluding attachments). A table of authorities is only required for appeals citing more than 20 decisions, regulations or statutes; and
All exhibits and attachments must be clearly labelled.
Along with the appeal, borrowers must upload the SBA’s final loan review decision and provide the name, address, phone number, email address, and signature of the borrower or their attorney.
4. The appeal process should take approximately 90 days but could take much longer.
After a borrower submits an appeal, the OHA will issue a notice and order, which sets a deadline for SBA to produce the administrative record and specifies a date by which SBA can respond to the appeal. The SBA’s “Borrower’s Guide” states that the notice and order must be issued within three days; however, the issuance of the notice and order will likely take significantly longer. Pursuant to 13 CFR § 134.1207, the SBA has 20 calendar days after the publication of the notice and order to file an administrative record, unless additional time is requested and granted.
Borrowers must review the administrative record and generally must object to its contents within 30 days of the filing of the notice and order. For example, the borrower can object to the omission of certain documents or request that documents be corrected.
In addition to filing the administrative record, the SBA has 45 days after the publication of the notice and order to respond to the appeal, but the agency is not required to do so. Generally, the borrower will not have the opportunity to respond to a response from the SBA, but may do so under certain circumstances.
Unless the OHA extends the deadline, the case will be closed 45 calendar days from the publication of the notice and order. The OHA then has 45 days from the close of the case to review the merits of the appeal and issue a decision through its case portal. If the OHA’s decision is not favourable, borrowers have 30 calendar days to request a reconsideration by the OHA. Alternatively, borrowers can file an appeal in the appropriate federal district court.
5. If a borrower appeals to the OHA, loan repayment continues to be deferred.
Once a borrower files a timely appeal against the SBA’s forgiveness denial, payment of the PPP loan is deferred until the OHA renders a final decision. The borrower must provide their lender with a copy of the appeal request in a timely manner so that the lender can extend the deferment period. However, borrowers should note that interest will continue to accrue on the loan during the deferral period.
6. If a lender, rather than the SBA, makes the decision to deny forgiveness, the borrower may appeal the lender’s decision to the SBA.
In a Notice of Procedure dated January 27, 2022 titled “SBA Loan Reviews of Paycheck Protection Program Lender Partial Approval Forgiveness Decisions,” the SBA set out the procedure for appealing when the lender– and not the SBA – makes the decision to refuse the pardon. In such cases, the borrower has 30 days to submit a request, through the lender, to the SBA to review the lender’s decision. Unlike an appeal with the OHA, borrowers are required to make payments on the remaining balance of the PPP loan while the SBA reviews the appeal. If the SBA ultimately grants a full forgiveness, the lender will be required to repay those payments.