Q&A: Appealing an SBA decision on a PPP loan or PPP loan forgiveness

Update: On July 28, 2021, SBA released updated guidance on how appeals affect the PPP loan deferment period. For details, continue to the section titled, “How would an appeal affect loan payment timelines?”

On Aug. 11, 2020, the Small Business Administration (SBA) released an interim final rule titled “Appeals of SBA Loan Review Decisions under the PPP,” establishing guidelines for appealing SBA decisions both on Paycheck Protection Program (PPP) loans and on forgiveness for those loans. 

The new guidance is intended to supplement the guidance in the May 22 interim final rule “Loan Review Procedures and Related Borrower and Lender Responsibilities,” as amended June 22.

Read on for an overview of the interim final rule and what to know about the outlined PPP loan review appeal process.

What types of appeals are covered by this interim final rule?

The interim final rule establishes a process under 13 CFR part 134 for appealing to the SBA Office of Hearings and Appeals (OHA) when SBA has reviewed a PPP loan and made an official written decision that the borrower either:

1. Was ineligible for a PPP loan;

2. Was ineligible for the loan amount received, or used the 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 SBA (except for the deduction of any Economic Injury Disaster Loan (EIDL) advance”; or 

4. “Is ineligible for PPP loan forgiveness in any amount when the lender has issued a full denial decision to SBA.”

The rule notes that “Only final SBA loan review decisions (as defined in this rule) can be appealed to OHA; a PPP borrower cannot file an OHA appeal of any decision made by a lender concerning a PPP loan. A PPP borrower can request an SBA review of a lender decision to deny the borrower’s loan forgiveness application in full … but that request is for a review by SBA, not an OHA appeal.”

Who can appeal?

Only the borrower on the loan has standing to appeal the SBA decision to OHA, the rule says. Individual owners of a borrower and lenders do not.

When must appeals be filed?

The rule states that petitions must be filed within 30 calendar days after the earlier of:

1. “The appellant’s receipt of the final SBA loan review decision; or

2. “Notification by the lender of the final SBA loan review decision”

What must be included in an appeal?

The appeal petition must include, as listed in the IFR:

1. The basis for OHA’s jurisdiction, including, but not limited to, evidence that the appeal is timely filed in accordance with 13 CFR Section 134.1204

2. A copy of the SBA loan review decision that is being appealed, or a description of that decision if a copy is unavailable

3. A full and specific statement as to 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. Signed copies of payroll tax filings actually reported to the IRS, and State quarterly business and individual employee wage reporting and unemployment insurance tax filings actually reported to the relevant state, for the relevant periods of time, if not provided with the PPP Loan Forgiveness Application (SBA Form 3508, SBA Form 3508EZ, or lender’s equivalent), or an explanation as to why they are not relevant or not available

6. Signed copies of applicable federal tax returns actually filed with the IRS with appropriate schedules (e.g., IRS Form 1040 with Schedule C/F) documenting income for self-employed individuals or partners in a partnership, if not provided with the PPP Borrower Application Form (SBA Form 2483 or lender’s equivalent), or an explanation as to why they are not relevant or not available

7. The name, address, telephone number, email address and signature of the appellant or its attorney

Petitions must generally be 20 pages or fewer, not including attachments. See the full rule for additional process details, including directions for providing a copy of the appeal petition to the Associate General Counsel for Litigation and certificates to attach. 

The rule cautions that appeal petitions that do not include the above components may be dismissed, or SBA or a judge may move for more information.

What happens after an appeal is made?

If the assigned judge does not dismiss the appeal, he or she will order SBA to produce an administrative record of “relevant documents that SBA considered in making its final decision or that were before SBA at the time of the final decision,” which will typically be due 20 days after the order is issued, and “the record will close 45 calendar days from the date of OHA’s receipt of the appeal unless additional time is requested and granted.”

Appellants will receive the administrative record and may object – within 10 days of receipt – to the absence of any document they feel should be included, or to SBA claims that any documents in the record are privileged.

Judges are to make their decisions within 45 calendar days after the close of the record, and those decisions become final 30 days after they are served, unless a request for review or reconsideration is filed. (See the full rule for details on each type of request.)

Who can respond to an appeal petition?

“Only SBA may respond to an appeal,” the rule says, “and the response should set forth the relevant facts and legal arguments to the issues presented on appeal.” Responses must be filed before the record closes, unless good cause is shown. “SBA must file its response with OHA, and serve a copy of the response upon the appellant and upon each of the persons identified in the certificate of service attached to the appellant’s appeal petition,” the rule says. “No reply to a response will be permitted unless the Judge directs otherwise.”

How would an appeal affect loan payment timelines?

Under the August 2020 IFR, appeals do not extend the deferral period of the PPP loan: Borrowers must still 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 (or notifies the lender that no loan forgiveness is allowed).”

“Additionally, if SBA remits to the lender the PPP loan forgiveness amount set forth in the decision issued by the lender to SBA (except for the deduction of any Economic Injury Disaster Loan advance), the borrower may not file an appeal with OHA, and the borrower must begin repayment of any remaining balance of its PPP loan,” the rule says.

However, on July 28, 2021, SBA announced in a new IFR that it was amending the rule to “provide that a borrower’s timely appeal of a final SBA loan review decision will extend the deferment period for the PPP loan until [OHA] issues a final decision on the appeal. The revised OHA rule will provide that the borrower should notify the lender of the appeal so that the lender can extend the deferment period. Under the revised OHA rule, an appeal petition must be filed with OHA within 30 calendar days after the appellant's receipt of the final SBA loan review decision.”

The change applies to PPP appeals filed after the effective date of the new IFR – July 28, 2021 – and “to those PPP appeals filed before the effective date of this rule for which a Notice and Order has not been issued.”

Additional information

Discovery and oral hearings: In general, discovery will not be allowed unless the judge determines there is good cause. “An oral hearing will not be held on an appeal of an SBA loan review decision, unless, following the motion of a party, or at the Judge’s own initiative, the Judge orders an oral hearing upon concluding that there is a genuine dispute of material fact that cannot be resolved except by the taking of testimony and the confrontation of witnesses,” the rule states.

Effective date and comments: The interim final rule is effective immediately, but SBA is still inviting comments. See the full document for details on how to submit.

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