My PPP Loan Forgiveness Application was Denied – Now what?

Last May, the Paycheck Protection Program (“PPP”) closed to new PPP loan applications, and the next phase of the PPP – loan forgiveness – began picking up steam. PPP loan borrowers have ten months from the end of their loans’ “covered period” (or period to use the loan proceeds for authorized purposes) to apply for loan forgiveness. After that, depending on whether a lender is participating in the United States Small Business Administration’s (“SBA”) direct loan forgiveness application, borrowers might be able to apply for forgiveness directly with the SBA.  According to the SBA, more than a million forgiveness applications had been submitted directly to the SBA through their loan forgiveness portal by the beginning of last fall. If borrowers cannot apply directly through the SBA, they will have to apply through their respective PPP lenders.  

If the SBA issues a written decision denying the borrower’s forgiveness application, the PPP borrower needs to understand the appeals process and be ready to act quickly. 

What kind of PPP loan forgiveness decision can you appeal?

A borrower may only appeal, to the SBA’s Office of Hearings and Appeals, an official written decision by the SBA, after SBA completes a review of a PPP loan that finds a 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 approval or partial approval decision issued to SBA (except for the deduction of any Economic Injury Disaster Loan advance in accordance with section 1110(e)(6) of the CARES Act); and/or
  4. Is ineligible for PPP loan forgiveness in any amount when the lender has issued a full denial decision to SBA.

Additionally, a borrower cannot appeal a lender’s decision denying forgiveness; but the borrower has other possible remedies if presented with just a decision from the lender. 

How long do you have to appeal a decision?

A borrower must file an appeal petition 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. 

It is critical to timely file the appeal petition because the PPP rules require the dismissal of any appeal that is untimely.

Can my accountant, that helped me with my loan forgiveness application, submit my appeal?

Only the borrower or the borrower’s attorney can submit a PPP loan appeal through the SBA’s PPP loan forgiveness appeal portal. If the borrower is a separate business entity, the following individuals (or the entity’s attorney) may submit appeals:

  • If the borrower is a corporation, trust, or association, officers of the borrower
  • If the borrower is a limited liability company, members of a borrower
  • If the borrower is a partnership, a partner of the borrower

How can you file a loan forgiveness appeal petition?

The SBA has set up a special PPP loan forgiveness appeals portal at Small Business Administration OHA Appeals Platform (sba.gov).  The appeal petition must comply with very specific requirements for its contents to ensure that it is not dismissed. Based on the timelines provided by the rules of practice for PPP appeals and guidance from the SBA, it may take approximately three months for OHA to complete its review and issue an initial decision on the appeal. A borrower can take additional appellate steps if the borrower receives a decision affirming the denial of loan forgiveness that may extend this process for months or even years.

What can you do?

If you believe you have a basis to appeal a final loan review decision issued by the SBA, you must act quickly. If you fail to timely file an appeal or if you file an appeal without all of the required contents, your appeal may be dismissed, and you will have to repay your loan in full. 

Take Action

If you have questions or concerns regarding filing a Paycheck Protection Program loan forgiveness appeal or other problems with PPP loan forgiveness, please contact Matthew M. Zapala, Esq., by e-mail (mzapala@nhkllp.com) or phone (518.432.3133) for a no-cost consultation to see how Nolan Heller Kauffman LLP may be able to assist you.

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My PPP Lender Denied my Forgiveness Application – Now What?

As was discussed in a separate article, a Paycheck Protection Program (“PPP”) lender’s decision denying loan forgiveness cannot be appealed to the United States Small Business Administration’s (“SBA”) Office of Hearings and Appeals (“OHA”). However, that does not mean a borrower cannot contest the lender’s decision to deny the forgiveness application. First, a borrower can potentially turn a non-appealable lender decision into an appealable SBA decision by requesting that the SBA review the lender’s decision. Second, the borrower may be able to commence a lawsuit against the lender that requests a declaratory judgment that the borrower was eligible for forgiveness and/or seeks damages for improperly denying loan forgiveness.

Request Review by the SBA

Suppose a Lender issues a decision to the SBA that denies the borrower’s loan forgiveness application. In that case, the lender must provide the borrower with written notice of that decision within five business days. This notice to the borrower must also include the basis for the lender’s decision to deny the borrower’s loan forgiveness application.

Within thirty days from receipt of this notice, the borrower may request that the SBA review the lender’s decision.  This is the only way borrowers can get the SBA to review the lender’s decision, and the request must be made within this period. This request for review must be made through the lender, and the lender must then submit those requests to the SBA within five business days of receiving the borrower’s request. 

While requesting an SBA review creates the possibility of getting a final forgiveness decision from the SBA, the SBA has also made clear that it is within its sole discretion whether it will accept or decline a borrower’s request for review. If the SBA agrees to review the lender’s decision, it will issue a final determination that the borrower can appeal to the OHA.

Suing Your Lender

Suppose the borrower either does not request an SBA review or the SBA declines to review the lender’s loan forgiveness decision. In that case, the borrower is left without any “administrative” remedies and will not be able to appeal the decision to the OHA

Although there is no guidance on the topic, a borrower may be able to contest a lender’s decision to deny forgiveness by commencing a lawsuit in state or federal court against the lender and seeking a declaratory judgment from the court that the borrower is entitled to loan forgiveness and/or damages for breach of contract or a different claim. 

While some lenders will undoubtedly argue that the PPP rules preclude such a lawsuit, the PPP does not specifically deprive borrowers of other rights under state or federal law. Boiling it down, a PPP loan is just an ordinary contract between a borrower and lender, albeit one that is supplemented by certain PPP rules and regulations.  Parties to contracts routinely rely on courts’ powers to issue declaratory relief to resolve disputes arising from the parties’ contractual relationship. Additionally, to the extent the borrower is wrongfully precluded from receiving forgiveness from the SBA because the lender decides to deny forgiveness, the borrower might be able to seek damages from the lender under a breach of contract or other cause of action. 

Contact Us

If you have questions or concerns regarding a lender’s decision to deny a PPP loan forgiveness application or other problems with PPP loan forgiveness, please contact Matthew M. Zapala, Esq., by e-mail (mzapala@nhkllp.com) or phone (518.432.3133) for a no-cost consultation to see how Nolan Heller Kauffman LLP may be able to assist you.

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