In the early days of the pandemic Congress established the Paycheck Protection Program (“PPP”), which allowed guaranteed loans through the SBA for certain qualified borrowers on certain conditions. The initial funding for the program was depleted quickly and Congress provided additional funding. One of the more attractive features of the PPP loans was the possibility that, under certain conditions, the loan could be forgiven! The PPP officially expired on August 8, 2020. Soon borrowers under the PPP loans will be able to seek forgiveness of such loans. Accordingly, on Aug. 11, 2020, the Small Business Administration (SBA) released an Interim Final Rule (the “Rule”) creating subpart L for 13 CFR part 134 to establish a formal process for appeals of certain SBA loan review decisions under the PPP. Among other things, the Rule applies to appeals of SBA decisions on PPP loan forgiveness. The Rule became effective on August 25, 2020, but the SBA will consider comments until September 28, 2020.
An appeal may only be taken from an official written decision by the SBA, after the SBA completes a review of a PPP loan that (i) finds a borrower is ineligible for loan forgiveness in the amount determined by the lender or (ii) finding that a borrower is ineligible for loan forgiveness in any amount when the lender has issued a full denial decision to SBA. No appeal can be taken from a lender’s decision concerning loan forgiveness. Instead, if the borrower believes the lender’s loan forgiveness decision is in error, the borrower must request a review of the lender’s decision by the SBA first and then appeal from the SBA final decision if the error still persists. An appeal must be filed within 30 days after the earlier of the receipt of the final SBA loan review decision or notification by the lender of the final SBA loan review decision. Further, an appeal can only be filed by the borrower on the PPP loan. Individual owners of a borrower and lenders do not have standing to appeal an SBA loan review decision.
Pursuant to the Rule an appeal petition must include such information as signed copies of payroll tax filings reported to the IRS, and State quarterly business and individual employee wage reporting and unemployment insurance tax filings as well as signed copies of applicable federal tax returns filed with the IRS. Failure to include all of the information required under the Rule in an appeal may result in dismissal of the appeal. Once the appellate record has been completed, the Judge is required to issue a decision within 45 days.
It is important to note that the filing of an appeal does not suspend the obligation to make payments. The Rule provides that borrowers must begin making payments of principal and interest on their remaining loan balance at the end of the loan payment deferral period or when SBA remits the loan forgiveness amount to the PPP lender, if any.
The standard of review for an appeal is whether the SBA loan review decision was based on clear error of fact or law. Further, the party filing the appeal has the burden of proving by a preponderance of the evidence that the decision was erroneous. If you plan to seek loan forgiveness, let us help you with the process and if a bad decision is made let us help you with an appeal.
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