Back to Basics, Continued—Why Does the SBA Deny Financial Firms “Eligibility” for PPP Loans? | Denton
Over the past several months, we have seen consumer finance companies deny forgiveness of their PPP loans based on a determination of ineligibility for such loans under the Aid, Relief and Restoration Act. economic security of the coronavirus (CARES law). So, although their banks gave them PPP loans in good faith, the SBA denials arrived. And, it should be noted here that the Secretary of the Treasury, in March 2020, deemed consumer lending to be an essential business to do during these early dark days of the pandemic. So why is the SBA now determining that loans to consumer finance companies are not eligible for forgiveness?
The simple answer is because “they say so”. The more complex answer is that the SBA is misinterpreting the CARES Act and the intent of Congress in passing the same thing in March 2020.
Too often the size of PPP loans is relatively small and the cost of appeal outweighs the benefit of fighting the SBA’s decision, especially in the absence of our ability to provide a degree of certainty that calls will be confirmed.
However, some consumer finance companies have received large PPP loans; and, for them, the effort of calling is worth the cost of the fight.
We now see two divergent paths that Administrative Law Judges (ALJs) seem to take to review SBA decisions and issue rulings. One path—the path of least resistance for ALJs—is to find that the ALJ does not have the authority to overrule SBA regulations that CARES Act PPP loans are Section 7a loans and therefore cannot be granted to consumer lenders under the SBA. Section 7a Loan Program.
The second route – taken by at least one ALJ – is to assert that the 6th Circuit Court of Appeals justification that PPP loans are not limited by Section 7a, is correct and indeed can be followed by the ALJs.
The problem is rapidly growing. So stay tuned.