The term for repayment of PPP loans has been extended



The term for repayment of PPP loans has been extended

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Effective July 28, 2021, the Small Business Administration (SBA) announced a new interim final rule that, in particular, extends the grace period for borrowers who appeal the SBA’s final loan review decision. Borrowers can defer the principal and interest payments on their PPP loans during the grace period, which, prior to the introduction of the new rule, ended after the SBA ruled borrower loan forgiveness statement… For borrowers who appeal the SBA’s forgiveness decision, the new rule extends the grace period until the SBA decides on the borrower’s appeal. Thus, the new rule may provide borrowers with an additional reason to administratively appeal unfavorable forgiveness decisions.

April 3, 2020, following the passage of the Coronavirus Relief, Relief and Economic Security Act (CARES Act), Payroll Protection Program (PPP) was created to provide loans secured by the SBA to help businesses maintain their workforce during the pandemic. As of May 31, 2021, new loans under the Program are no longer being disbursed. The final loan approval statistics presented on the SBA’s website are staggering: The SBA has approved nearly 12 million loans totaling nearly $ 800 billion from more than 5,000 lenders through the Program. However, definitive statistics on forgiveness are yet to be determined, as hundreds of billions of dollars in loans remain pending determination of forgiveness or for which forgiveness has not yet been requested.

Upon completion of the program (i.e., loan applications are no longer accepted), borrowers focus on applying for forgiveness, and for borrowers who have not achieved full forgiveness, on repaying their loans and possibly appealing decisions of forgiveness in which ruled by the SBA. the borrower was not eligible for the PPP loan in whole or in part and / or spent the proceeds of the loan on unauthorized use.

Notably, if the borrower does not apply for forgiveness within 10 months of the end of the “cover period” for the forgiveness of the loan (which ends 8 or 24 weeks after the loan is disbursed), the borrower must begin paying the principal and interest on the loan. However, if the borrower applies for forgiveness within 10 months of the end of the borrower’s insurance period, the loan is deferred until the SBA makes a decision on the borrower’s application to forgive the loan. This is called the grace period.

New PPP Loan Rule

Under the new rule, a borrower’s timely appeal of a final SBA loan review decision extends the grace period until the SBA’s Office of Hearings and Appeals (OHA) makes a final appeal decision in accordance with the rules governing appeals set out in 13 CFR § 134.1201 and the next. The new rule reads: “[A] A timely appeal by the borrower of the SBA’s final decision to review the loan extends the grace period for the PPP loan until the SBA’s Hearings and Appeals Office makes a final appeal decision in accordance with 13 CFR 134.1211. ” Deferral of PPP Appeals, 86 Fed. Reg. 40,921 (28 Jul 2021) (codified in 13 CFR Part 120). The reference in the new rule to section 134.1211 seems to be an error as this section deals with alternative dispute resolution. The reference probably should have been to section 134.1213 describing the original and final decisions. See 13 CFR 134.1213 (b) (“[A]n The initial decision becomes the final decision of the SBA 30 calendar days after it is served. “).

The borrower must file an appeal within 30 days of the borrower receiving the final decision on the SBA loan review. 13 CFR § 134.1204. After an appeal is filed, the administrative record is closed after 45 days by rule. Identifier. § 134.1206. The SBA is generally expected to issue an initial appeal decision within 45 days of the closing date. Identifier. § 134.1213. In the absence of requests for revision or revision of the original order, an additional 30 days are required for the original order to become final. Identifier.

In other words, the rules governing the appeal provide for 30 days to file an appeal and usually provide for at least 120 days between the appeal and the final appeal decision, thereby extending the grace period for the borrower by at least four more. up to five months (provided that a full pardon is not received on the appeal).

However, an appeal can take much longer if the SBA responds to the appeal, if the parties seek an alternate resolution at the time of the appeal, if the parties dispute the content of the administrative record, if the parties seek disclosure at the time of the appeal, if the interlocutory appeal is pending. confidentiality or if the court holds an oral hearing on the appeal. Identifier. §§ 134.1207 – .1211. In addition, the appellate judge is only required to issue an initial decision “within 45 calendar days of the close of the minutes, as far as practicable,” and thus much more than 45 days may elapse before the initial decision is made. Identifier. § 134.1213. Moreover, the parties may request a review or revision of the original decision, thereby further postponing the final decision on the appeal. Identifier.

In the interim final rule, the SBA explained that it extended the grace period because it believed it was “in the best interests of the borrower to continue the grace period” and to avoid the “potential administrative burden” of refunding borrower payments from the lender and processing forgiven payments if the borrower successfully appeals. Deferral of PPP Appeals, 86 Fed. Reg. at 40.924-25.

Fortunately, with this new rule, borrowers are no longer required to repay PPP loans after being notified that they have not received full forgiveness. Instead, borrowers can appeal the decision to deny forgiveness and extend the grace period while their appeal is pending. Borrowers facing an unfavorable decision on their application for loan forgiveness should take this into account when deciding whether to appeal the decision. Even if their appeal is denied, borrowers can defer payments of principal and interest for perhaps six months or more while their appeal is pending.

Kirk Schuler is a partner in the international law firm Dorsey & Whitney, whose practice is dedicated to dispute resolution. He specializes in two main areas – commercial litigation and government enforcement. Kirk regularly advises individual clients and organizations ‘clients in business disputes over their legal options, negotiates solutions with opposing attorneys and mediators, and defends his clients’ rights and their “day in court” before arbitrators, judges and juries.


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