The U.S. Small Business Administration has posted rules about how businesses who have been turned down for forgiveness of their Paycheck Protection Program loans can appeal the decision, and about how forgivable PPP loans interact with the SBA’s Economic Injury Disaster Loans.
The interim final rule from the SBA and the Treasury Department describes the appeal procedures for PPP loan forgiveness applications that have been turned down. The PPP was included as part of the CARES Act in March and provided hundreds of billions of dollars in forgivable loans for small businesses trying to cope with the economic fallout from the novel coronavirus crisis. Businesses could have the loans forgiven if they met certain conditions, such as keeping their employees on payroll for up to eight weeks. Otherwise, their applications for loan forgiveness could be rejected by the SBA.
Rathi Murthy is the Chief Technology Officer at Varo Bank, the first nationally chartered all-digital consumer bank in the United States. In this role, she leads the company's end-to-end technology strategy, overseeing the design and development of secure, scalable, and AI-powered digital banking platforms. Her leadership is instrumental in advancing Varo's mission to build inclusive, accessible, and real-time financial solutions for millions of consumers.
A seasoned technology executive, Rathi brings over 25 years of experience leading innovation and digital transformation at some of the world's most recognized technology and financial services companies. Prior to joining Varo, she served as Chief Technology Officer and President of Expedia Product & Technology at Expedia Group, where she modernized the company's global travel infrastructure, integrating AI-driven personalization, modular architecture, and advanced cloud capabilities across its family of brands.
Earlier, she held executive leadership roles at Verizon Media and Gap Inc., where she led enterprise cloud migrations, e-commerce platform evolution, and large-scale product delivery initiatives across global markets.
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Guy Baker, CFP, Ph.D., is the founder of Wealth Teams Alliance in Irvine, California.
He is a member of the Forbes 250 Top Financial Security Professionals list and is author of "Maximize the RedZone," a guide for business owners, as well as "The Great Wealth Erosion," "Manage Markets, Not Stocks" and "Investment Alchemy." He received the 2019 John Newton Russell Memorial Award for lifetime achievement in insurance.
Many accountants have been busy in recent months helping their small business clients navigate the ever-changing and confusing rules about applying for PPP loans to keep their businesses running, and now applying to have the loans forgiven. However, business clients may need to turn to their lawyers if they need help with dealing with the SBA’s Office of Hearings and Appeals, which has been charged with PPP loan forgiveness denials.
“Note that the process is a formal legal process, with representation of the borrower limited to attorneys,” noted Ed Zollars, a partner in the CPA firm of Thomas, Zollars & Lynch, in a blog post Wednesday for Kaplan Financial Education about the new rules. “The special status granted to CPAs to practice before the IRS does not carry over to practice before the Small Business Administration. This information is being provided not to suggest CPAs who are not licensed attorneys should be representing clients in such matters, nor providing detailed advice in the background as the client tries to handle the appeal on his/her own. Rather, a basic knowledge of these issues will help the CPA advise the client regarding actions the client would need to take if the client wishes to challenge the SBA’s decisions, and that advice will most often be to look toward obtaining legal counsel if the borrower wishes to consider moving forward with a formal appeal.”
The SBA noted that the interim final rule takes effect immediately, although it’s still accepting comments on it. But the SBA is dispensing with the usual period of waiting for comments to come in before the rule goes into effect in order to expedite the appeals process. Businesses that appeal the loan forgiveness denial will need to have a copy of the loan review decision that’s being appealed, a statement about why the decision was erroneous, the relief that’s being sought, and signed copies of payroll tax filings filed with the IRS and the state. They will also need to have various federal tax returns and schedules, such as Form 1040 with Schedules C or F, and individual employee wage reporting and unemployment insurance tax filings actually reported to the relevant state, for the relevant periods of time, if they’re not provided with the PPP Loan Forgiveness Application, or an explanation of why they’re not relevant or available.
The SBA also wants the name, address, phone number, email address and signature of the appellant or attorney. The maximum length of the appeal petition should be 20 pages, not including any attachments.
Guidance on PPP and EIDL interaction
Separately on Tuesday, the SBA also provided guidance on the interaction of PPP loan forgiveness with advances on the Economic Injury Disaster Loans. The EIDL was a separate $374 billion program for businesses offered by the SBA to provide emergency loans to small businesses through the SBA to deal with the pandemic. Unlike the $670 billion PPP, the loans aren’t forgivable. However, like the PPP, many businesses had trouble applying for them and getting the money. In some cases, businesses were told they had been approved, but didn’t receive the money.
Unlike the PPP loans, the EIDL loans are provided directly by the SBA rather than private lenders, leading to a backlog that provoked consternation during a congressional hearing last month. In some cases, businesses applied for loans under both programs and received them. The guidance from the SBA, in the form of answers to frequently asked questions, or FAQs, deals with matters such as what happens when the SBA has to reduce the PPP loan forgiveness amount by the amount of the EIDL advance. The SBA said that if a borrower received an EIDL advance, the SBA is required to reduce the borrower’s loan forgiveness amount by the amount of the EIDL advance. The SBA will deduct the amount of the EIDL advance from the forgiveness amount remitted by the SBA to the lender who provided the PPP loan.
As for the question of how a lender should handle any remaining balance due on a PPP loan after the SBA remits the forgiveness amount to the lender, the answer is if a PPP loan isn’t forgiven in full (including if there has been a reduction in the forgiveness amount for an EIDL advance), any remaining balance due on the PPP as of Aug. 11, 2020 needs to be repaid by the borrower.
“The lender is responsible for notifying the borrower of the loan forgiveness amount remitted by SBA and the date on which the borrower’s first loan payment is due,” said the SBA. “The lender must continue to service the loan. The borrower must repay the remaining loan balance by the maturity date of the PPP loan (either two or five years). If a borrower is determined to have been ineligible for a PPP loan for any reason, SBA may seek repayment of the outstanding PPP loan balance or pursue other available remedies.”
