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Client Alert: Don’t Jeopardize Your PPP Forgiveness Appeal

Recently, we’ve been hearing from clients that their Paycheck Protection Program (“PPP”) loans are being reviewed by the Small Business Administration ("SBA") and we are here to help respond to SBA inquiries and requests for information. This Client Alert discusses the Interim Final Rule (“IFR”), effective September 14, 2021, promulgated by the SBA detailing the procedures for appealing adverse PPP forgiveness determinations. Note that these will only become relevant if the SBA formally denies (in whole or in part) a PPP forgiveness application by the delivery of a final SBA loan review decision document.
 

What can I appeal?

According to the IFR, a PPP borrower (whether first draw or second draw PPP loan) may seek a review of an official written decision by the SBA in which it determines that the PPP 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; and/or  
4. is ineligible for PPP loan forgiveness in any amount when the lender has issued a full denial decision to the SBA.

What may cause some confusion is that the PPP borrower does not appeal the PPP lender’s decision regarding its PPP forgiveness. Instead, the PPP borrower must first request an SBA review of the lender’s decision and then, if adverse, appeal the SBA’s final decision to the Office of Administrative Hearings (“OHA”).
 

By when do I need to appeal?

An appeal petition must be filed with OHA within 30 days (or if the 30th day is a weekend or federal holiday, the next business day) “after the borrower has received the actual final SBA loan review decision document.” The appeal is filed and managed on the OHA Case Portal which can be accessed by clicking here.

By timely filing an appeal, the deferment period for the PPP borrower’s PPP loan will be extended until the OHA issues a final decision. It is the PPP borrower’s responsibility to notify its PPP lender of the appeal to have the deferment period extended. However, interest will continue to accrue during the deferment period.
 

What do I include in the appeal petition?

The appeal petition may not be more than 20 pages in length (excluding attachments) and must include:

1. A copy of the final SBA loan review decision that is being appealed and the date it was received;  
2. a full and specific statement as to why the final SBA loan review decision is alleged to be erroneous, together with all factual information and legal arguments supporting the allegations; and
3. the name, address, telephone number, email address and signature of the appellant or its attorney.

If an appeal petition does not include the above it may be dismissed.

Once an appeal is received and OHA assigns the matter to an OHA Judge, the Judge will issue a Notice and Order utilizing the OHA Case Portal setting forth the deadline for the production of the administrative record (outlined below) and specify the date by which the SBA may respond to the appeal.
 

What comprises the “Administrative Record” for a PPP Appeal?

The SBA is responsible for filing the administrative record with OHA within 20 calendar days after issuance of the Notice and Order and serving it on the PPP borrower using the OHA Case Portal. The administrative record will include all non-privileged, relevant documents that the SBA considered when making its final decision. The PPP borrower may object to the administrative record by filing an objection with OHA (and served on SBA) via the OHA Case Portal not later than 30 days after the issuance of the Notice and Order.

The administrative record is a critical juncture in the appeals process as there is no further discovery or oral hearings, and a Judge is not permitted to admit into evidence anything beyond the administrative record. In other words, a PPP appeal is to be decided solely on the basis of the administrative record, the appeal petition, any SBA response, any reply or supplemental pleading and any objection filings related to the administrative record.

This means that a PPP borrower should ensure that it has provided appropriate supporting information regarding the calculation of its forgiveness amount when responding to a request from its lender for additional information. The loan necessity questionnaire can also be used to provide narrative responses and to flag potential arguments or issues and, critically, to explain key information relevant to the PPP borrower's certification – made in connection with its loan application – that economic uncertainty made its loan necessary to maintain ongoing operations.

The record is closed 45 calendar days from the issuance of the Notice and Order unless the Judge otherwise determines.
 

Who has the burden of proof and to what standard?

The burden of proof in the appeal is on the PPP borrower who must establish that the SBA loan review decision was based on a clear error of fact or law. This review standard is extremely deferential to the SBA.
 

How soon will the Judge issue a decision?

The Judge is required to, as practicable, issue his or her initial decision with 45 calendar days after the close of the record. He or she will serve the decision through the OHA Case Portal.

The decision will contain findings of fact and conclusions of law, the reasons for such findings and conclusions, and any relief ordered. If there is no request for reconsideration or administrator review within a 30 calendar day period after the Judge’s initial decision, such initial decision becomes final.
 

Can the Judge’s initial decision be reconsidered?

The Judge’s initial decision may be reconsidered if a request for reconsideration is filed by the PPP borrower or the SBA within 10 days after service of the Judge’s initial decision. Such a request must clearly show an error of fact or law material to the decision. In addition, the Judge may reconsider an initial decision on his or her own initiative within 20 calendar days after service of the decision. Such reconsideration will be decided by OHA and a reconsidered decision becomes final in 30 calendar days after its service unless the SBA Administrator decides to review and reverse OHA’s decision.

The SBA Administrator, solely by discretion, may choose to review and/or reverse an initial decision (or a decision that was issued after reconsideration) within 30 calendar days of service of each such decision. The SBA Administrator’s decision will become the final decision of the SBA upon issuance.
 

What’s next if I receive an adverse ruling from OHA?

A PPP borrower may seek review of a final SBA loan review decision in federal district court (i.e., the PPP borrower has exhausted its administrative remedies).
 

How can I get help with this?

If you receive an adverse determination by your PPP lender or SBA, please reach out to your attorney.

At Whiteford, we are prepared to help with every step of the PPP forgiveness process. We encourage you to reach out to us or your other professional advisors to respond to any requests for further information from your PPP lender and SBA so that you can present the best case before receiving a final written decision from SBA.

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The information contained here is not intended to provide legal advice or opinion and should not be acted upon without consulting an attorney. Counsel should not be selected based on advertising materials, and we recommend that you conduct further investigation when seeking legal representation.