PPP Loan Forgiveness: Appealing Adverse Rulings, Responding to SBA Loan Audits

The CARES Act and subsequent legislation made two rounds of PPP financing available to small businesses. Most of those loans have now been funded, and the focus has shifted to loan forgiveness. Borrowers may be denied some or all of the amount of forgiveness applied and remain obligated to repay the loan. Loans that the lender determines qualify for forgiveness remain subject to SBA audit. Borrowers and their counsel must be prepared to respond to either circumstance.

In evaluating a borrower’s loan forgiveness application, the SBA will consider several factors, including whether a borrower was eligible for a PPP loan, whether the borrower used the proceeds for the purposes enumerated with the CARES Act regulations, and whether the subject borrower calculated its expected loan forgiveness amount properly.

To understand the appeals process, a borrower must understand the application process and the parties involved in the loan forgiveness decision. The lender determines the amount of loan forgiveness based on its evaluation of the borrower's application and issues its decision to the SBA. The SBA remits the loan forgiveness amount requested by the lender and/or reviews the application. After the SBA's determination, the borrower may appeal the decision to the SBA Office of Hearings and Appeals. Counsel must understand the process and timing associated with each stage of the process.

The SBA has indicated it will review all loans over $2 million following the lender submission of the borrower's loan forgiveness application. It has also reserved the right to audit loans below the $2 million threshold. In addition to reviewing the loan forgiveness decision, a major focus of the audit will be on the borrower's certification that "current economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant." This certification generated public controversy when it was reported that the Los Angeles Lakers and Shake Shack received PPP loans, after which those borrowers repaid their respective loans and the Treasury Department announced that it will audit all loans over $2 million.

Listen as our authoritative panel discusses the appeals process concerning loan forgiveness and how to best respond to an SBA audit of a PPP loan.

1. Loan forgiveness: application and approval process
2. Appeals process when all or part of loan forgiveness is denied
   1. Appealing the lender's decision
   2. Appealing SBA's ruling
3. SBA audits
   1. Over $2 million required; under $2 million at SBA's discretion
   2. Factors the SBA will consider
      1. Borrower eligibility for the loan
      2. Correct calculation of loan amount
      3. Use of proceeds
      4. Loan forgiveness calculation
   3. Responding to an SBA audit

The panel will review these and other critical issues:

• What factors do the lender and the SBA consider in reviewing a loan forgiveness application?
• What information should a business provide when filing an appeal of a loan forgiveness decision?
• How should the borrower respond to an SBA audit request? What is the role of the lender?
• What is the process for appealing an adverse SBA audit ruling?