Updated, February 16, 2022: Includes new comments from the SBA regarding the timing of partial loan reviews.
For business owners who received only partial forgiveness on their Paycheck Protection Program loans, consider this your stay of execution.
On January 27, 2022, the Small Business Administration, the agency in charge of administering the PPP, quietly issued a procedural notice outlining a new review policy for borrowers who got a partial loan forgiveness decision from their lender, or were instructed to apply for less forgiveness than they wanted.
As of January 27, if you want to appeal a partial forgiveness decision you will have 30 days--from receipt of a lender's post-remittance notification--to tell the lender. The lender must then file for a loan review on behalf of the borrower within five days. The same process applies to borrowers whose lenders prevented them from applying for full forgiveness.
The SBA is also telling lenders to notify borrowers who previously received partial loan forgiveness that they, too, may request a PPP loan forgiveness review. They must tell the lender of their intentions within 30 days of receiving the lender's notification of this new policy. Again, if borrowers were asked to apply for less than full value of their original loan, they're also eligible for a forgiveness decision review.
Previously, borrowers were required to make any appeals directly to the lender, and those appeals would reportedly only get escalated to the SBA after the borrower's appeal had been rejected twice. The SBA is also randomly selecting appeals for review. Those borrowers will go before the SBA Office of Hearings and Appeals (OHA), which employs attorneys to review cases.
The timing of these changes might seem odd, as borrowers have already requested forgiveness for around 88 percent of the total loan value of PPP loans, which totaled $790 billion when the program sunsetted in May. However, in recent weeks, business owners have become increasingly vocal about run-ins with bankers over the forgiveness process. Some cited early confusion over what qualified as eligible wages, while others complained that lenders were flat out wrong.
"We've had to get on the phone with the SBA adjuster many times," says John Schweisberger, a partner in charge of the business outsourcing services practice of Armanino, an accounting and business consulting firm based in San Ramon, California. "We had to walk [the lender] through the rules," he said noting that, in his experience, the lender's personnel may have misapplied the program rules.
In one case, he noted that his client's lender incorrectly suggested that the business had misappropriated PPP funds that went to pay employees who earned more than $100,000. In fact, employers were allowed to use PPP money to pay high-earning employees but only up to $100,000. Any wages above that amount were not eligible.
In the notice, the SBA acknowledges that borrowers had deluged the agency with complaints about their lenders' forgiveness decision.
Last week, The Intercept reported that several Bank of America clients who only received partial forgiveness had banded together and founded a support group. Many founders expressed frustration with the review process at BofA, noting that they found it difficult to get people at the bank to return calls.
For its part, BofA says that it's following the letter of the law. If a business owner, say, included the wages for 1099 contractors in its initial PPP loan calculation, the bank can't then allow the business owner to get forgiveness for those funds. BofA spokesperson Bill Halldin pointed to a procedural notice, issued by the SBA on January 15, 2021, expressly directing lending institutions to follow the guidance provided by the agency.
"Our goal always has been to help clients get as much of their loan forgiven as possible under the existing SBA rules," says Halldin. "We will notify those borrowers who received partial forgiveness in the coming weeks, and if they choose to appeal within the 30-day period established by the SBA, we will assist them."
It's unclear how many loans will come under review at BofA. The institution would not provide details beyond the percentage of loans that had been submitted for forgiveness in 2020 and 2021. That's 94 percent for 2020 and 87 percent for 2021. However, across all institutions the number may be in the billions. As of February 6, 2022, the SBA noted that of the $696.5 billion total forgiveness amount borrowers requested, $687.8 billion had been forgiven. In other words, the amount borrowers got was $8.6 billion less than what they expected to get.
The review process will be conducted by the agency's Office of Capital Access, and the SBA estimates reviews should take no more than 90 days. Still, it remains reasonable to wonder whether the SBA can handle a flurry of manual reviews if the agency gets inundated with requests.
Bill Briggs, the former director of the SBA's office of capital access, expressed confidence that the agency could rise to the occasion--eventually. "SBA has shown the capacity to make operational adjustments over the course of PPP to streamline the process for both borrowers and lenders. My sense is the OHA process is dealing with some volume and that it will take time to review all cases."