What to Do if Your PPP Forgiveness Application Is Denied (In Full or in Part)
The Small Business Administration’s (SBA) public data indicates that more than 98% of the total Paycheck Protection Program (PPP) loan value requested to be forgiven by borrowers has been forgiven by the SBA (approximately $692 million was forgiven out of the $700 million requested). However, over the past month, there has been an uptick in the number of forgiveness applications denied by the SBA. Borrowers should be aware that such denials are appealable and consider challenging forgiveness denials if they believe the SBA’s decision was in error.
For borrowers receiving a full or partial denial of their PPP forgiveness application, below 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 guidance.
Given that there were more than 11 million PPP loans issued in 2020 and 2021, it was inevitable that a substantial number of forgiveness applications would be denied. Similarly, it was inevitable that the SBA would make errors when reviewing such an influx of loans and forgiveness applications. The SBA appears to be denying PPP forgiveness applications at a greater pace in 2022, and many of these denials seem contrary to the SBA’s own rules and guidance. Borrowers have received denial letters based on the SBA’s misapplication of its own Interim Final Rules (IFRs), improper application of the SBA’s affiliation rules, communication issues between the SBA and lenders, and even the SBA mixing up one borrower’s information with an unrelated borrower’s information. Accordingly, borrowers should not simply accept the SBA’s decision if there is a chance it was made in error.
2. There is a 30-day timeframe to appeal denials of forgiveness to the SBA’s Office of Hearings and Appeals (OHA).
If the SBA elects to deny—in full or in part—a borrower’s forgiveness application, the SBA will send the borrower’s lender a Final Loan Review Decision. Lenders must then pass this decision along to the borrower within five business days. The SBA’s Final Rule on “Borrower Appeals of Final SBA Loan Review Decisions Under the Paycheck Protection Program” stipulates that a borrower has 30 calendar days after “receipt of the final SBA loan review decision” to appeal the SBA’s decision to the OHA. See 13 CFR § 134.1202(a). Accordingly, the 30-day clock begins to run from the date a borrower receives the decision from its lender, rather than from the date listed on the Final Loan Review Decision.
3. Appeals of the SBA’s final decisions are submitted through the OHA’s Case Portal and must include specific information.
Borrowers that elect 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 lawyers can prepare a letter or written narrative outlining the grounds for the appeal. However, the appeal must meet the following minimum requirements:
Contain a full, specific statement as to why the SBA’s Final Loan Review Decision is erroneous, together with all factual information and legal arguments supporting the statement;
Be no longer than 20 pages (not including attachments). A table of authorities is required only for appeals citing more than 20 cases, regulations, or statutes; and
All exhibits and attachments must be clearly labeled.
Along with the appeal, borrowers must upload the SBA’s Final Loan Review Decision and provide the name, address, telephone number, email address, and signature of the borrower or the borrower’s lawyer.
4. The appeals process should take approximately 90 days but could take much longer.
After a borrower submits an appeal, the OHA will issue a Notice & Order, which establishes a deadline for the SBA’s production of the administrative record and specifies a date by which the SBA may respond to the appeal. The SBA’s “Borrower’s Guide” estimates that the Notice & Order should be issued within three days; however, the issuance of the Notice & Order is likely to take much longer. Pursuant to 13 CFR § 134.1207, the SBA has 20 calendar days after issuance of the Notice & Order to produce an administrative record—unless additional time is requested and granted.
Borrowers should review the administrative record and generally must make objections to its contents within 30 days after the filing of the Notice & Order. For example, the borrower may object to the omission of certain documentation or request that documentation be corrected.
In addition to filing the administrative record, the SBA has 45 days after the issuance of the Notice & Order to respond to the appeal, but the agency is not required to do so. Typically, the borrower will not have the opportunity to reply to a response from the SBA but may do so under certain circumstances.
Unless the OHA extends the deadline, the record will close 45 calendar days from the issuance of the Notice & Order. The OHA then has 45 days from the close of the record to review the merits of the appeal and issue a decision through its Case Portal. If the OHA’s decision is not favorable, 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, then repayment of the loan continues to be deferred.
Once a borrower has submitted a timely appeal of the SBA’s denial of forgiveness, payment of the PPP loan is deferred until the OHA issues a final decision. The borrower must provide its lender with a copy of the timely appeal petition in order for the lender to extend the deferment period. However, borrowers should note that interest will continue to accrue on the loan during the deferment period.
6. If a lender, rather than the SBA, makes the decision to deny forgiveness, the borrower can appeal the lender’s decision to the SBA.
In a January 27, 2022, Procedural Notice entitled “SBA Loan Reviews of Paycheck Protection Program Lender Partial Approval Forgiveness Decisions,” the SBA set forth the process for appeals when the lender—not the SBA—makes a decision to deny forgiveness. In such cases, the borrower has 30 days to submit a request, via the lender, for the SBA to review the lender’s decision. Unlike an appeal to 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 full forgiveness, the lender will be required to refund those payments.