On Wednesday, August 12, 2020, the SBA issued a new Interim Final Rule (here), establishing the process by which borrowers may appeal decisions relating to Paycheck Protection Program (PPP) loans. The new Rule supplements the SBA's previous interim final rule on loan review procedures. The Rule adds a new subpart to part 134 of Title 13 of the Code of Federal Regulations, which governs adjudications before the SBA's Office of Hearings and Appeals (OHA). An overview of the new Rule is below.
What types of decisions may be appealed?
Only "final" SBA loan review decisions – defined as "an official written decision by SBA, after SBA completes a review of a PPP loan"– are appealable to OHA. Lender decisions regarding a PPP loan are not appealable to OHA. The appeals process is further limited to SBA decisions that:
- a borrower was ineligible for a PPP loan or loan amount;
- a borrower used loan funds for unauthorized purposes;
- a borrower was ineligible for forgiveness in the amount determined by the lender (whether the lender's decision was a full or partial approval of the loan forgiveness amount requested by the borrower); and
- a borrower was ineligible to receive any forgiveness amount where the lender issued a full denial decision.1
The Rule notes that OHA may also review "any other PPP matter" referred to OHA by the SBA Administrator. However, the Rule includes a substantial limitation, instructing that "[a] borrower cannot file an OHA appeal of any decision made by a lender concerning a PPP loan" (emphasis added). In addition, determinations made by the SBA Office of Inspector General (OIG) are not appealable to the OHA. The SBA has not yet indicated whether it will issue additional rules governing a review or appeals process for findings resulting from an OIG investigation.
Who may appeal?
Only the PPP loan borrower may appeal a final SBA decision. Individual owners, shareholders, or members of the borrower do not have standing to file appeals to the OHA. Lenders may not appeal an SBA decision, whether on behalf of a borrower or to resolve a dispute between the lender and the borrower.
Does an appeal allow a borrower to avoid or delay repaying its loan?
No. The new Interim Final Rule makes clear that an appeal does not extend the loan deferral period. In addition, if the SBA remits to the lender the loan forgiveness amount set forth in lender's forgiveness decision (subject to additional deduction of any Economic Injury Disaster Loan advance), the borrower may not pursue an appeal before the OHA, and the borrower must begin repayment of any remaining balance of its PPP loan.
When may an appeal be taken?
An appeal petition must be filed within the earlier of (1) 30 days after a borrower's "receipt" of the final SBA loan review decision or (2) 30 days after the lender notifies the borrower of the final SBA loan decision. Appeals that are untimely or premature (because the SBA has not yet made a final SBA loan review decision) will be dismissed.
What are the format and content of an appeal petition?
The Rule sets forth the required components of an appeal petition and incorporates certain preexisting SBA procedural rules. The appeal petition may not exceed 20 pages and must include, among other things:
- The basis for OHA's jurisdiction, including evidence that the appeal was timely filed;
- A copy of the SBA loan review decision or a description of the decision if a copy is unavailable;
- A full and specific statement explaining why the SBA loan review decision is erroneous, and including all factual information and legal arguments supporting the allegations;
- The relief sought;
- Signed copies of tax filings and state wage and unemployment insurance filings if the borrower did not provide them with its loan forgiveness application, or an explanation of why they are not relevant or available.
The SBA may file a response to the appeal petition. Leave to file a reply must be granted by the judge.
Who will decide the appeal?
OHA will assign the appeal to an Administrative Law Judge or Administrative Judge.
Must the SBA produce an administrative record?
Yes. The administrative record must include "relevant documents that SBA considered in making its final decision or that were before SBA at the time of the final decision," but need not include "all documents pertaining to" the borrower. A borrower may object to the contents of the administrative record if it believes documents are missing or if the SBA has claimed privilege over documents that the borrower believes should not be privileged. The objection must be filed with OHA and served on the SBA no later than 10 days after the borrower's receipt of the administrative record. The borrower or SBA may file an interlocutory appeal regarding the judge's privilege determinations within 20 calendar days after issuance of a ruling.
Will there be additional discovery or hearings?
Generally, no. Evidence outside of the administrative record will not be considered, although the SBA (and only the SBA) may be allowed to seek additional discovery upon a showing of good cause. The judge, however, may order, sua sponte or upon a motion by either party, an oral hearing if "there is a genuine dispute of material fact that cannot be resolved except by the taking of testimony and the confrontation of witnesses."
What is the standard of review?
The judge will consider whether the SBA loan review decision was based on a "clear error of fact or law." The borrower carries the burden of proof and must show "clear error" by a preponderance of the evidence. Traditionally, under the clear error standard, a judge will not reverse a decision simply because the judge "would have decided the case differently." Anderson v. Bessemer City, 470 U.S. 564, 573 (1985). Rather, the judge must be "left with the definite and firm conviction that a mistake has been committed." United States v. United States Gypsum Co., 333 U.S. 364, 395 (1948).
Is Alternative Dispute Resolution (ADR) available?
Yes. Both parties may submit a joint motion for ADR at any time during an appeal.
What options does the judge have in rendering a decision?
The judge may affirm or deny the SBA's determination or remand the matter back to the SBA for further consideration. The borrower can expect the judge's decision within 45 calendar days after the close of record, as practicable.
May a borrower challenge the judge's decision?
Yes. The judge will issue an initial decision, and the judge's decision becomes "final" after 30 days unless the borrower or SBA files (1) a request for reconsideration within 10 days of service of the judge's initial decision or (2) a request for review to the SBA Administrator within 30 days of service of the initial or reconsidered decision.
A borrower may seek judicial review of an SBA final decision in federal district court but must first exhaust its administrative remedies by filing a request for review to the SBA Administrator of the judge's initial or reconsidered decision. Failure to file a request for the Administrator's review waives the borrower's right to seek further review in federal court.
May a borrower recover its attorneys' fees if it successfully appeals an SBA loan decision?
No. The Equal Access to Justice Act (EAJA) does not apply, and a prevailing borrower will not be entitled to recover attorneys' fees from the SBA.
Are SBA decisions and borrower information maintained as confidential?
Certain borrower information, including confidential business and financial information, personally identifiable information (PII), source selection sensitive information, and income tax returns, are automatically afforded protection from disclosure under the Freedom of Information Act (FOIA). However, OHA decisions are typically published without redaction on OHA's website and may include confidential business or financial information or PII if that information is "decisionally-significant or otherwise necessary for a comprehensible decision."
Borrowers may seek a protective order to maintain information as confidential, and a borrower may request redactions of the judge's decision even if no protective order is in place. If a protective order is in place, the judge will typically post a redacted version of the decision.
 Previous interim final rules have explained that the SBA may review PPP loans at its discretion. Additionally, following notice from the lender that a borrower's request for loan forgiveness has been denied in full, a borrower may, within 30 days, request that the SBA review the lender's decision. Loan Review Interim Final Rule, 85 Fed. Reg. 33010, 33013, at III.2.b.