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SBA Publishes Interim Final Rule Regarding Appeal Process for SBA Loan Review Decisions Under the PPP

The Small Business Administration (SBA) has published a new interim final rule to inform Paycheck Protection Program (PPP) borrowers and lenders of the process for a PPP borrower to appeal certain SBA loan review decisions to the Office of Hearings and Appeals (OHA).  Under this rule, a final loan review decision is an official written decision by the SBA, following the SBA’s completion of PPP loan review, 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; and/or (3) is ineligible for PPP loan forgiveness.  Only final SBA loan review decisions can be appealed to OHA, meaning that a PPP borrower cannot file an OHA appeal of any decision made by a lender concerning a PPP loan.

Appeal petitions must include the following information: (1) the basis for OHA’s jurisdiction, including, but not limited to, evidence that the appeal is timely filed; (2) a copy of the SBA loan review decision that is being appealed, or a description of that decision if a copy is unavailable; (3) 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; (4) the relief being sought; (5) signed copies of payroll tax filings actually reported to the Internal Revenue Service (IRS), as well as 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; (6) signed copies of applicable federal tax returns 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 (7) the name, address, telephone number, email address and signature of the appellant or its attorney.

Only the borrower on a loan for which SBA has issued a final SBA loan review decision has standing to appeal the SBA loan review decision to OHA, meaning that individual owners of a borrower and lenders do not have standing to appeal an SBA loan review decision.  In addition, appeal petitions must be filed within 30 calendar days after: (1) the appellant’s receipt of the final SBA loan review decision; or (2) notification by the lender of the final SBA loan review decision, whichever is earlier.  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.  Unless the appeal will be dismissed, the Judge will issue a notice and order establishing a deadline for production of the administrative record and specifying a date for the close of record.  Typically, the administrative record will be due 20 calendar days after issuance of the notice and order unless additional time is requested and granted, and the record will close 45 calendar days from the date of OHA’s receipt of the appeal unless additional time is requested and granted.  Only the SBA may respond to an appeal and the response should set forth the relevant facts and legal arguments to the issues presented on appeal.  Except for good cause shown, a response filed after the close of record established by the Judge will not be considered.

Generally, during an appeal, the Judge may not admit evidence beyond the written administrative record or permit any form of discovery.  Discovery will be permitted in OHA’s appellate proceedings only if the Judge determines that SBA, upon written submission, has made a showing of good cause for discovery.  An oral hearing 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.  The standard of review on appeal is whether the SBA loan review decision was based on clear error of fact or law.  The appellant has the burden of proof, by a preponderance of the evidence. 

The Judge will issue his or her decision within 45 calendar days after the close of record, as practicable.  The Judge’s decision on the appeal is an initial decision.  However, unless a request for review or a request for reconsideration is filed, an initial decision shall become the final decision of the SBA 30 calendar days after its service.  If a request for review is filed, the decision of the Administrator is a final decision of the SBA appealable to federal district court.  In addition, the rule makes clear that 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.

Finally, the rule provides that 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 (ADR) 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 ADR.  In addition, the Assistant Administrator for Hearings and Appeals or a Judge may designate another Judge or attorney assigned to OHA to serve as a neutral in ADR procedures.

This interim final rule is effective today, August 27, 2020.  Comments are due by September 28, 2020 and can be submitted via the federal eRulemaking portal using Docket ID SBA-2020-0042.

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