What to do if your PPP loan is not canceled
The Paycheck Protection Program, or PPP, created by the passage of the Coronavirus Aid, Relief, and Economic Security, or CARES Act, in March 2020, brought much needed relief to the restaurant industry.
The PPP was accompanied by a waiver of the membership rules set by the US Small Business Administration to ensure that more restaurants could take advantage of the financial assistance made available by the CARES Act and the additional assistance made available. available through the December 2020 economic aid to Hard. -Hit Small Businesses, Nonprofits, and Venues, or the Economic Aid Act.
Nonetheless, the effect of the pandemic on the restaurant industry has been devastating. An estimated 110,000 food and beverage establishments closed their doors last year and 2.5 million restaurant jobs were lost. Last year’s sales were $ 240 billion lower than the pre-pandemic forecast, leading some to describe 2020 as the worst year for the restaurant industry in history.
To complicate matters for those who have survived with PPP loans, the vast majority of borrowers still do not know if their loans will be canceled. This is a problem across all industries, as the SBA is currently reviewing nearly 200,000 pardon requests while expecting to review 2.3 million additional requests in the coming months. The uncertainty that borrowers face as to whether their loans will be canceled and, if so, how much is, of course, regrettable. Fortunately, there is certainty as to what a borrower can do now to prepare for the SBA’s forgiveness decision. In addition, a borrower can be sure that he does not have to accept an adverse decision from the SBA denying forgiveness, but can instead appeal the decision.
The SBA’s final loan review decision
The SBA will review millions of loan forgiveness requests over the coming year. The ASB’s decisions resulting from these reviews may be unfavorable to the borrower. Referred to as the “SBA Final Loan Review Decision,” these adverse decisions typically conclude that a borrower was not eligible for a PPP loan in whole or in part and / or spent the loan proceeds for unauthorized purposes.
Notably, these adverse decisions can even happen after your lender issues a full or partial approval decision to the SBA, which means the SBA may disagree with your lender.
What should a borrower do while waiting for an “SBA final loan review decision” and what should they do when they receive such a decision?
Knowledge who your business will speak immediately after receiving the decision is a necessary step that you can and should decide now. Your company’s internal point of contact for its PPP loans, coupled with its trusted advisors and internal or external advisors, should be ready to assist you in analyzing the ASB’s decision so that your company knows how answer to. Based on this analysis, the next step could very well be to appeal the decision administratively.
Appeal an unfavorable decision of the ASB
A borrower can challenge the SBA’s decision through an administrative appeal, which is described in the SBA regulations.
The process begins with filing a “petition” with the SBA’s Office of Hearings and Appeals, or OHA, within 30 days. days after the borrower receives the final SBA loan review decision (or lender’s notification of the final SBA loan review decision, whichever comes first).
This 30-day period is jurisdictional and rigid. Failure to meet the deadline will immediately end the borrower’s attempt to reverse the SBA’s decision. Thus, a borrower must be prepared to act quickly, and even if the borrower believes the SBA’s decision will be favorable, the borrower must be prepared to appeal an unscheduled denial of loan forgiveness.
The appeal request must include seven pieces of information, including confidential information, as follows:
- The basis for the jurisdiction of the OHA, including, but not limited to, proof that the appeal is filed in a timely manner.
- A copy of the SBA loan review decision that is being appealed, or a description of that decision if a copy is not available.
- A complete and specific statement as to why the SBA loan review decision is allegedly wrong, along with all factual information and legal arguments supporting the allegations.
- The relief requested.
- Signed copies of income tax returns actually filed with the Internal Revenue Service, and report quarterly business and individual employee wage returns and UI tax returns actually reported to the relevant state, for the relevant periods, if they are not provided with the PPP Loan Remission Request (SBA Form 3508, SBA Form 3508EZ or the lender’s equivalent), or an explanation of why they are not relevant or not available.
- Signed copies of applicable federal income tax returns actually filed with the IRS with appropriate schedules (for example, IRS Form 1040 with Schedule C / F) documenting the income of self-employed persons or partners of a partnership, if they are not provided with the PPP borrower application form (SBA Form 2483 or lender’s equivalent), or an explanation of why they are not relevant or not available.
- The name, address, telephone number, e-mail address and signature of the appellant or his lawyer.
An administrative judge, or ALJ, will decide the appeal based on the request filed by the borrower, the response from the SBA and the “file”, that is, the documentation submitted by the borrower. and the SBA to the OHA.
In order to obtain an annulment of the refusal to forgive the loan, the borrower must convince the ALJ that “the decision to review the SBA loan was based on an obvious error of fact or of law”. This is very difficult to prove because the courts have held that “a manifest error of fact or of law” means that “although there is evidence to support it [the decision], the [ALJ] . . . is left with the definitive and firm conviction that a mistake has been made. “
All of this means that careful preparation and diligent prosecution of the appeal is absolutely necessary.
By design, the appeal process is supposed to be relatively quick, or at least much shorter than normal litigation. For example, the documentation that the ALJ must review is that which is in the file or in the file, 45 days after the filing of the appeal motion, and the regulations require that the ALJ give its opinion. “within 45 calendar days of the closure of the file, as much as possible,“ (emphasis added). However, as the emphasis underlines, the qualifier “to the extent possible” is a clear message that the ALJ’s decision could be rendered well after the 45-day deadline has expired.
In addition, the workload of the ALJs – probably very high even if the SBA renders a small percentage of unfavorable decisions – will also affect the length of the appeal process.
The ALJ’s decision is obviously crucial, but one final step is available for review: an appeal to the Federal Court to review the ALJ’s decision. The Federal Court will consider the same issues that were considered by the ALJ. If the court decides that the ALJ’s decision was wrong, that decision could be overturned, ultimately providing the relief requested by the borrower.
Parties to a dispute naturally expect the possibility of an appeal after having argued a case in the court of first instance. PPP borrowers, however, do not have a history of PPP litigation to prepare them for an appeal. Instead, a final SBA loan review decision is likely to come up out of the blue and, if unfavorable, be unexpected. Knowing that you can appeal such a decision and having a team in place ready to do so will be essential for the borrower’s use and cancellation of their PPP loan (s).
Douglas Lang, Kirk Schuler, Jamie Whatley and Ken Logsdon are partners at Dorsey & Whitney.
This article does not necessarily reflect the views of the editors or management.