The Small Business Association (SBA) recently issued a new Interim Final Rule establishing the process by which borrowers can appeal decisions regarding Paycheck Protection Program (PPP) loans. The new rule is effective immediately.

Eligibility for the PPP Appeal Process

Under the Interim Final Rule, only the borrower on a loan for which SBA has issued a final loan review decision has the standing to appeal to the SBA’s Office of Hearings and Appeals (OHA). OHA may affirm, reverse, or remand an SBA loan review decision.

OHA appeals are available for SBA written loan review decisions that find that a Borrower: (1) was ineligible for a PPP loan; (2) used PPP loan proceeds for unauthorized uses or was ineligible for the PPP loan amount received; (3) is ineligible for PPP loan forgiveness in the amount determined by Borrower’s lender in its full or partial approval decision issued to the SBA; and/or (4) is ineligible for PPP loan forgiveness in the full PPP loan amount received due to the issuance of a full denial by Borrower’s lender in its decision issued to the SBA.

While a borrower can appeal a decision made by the SBA to the OHA, a borrower can’t file an OHA appeal of any decision made by a lender concerning a PPP loan. However, the SBA has said that it will review such decisions.

Deadline for Appeals

An appeal petition must be filed with OHA within 30 calendar days after (i) the Borrower’s receipt of the final SBA loan review decision, or (ii) notification by the lender of the final SBA loan review decision, whichever is earlier.

Appeal Petition Requirements

Under the Interim Final Rule, the appeal petition must include the following information:

  • The basis for OHA’s jurisdiction, including, but not limited to, evidence that the appeal is timely filed;
  • A copy of the SBA loan review decision that is being appealed, or a description of that decision if a copy is unavailable;
  • 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;
  • The relief being sought;
  • Signed copies of payroll tax filings actually filed with the Internal Revenue Service (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;
  • 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; and
  • The name, address, telephone number, email address and signature of the appellant or its attorney.

Availability of Discovery/Hearings

Upon receipt of an appeal challenging a final SBA loan review decision, OHA will assign the matter to either an Administrative Law Judge or an Administrative Judge. Generally, the Judge may not admit evidence beyond the written administrative record or permit any form of discovery.

Discovery will be permitted only if the judge determines that SBA, upon written submission, has made a showing of good cause for discovery. Similarly, oral hearings 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.

Standard of Review

The standard of review is whether the SBA loan review decision was based on a clear error of fact or law. Under the “clear error” standard, a judge will not reverse a decision solely because he or she "would have decided the case differently." Anderson v. Bessemer City, 470 U.S. 564, 573 (1985). Instead, the judge must be "left with the definite and firm conviction that a mistake has been committed." United States v. United States Gypsum Co., 333 U.S. 364, 395 (1948). The Borrower has the burden of proof, by a preponderance of the evidence.

Appealing the Decision

The judge will issue his or her decision within 45 calendar days after the close of record. The judge's initial decision becomes "final" after 30 days unless the Borrower or SBA files (1) a request for reconsideration within 10 days of service of the judge's initial decision or (2) a request for review to the SBA Administrator within 30 days of service of the initial or reconsidered decision.

An appeal to OHA and request for review by the Administrator of a disputed initial decision or reconsidered initial decision are administrative remedies that must be exhausted before judicial review of an SBA loan review decision may be sought in a federal district court.

Arbitration

At any time during the pendency of an appeal, the parties may submit a joint motion requesting that the judge permit the use of alternative dispute resolution to assist in resolving the matter. If the motion is granted, the judge will also stay the proceedings before OHA, in whole or in part, as he or she deems appropriate, pending the outcome of the alternative dispute resolution. In addition, the Assistant Administrator for OHA or a judge may designate another judge or attorney assigned to OHA to serve as a neutral in alternative dispute resolution procedures. If OHA provides the neutral and the mediation fails to resolve all issues in the case, the OHA-provided neutral will not be involved in the adjudication.

Confidentiality

If an appeal filing or submission contains confidential business and financial information; personally identifiable information; source selection sensitive information; income tax returns; or any other exempt information, that information is not available to the public pursuant to the Freedom of Information Act (FOIA). 

OHA decisions are normally published without redactions on OHA’s website. Accordingly, a decision may contain confidential business and financial information or personally identifiable information where that information is either decisionally-significant or otherwise necessary for a comprehensible decision. Borrowers and the SBA may seek a protective order over information exchanged in discovery and any document or information filed pursuant to an appeal. Where no protective order is in place, a party may request a redacted public decision by contacting OHA.

Key Takeaway

While PPP loans are just starting to move through the loan forgiveness process, the Interim Rule outlines how the appeal process will proceed if businesses find that part or all of their loan will not be forgiven. We encourage entities that have received PPP loans to review the rules to ensure they understand their legal rights and contact experienced counsel with any questions.

If you have questions, please contact us

If you have any questions or if you would like to discuss the matter further, please contact me, David Einhorn, or the Scarinci Hollenbeck attorney with whom you work, at 201-896-4100.