The Small Business Administration (SBA) has opened its Paycheck Protection Program (PPP) loan “forgiveness portal", allowing PPP lenders to submit applications seeking forgiveness of all or a portion of their borrowers’ PPP loans, and has issued an IFR outlining the forgiveness appeal process. Even with this rollout, many PPP lenders are not yet ready to process forgiveness applications and submit them to the SBA. Some large PPP lenders have indicated that they will be delaying opening their forgiveness application processes in hopes that automatic forgiveness of PPP loans below a certain threshold (e.g., $150,000) will be approved, which would greatly relieve the burden of forgiveness administration.
This article focuses on the administrative remedies and appellate review options a borrower has if the SBA renders an adverse decision on a borrower’s PPP loan forgiveness application. The rules issued by the SBA will be contained in a new Subpart L to 13 CFR § 134.
As we described in a prior article (and in the forgiveness portal), the general process starts with the borrower submitting a forgiveness application to its PPP lender bank. Within 60 days, the bank is supposed to review the application and issue a decision to the borrower and the SBA. The SBA is supposed to complete its review within 90 days,1 and remit the appropriate forgiveness amount plus interest accrued through the date of payment.2
If a business disagrees with the SBA’s forgiveness determination, the new regulations outline the appeals process.
All appeals of the SBA’s PPP loan review decisions will be heard by the SBA Office of Hearing and Appeals (the OHA). A loan review decision is defined as an official written decision by the SBA that finds a borrower:
Critically, this appeal process is not available for review of decisions made by PPP lenders or any decision by the SBA’s Office of the Inspector General. Rather, it is limited to the above decisions made by the SBA with respect to PPP loan forgiveness. Also of import, the filing of an appeal does not extend the deferral period of the PPP loan.3 13 CFR § 134.1201.
Only a PPP borrower that has received a final SBA loan review decision may file an appeal with the OHA. The appeal petition must be filed within 30 days after the earlier of (i) the borrower’s receipt of the SBA’s final decision or (ii) the borrower’s notification by their PPP lender of the SBA’s final decision. 13 CFR § 134.1203-04.
The PPP borrower must file a petition seeking an appeal of the SBA’s decision. The appeal petition must include the following:
There are other procedural requirements detailed in 13 CFR § 134.1202(b)-(g).
Upon receipt of an appeal, OHA will assign the matter to an Administrative Law Judge or an Administrative Judge in accordance with 13 CFR § 134.218. The judge will then issue an order establishing a deadline for production of the administrative record and specifying a date for the close of record. 13 CFR § 134.1206. The administrative record includes the relevant documents the SBA considered in making its final decision or that were before the SBA at the time it made its final decision. It need not, however, contain all documents pertaining to the appellant. The SBA may claim a privilege as to certain of the materials in the administrative record. 13 CFR § 134.1207.
The administrative record must be certified and authenticated that it is, to the best of the signatory’s knowledge, complete and correct. The SBA will file the administrative record with OHA and serve it on the appellant. The appellant may object to the absence of any document from the administrative record that it believes should have been included or that an included document is subject to a privilege. Such objections must be filed with OHA and served on the SBA within 10 days after appellant’s receipt of the administrative record. The judge will rule on such objections and may order that the administrative record be supplemented. 13 CFR § 134.1207.
The SBA may respond to an appeal petition before the close of the record. Any such response should set forth the relevant facts and legal arguments on the issues presented for appeal. SBA must file its response with OHA and serve such response on the appellant and other persons identified on the certificate of service attached to the petition. No reply by the borrower is permitted unless the judge directs otherwise. 13 CFR § 134.1208.
Generally, the judge may not admit evidence beyond the written administrative record or permit any form of discovery. However, discovery may be permitted if the judge determines that the SBA has made a showing of good cause. An oral hearing will not be held unless, following the motion of a party or on the judge’s own initiative, the judge orders an oral hearing upon concluding that there exists a genuine dispute of material fact that cannot be resolved except by taking of testimony and confronting witnesses. All appeals of OHA decisions will be decided solely on a review of the administrative record, the appeal petition, responses filed thereto, and admitted evidence at an oral hearing (if any). 13 CFR § 134.1209. In the ordinary case, the evidentiary record will be limited to the administrative record and appeal petition. Due to this, appellant borrowers should take great care to ensure all relevant documents are included in either the administrative record or the appeal petition.
Any decision made by the judge with respect to privilege is subject to a right of interlocutory appeal. Such interlocutory appeal must be filed within 20 days after issuance of the ruling. A response must be filed within 10 days after service of the appeal. The judge may stay the proceedings pending resolution of the interlocutory appeal. 13 CFR § 134.1210.
The parties may jointly file a motion requesting the judge permit the use of alternative dispute resolution to assist in resolving the matter. If the motion is granted, the judge may stay the proceedings before OHA pending the outcome of the alternative dispute resolution. Additionally, the Assistant Administrator for OHA or a Judge may designate another Judge or attorney assigned to OHA to serve as a neutral in any alternative dispute resolution procedures. 13 CFR § 134.1211.
The judge will review the SBA’s loan review decision for clear error of fact or law. The appellant has the burden of proof, by a preponderance of the evidence. 13 CFR § 134.1212.
The judge will issue its decision within 45 days after the close of the record. The decision will contain findings of fact and conclusions of law, and reasons for the same. It will also order relief, if any. The judge’s initial decision will become final 30 days after service absent a request for reconsideration or review. 13 CFR § 134.1213.
Either party may request reconsideration of the initial decision within 10 days after service. The judge may also reconsider its decision sua sponte within 20 days after service. 13 CFR § 134.1213.
Any party may file and serve a request for review by the Administrator of SBA (the Administrator). In order to exhaust administrative remedies and preserve a right to seek judicial review of an SBA final decision, a borrower that disputes an initial decision or reconsidered initial decision must file and serve a request for review by the administrator of such decision pursuant to 13 CFR § 134.228(a). 13 CFR § 134.1213(d).
The OHA’s decision will ordinarily be made publicly available without redaction on the OHA’s website. The decision could contain confidential business and/or financial information where such information is significant to the decision or otherwise necessary to make the decision comprehensible. A party may request redaction by contacting OHA. Decisions will also establish legal precedent for future OHA appeals related to PPP loan forgiveness. 13 CFR § 134.1213(e).
1 The SBA has stood by this 90-day period for its review first announced in the 14th IFR. Given the number of PPP loans and the lack of an automatic process for loans under $150,000, we expect the SBA to seek extensions for the review – especially for larger loans.
2 It remains unclear whether interest is forgiven – a statutory cap on forgiveness is the PPP loan amount.
3 As we discussed in this article, the Paycheck Protection Program Flexibility Act (PPPFA), extended the first payment date for PPP loans from six months after origination to the date the forgiveness amount is determined, provided that the business submits a PPP loan forgiveness application within 10 months after the end of the covered period.
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