4-1-22 Navigating the Denial of PPP Loan Forgiveness

Posted on April 04, 2022

Client, a technology company based on the West Coast, applied for and was granted a business loan guaranteed by the Small Business Administration's (SBA) Paycheck Protection Program (PPP) on April of 2020. In the following June of 2021, the Client applied for Loan Forgiveness on this loan as a part of the Program, and was denied forgiveness thereafter. For the reasons stated below, the SBA granted a reversal of the denial; further granting forgiveness of the Loan in full, plus interest.
The SBA's reasoning for denying forgiveness of the PPP Loan stated that the Client was never eligible for the PPP Loan, and hence ineligible for forgiveness of the PPP Loan because, allegedly, the Client "had previously obtained a direct or guaranteed loan from a Federal agency and was (a) delinquent, or (b) had defaulted within seven (7) years of the PPP loan application date."
Previously, the Client entered into a modification of a separate business loan with the SBA, to which each party agreed to its terms therein. In summary, this Modification changed the payment terms of this separate loan to include a three-month deferment, during which time payments would be interest-only per the agreement.
For guidance, we turned to the Intermediary Lending Pilot (ILP) Program Procedural Guide and other secondary resources for stating our case. This Guide was distributed to all lenders participating in the PPP from the SBA toward the administration of the program itself.
The ILP provides that a debt is not considered "delinquent" if the obligor has entered into a satisfactory agreement and is current. In the present case, Client's debt to the Lender was not considered "delinquent," nor has it ever been, as Client had consistently been current on its loan obligations to that of Lender, both in the past and at the present time and before and after the Modification. This Agreements simply extended the time frame within which the Client was to repay the Loan; thus, the same loan principal will be repaid over a longer period of time than originally anticipated with remittance of additional interest and fees.
Moreover, the extension of time granted by the Lender to the Client does not, by definition, constitute a "compromise", because a "compromise" (per the ILP) refers to a resolution agreement that would result in the Client paying the Lender at the end of the term less than the full principal balance of the loan, which, if it had been the case here, would have then created a "loss" to the Lender (and, in-turn, the Federal government). In the first place, this was not in the circumstances between the Client and Lender because the amount borrowed was being repaid in full (plus interest); just over a longer time period than the Loan initially contemplated.
For more information contact your Woods Oviatt attorney, or William Savino, Esq. at wsavino@woodsoviatt.com and Alex Ognenovski at aognenovski@woodsoviatt.com.

Alexander K. Ognenovski II

William F. Savino