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August 14, 2020

COVID-19: SBA Releases Interim Final Rule Outlining Procedure to Appeal PPP Loan Review Decisions

With Paycheck Protection Program (PPP) loan applications in the rearview mirror and the submission of loan forgiveness applications on the horizon, the SBA released long-awaited guidance on the process borrowers can use to appeal certain Small Business Administration (SBA) loan review decisions to the Office of Hearings and Appeals (OHA).

To avail themselves of the appeals process, a borrower must first have an official written decision by the SBA. Only final SBA loan review decisions may be appealed to the OHA. A borrower can’t file an OHA appeal of any decision concerning a PPP loan made by a lender, and filing an appeal doesn’t extend the deferral period of the PPP loan. However, if a borrower disagrees with a decision made by the lender, nothing prevents the borrower from commencing litigation against the lender with respect to the decision. 

A borrower may appeal if, after a complete review of a PPP loan, the SBA finds that a borrower:

  1. Was ineligible for a PPP loan
  2. Was ineligible for the PPP loan amount received or used the PPP loan proceeds for unauthorized uses
  3.  Is ineligible for PPP loan forgiveness in the amount determined by the lender in its full or partial approval decision issued to the SBA
  4. Is in eligible for PPP loan forgiveness in any amount when the lender has issued a full denial decision to the SBA

An appeal petition must include the following:

  1.  The basis for the OHA’s jurisdiction, including evidence that the appeal is timely filed
  2. A copy of the SBA loan review decision that’s being appealed
  3.  A full and specific statement regarding why the SBA loan review decision is alleged to be erroneous, together with all factual information and legal arguments supporting the allegations
  4. The relief being sought
  5.  Supporting documentation
  6. Signed copies of applicable federal tax returns
  7. The name, address, telephone number, email address, and signature of the appellant or its attorney

The PPP loan borrower is the only party that has the right to appeal an SBA loan review decision; individual owners of a borrower may not bring an appeal. A borrower must file its appeal within 30 calendar days of the earlier of either the borrower’s receipt of the final SBA loan review decision or notification by the lender of the final SBA loan review decision. 

During this process, the SBA will produce an administrative record. The administrative record must include relevant documents that the SBA considered in making its final decision or that were before the SBA at the time of the final decision. Typically, the administrative record will be due 20 calendar days after a judge issues an order for its production, and the record will close 45 calendar days from the date of the OHA’s receipt of the appeal. In some circumstances, additional time may be requested and granted. All appeals will be decided solely on a review of the written administrative record, the appeal petition, response(s) filed thereto, any admitted evidence, and an oral hearing, if held. Borrowers concerned about the public release of confidential business and financial information or other personally identifiable information may request a redacted public decision.

At any time while the appeal is pending, the parties may jointly agree to use alternative dispute resolution to assist in resolving the matter.

Borrowers have the burden to prove, by a preponderance of the evidence, that the SBA loan review decision was based on a clear error of fact or law. The OHA may affirm, reverse, or remand an SBA loan review decision. Borrowers should be aware that the prevailing party will not be entitled to recover their attorney’s fees. 

Decisions on appeal will be issues within 45 calendar days of the close of the record. Either party or the judge on their own initiative may request a reconsideration of the decision. A borrower also has a right to request review by the administrator. Only if a borrower requests review by the administrator is the final decision then appealable to federal district court. To avail themselves of the judicial appeals process, a borrower must first exhaust the administrative appeals process. 

This topic is continuing to evolve. This alert is based on current guidance and may be subject to change. 

If you have any questions regarding the content of this alert, please contact Roger Cominsky, Financial Institutions & Lending Practice Area chair, at rcominsky@barclaydamon.com; Danielle Katz, associate, at dkatz@barclaydamon.com; or Samantha Podlas, associate, at spodlas@barclaydamon.com.

We also have a specific team of Barclay Damon attorneys who are actively working on assessing regulatory, legislative, and other governmental updates related to COVID-19 and who are prepared to assist clients. Please contact Yvonne Hennessey, COVID-19 Response Team leader, at yhennessey@barclaydamon.com or any member of the COVID-19 Response Team at COVID-19ResponseTeam@barclaydamon.com.

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