On Aug. 11, a new Interim Final Rule (IFR) RIN 3245-AH55 was released regarding the Small Business Administration’s (SBA) Paycheck Protection Program (PPP) appeals. The new rule amends a subpart of the Code of Federal Regulations (13 CFR Part 134). It concerns the process that a PPP borrower must follow to appeal certain SBA loan review decisions to the SBA’s Office of Hearings and Appeals (OHA).
To lodge an appeal, the PPP borrower must prepare a written petition to submit to OHA to review after the SBA has issued an official written decision with which the borrower disagrees. The submission must include certain documentation and information as indicated below.
What Sorts of Decisions Can Be Appealed Under This Interim Final Rule?
A final SBA loan review decision that is appealable is an official written decision by the SBA, after the SBA completes a review of the PPP loan that finds a borrower:
- Was ineligible for a PPP loan.
- Was ineligible for the PPP loan amount received or used the PPP loan proceeds for unauthorized uses.
- Is ineligible for PPP loan forgiveness in the amount determined by the lender in its full approval or partial approval decision issued to SBA (except for the deduction of any Economic Injury Disaster Loan advance).
- Is ineligible for PPP loan forgiveness in any amount when the lender has issued a full denial decision to SBA.
Note: A borrower cannot file an appeal to the SBA’s OHA as to any decision made by a lender with respect to a PPP loan. Further, no appeal is available to the OHA for SBA’s determination as to a PPP borrower’s size or SBA’s designation of the borrower under the North American Industry Classification System (NAICS). This rule also does not create any right to appeal a determination by the SBA’s Office of Inspector General concerning a PPP loan to the OHA and only applies to PPP loans and not any other 7(a) loans.
Who Can Appeal?
Only the PPP borrower can appeal an SBA decision to the OHA using the rules provided by this IFR. Individual owners of the borrower and lenders have no standing to file an appeal.
When Must the Appeal Petition Be Submitted to the SBA's OHA?
The appeal must be filed by 30 calendar days of (i) the appellant’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.
What Documentation Must Be Included With the Appeal Request?
The rule includes a list of documentation that has to be included in the submission to the SBA, including the following:
- 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.
- A statement of what the appellant is asking for as a remedy for the SBA’s erroneous decision;
- 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.
- The name, address, telephone number, email address, and signature of the appellant or its attorney.
What Happens After the Appeal Is Filed?
- An administrative law judge or administrative judge will be assigned to the appeal.
- If the appeal is untimely, does not concern an appealable matter, has not been submitted by the correct person, or doesn’t state sufficient facts to show that the SBA’s decision was incorrect, the judge will dismiss the appeal and the SBA’s decision will be upheld. The judge can dismiss the appeal without prejudice, which means the borrower can refile, or can dismiss with prejudice, which prevents refiling by the borrower.
- If the appeal is not dismissed, the SBA will submit the administrative record, and the borrower has 10 calendar days to object to the record or any claim of privilege by the SBA.
- Generally, the judge will decide the matter on the papers submitted by the borrower and SBA, but a party can request a hearing which may be granted or the judge may order a hearing on its own initiative if the judge thinks that testimony is required.
- After the judge renders the decision, a party can seek reconsideration from the same judge or a review by the SBA Administrator. If the judge denies the borrower’s claims, the failure to seek review by the SBA Administrator could preclude the borrower from pursuing the SBA’s denial of its appeals with the U.S. District Court.
An SBA borrower must be careful to comply with the requirements of the IFR and submit the proper documentation to the proper place in the required time. The failure to do so could cause the borrower to lose its rights.
For further information, please contact any member of Taft’s SBA Task Force.
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