A borrower must file an appeal petition within 30 calendar days after the earlier of the borrower’s receipt of the SBA loan review decision or notification by the lender of the SBA loan review decision.

On August 11, 2020, the Treasury Department and Small Business Administration (SBA) released an interim final rule that details the appeals process for Paycheck Protection Program (PPP) loan borrowers for SBA loan review decisions regarding eligibility and/or forgiveness of a PPP loan. The interim final rule builds upon prior guidance released by the SBA on the review process for lenders and the SBA of PPP loans. See our prior Alert for an overview of that guidance.

Based on the new guidance, PPP loan borrowers should note the following key highlights:

• PPP loan borrowers will have access to an appeals process once a final SBA loan decision (delivered in written form) is received after SBA completes a review of a PPP loan. Note that borrowers may only appeal final SBA loan review decisions, and not any decision made by the SBA or lender.
• Borrowers are required to prepare an appeal petition, which must include a “full and specific statement” as to the error in the SBA loan review decision.
• The burden of proof is on the borrower to prove, by a preponderance of the evidence, that there was a clear error of fact or law.
• Appeals will be made to the SBA Office of Hearings and Appeals (OHA) and assigned to a judge, and the SBA and the borrower will have the opportunity to review a written record. In-person proceedings are not required, unless ordered by the judge.

Broad Review Powers of the SBA

As a general matter, the SBA has broad discretion to review PPP loans for eligibility, loan forgiveness and other concerns at any time during the term of the loan. As noted in our May 26 Alert, the scope of the SBA’s review can be all-encompassing from the initial application for a PPP loan, which includes loan eligibility, to the application for loan forgiveness.

Request for Review by the SBA

Under the prior interim final rule released on May 22, 2020, and amended on June 22, 2020, a lender is required to issue a decision on a borrower’s loan forgiveness application within 60 days after receipt of the forgiveness application[1]. The borrower may request that the SBA review the lender’s decision on its loan forgiveness application within 30 days of notice from the lender. Note that this SBA review process of the lender’s decision and its determination will not afford the borrower a right to a formal appeal process that is summarized in this Alert and will not involve a proceeding before a judge.

SBA Appeal Process

Below is a summary of the process for a PPP loan borrower to appeal certain SBA decisions. Note that the timeline depends upon receipt of a final SBA loan review decision and orders issued by the judge assigned to the case.

SBA Loan Review Decision

If a PPP loan is reviewed by the SBA, an appealable decision will be an official written decision by the SBA finding that a borrower (i) was ineligible for a PPP loan, (ii) was ineligible for the PPP loan amount received or used the PPP loan for unauthorized purposes, (iii) is ineligible for all or a portion of the loan forgiveness applied for after the lender has issued either a full or partial approval to the SBA for loan forgiveness or (iv) is ineligible for PPP loan forgiveness in any amount and the lender has issued a denial of loan forgiveness with respect to that loan.

It is important to note that only final “SBA loan review decisions” may be appealed to the SBA’s OHA. Borrowers are not able to appeal any decision made by a lender concerning a PPP loan to the OHA. If a borrower does not receive a written decision from the SBA, that issue may not be appealed to the OHA via the process summarized here.

Appeal Petition

Once a borrower decides to appeal an SBA loan review decision, the borrower must prepare an appeal petition to the OHA. The appeal petition requires the following information:

1. The basis for the OHA’s jurisdiction (for example, evidence that the appeal is in compliance with the timelines set forth in the guidance released by the SBA);
2. A copy of the SBA loan review decision or a description of the decision if a copy is unavailable;
3. A “full and specific statement” as to why the borrower believes the SBA loan review decision is erroneous, as well as all relevant factual information and legal arguments supporting its position;
4. The relief sought (for example, full loan forgiveness in the event that a borrower believes it is entitled to such after a decision where loan forgiveness was denied or only partially approved);
5. Signed copies of payroll tax filings filed with the Internal Revenue Service (IRS) and state quarterly business and individual employee wage reporting and unemployment insurance tax filings (if these were not included with the borrower’s loan forgiveness application);
6. Signed copies of applicable federal tax returns; and
7. The name, address, telephone number, email address and signature of the borrower or its attorney.

The appeal petitions must be fewer than 20 pages long and a table of authorities must be included if the petition cites more than 20 cases, regulations or statutes. In addition, the borrower must serve a copy of the petition to the Associate General Counsel for Litigation of the SBA and must attach a signed certificate of service.

The interim final rule makes it clear that only the borrower has standing to appeal the SBA loan review decision. Appeals cannot be made by other persons or entities on behalf of a borrower.

Deadline for Appeal Petition

A borrower must file an appeal petition within 30 calendar days after the earlier of (i) the borrower’s receipt of the SBA loan review decision or (ii) notification by the lender of the SBA loan review decision. Once a borrower receives a written decision from the SBA, the borrower should promptly review that decision and decide whether to pursue an appeal.

After an Appeal Petition Is Submitted

The SBA will assign the appeal to an administrative judge. The judge will then establish a timeline for the appeal. According to the interim final rule, typically a judge will order that the record (the documents and information which the court will evaluate as part of its decision-making process) for the appeal is due in 20 calendar days after issuance of the order from the judge and the record will close 45 days from the date of the OHA’s receipt of the appeal, unless additional time is granted.

Within five days of receiving an appeal petition, the SBA may request that the borrower-appellant provide more information regarding its appeal petition. The judge for the case will decide on the timing if more information is requested. If the borrower-appellant does not comply, the judge may dismiss the appeal petition.

Dismissal of the Appeal Petition

The judge may dismiss the appeal petition for several reasons, including if the appeal petition does not meet the timing requirements laid out in the interim final rule, if the borrower has not yet received a final SBA loan review decision or if the borrower-appellant did not allege “specific facts” in its appeal.

Judicial Proceedings

Once the appeal petition has been assigned to a judge, the SBA will file an administrative record with the court, which will include materials and documents relevant to the appeal petition. A borrower-appellant may object to the absence of any document or information from the administrative record or assert any privilege on such documents, no later than 10 calendar days after borrower-appellant’s receipt of the administrative record.

An oral proceeding will not be held, unless ordered by the judge and good cause exists for an oral hearing. The judge’s decision will be based on the administrative record, and a judge may not admit evidence beyond the record.

Standard of Review

The standard of review will be whether the SBA loan review decision was based on a clear error of fact or law. The borrower-appellant has the burden of proof by a preponderance of the evidence. Based on borrowers having the burden of proof, borrower-appellants should carefully consider whether the SBA loan decision is contrary to the relevant rules and guidance before submitting an appeal petition.

Interlocutory Appeal

Either the SBA or borrower-appellant may file an interlocutory appeal of a judge’s ruling which decides an issue of privilege. Interlocutory appeals will be reviewed and decided by the SBA administrator or its designee. An interlocutory appeal must be filed and served no later than 20 calendar days after the relevant ruling from the judge assigned to the case; a response is due within 10 calendar days of an interlocutory appeal.

Alternative Dispute Resolution

At any time during an appeal, the parties may submit a joint motion requesting that the judge permit an alternative dispute resolution, which, if granted, will result in a stay of the proceedings pending the outcome of the alternative dispute resolution.

Decision on the Appeal

A judge will issue a decision on the appeal within 45 days after the close of the record for the appeal. The decision will contain findings of fact and conclusions of law, and the reasons for such findings and conclusions. The initial decision will be deemed a final decision if no further appeal is made within 30 calendar days after the service of the judicial decision to both parties.

Either the SBA or the borrower-appellant may request a reconsideration of the judge’s decision within 10 calendar days after service of the written decision from the judge. The request for reconsideration must “clearly show an error of fact or law material to the decision.”

Within 30 calendar days of the initial decision from the judge, the SBA or borrower-appellant may request review by the SBA Administrator. If a borrower-appellant seeks to bring action in a federal court, the borrower-appellant must first request review of the decision by the SBA administrator.

Decisions from the OHA will be published on the OHA’s website. Decisions from the OHA will only create precedent for appeals involving PPP loans, and will not be binding on review of other SBA programs, such as the SBA’s 7(a) loan program. Decisions are normally published without redactions, though a party may request a redacted decision by contacting the OHA.

The OHA may affirm, reverse or remand an SBA loan review decision.

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