SBA Denying Your PPP Loan Forgiveness: Legal Options and Appeals

Thanks for visiting Spodek Law Group – a second-generation law firm managed by Todd Spodek, with over 40 years of combined experience handling federal cases. If the SBA denied your PPP loan forgiveness, you’re facing immediate repayment of the full loan amount plus interest – potentially tens or hundreds of thousands of dollars. Worse, the denial might be the first step toward criminal investigation if the SBA suspects fraud.

We help clients appeal SBA forgiveness denials and defend against fraud allegations that arise from those denials. You have legal options, but you must act within 30 days of receiving the denial decision. Miss that deadline and you lose your right to appeal.

Why the SBA Denies Forgiveness

The SBA denies forgiveness for several reasons. Insufficient documentation is most common – you didn’t provide adequate proof of how you spent PPP funds. The SBA requires bank statements, payroll records, tax filings, invoices. If your documentation is incomplete or unclear, they’ll deny forgiveness.

Failure to meet the 60/40 rule triggers denials. You needed to spend at least 60% on payroll costs. If your documentation shows you spent 55% on payroll and 45% on rent and utilities, the SBA will deny full forgiveness or reduce the forgiven amount.

Ineligibility findings deny forgiveness. The SBA reviews whether you were eligible for the loan in the first place. If they determine your business didn’t exist before February 15, 2020, or you weren’t affected by COVID, or you didn’t meet employee count requirements – they’ll deny forgiveness and demand full repayment.

Discrepancies between your application and documentation cause denials. Your forgiveness application claimed $80,000 in payroll costs. Your bank statements show $60,000 in payroll deposits. That $20,000 gap raises questions. The SBA will deny forgiveness for the unsupported amount or deny the entire application pending further review.

Fraud indicators result in denial and criminal referral. If the SBA sees evidence of falsified documents, inflated expenses, non-existent employees – they’ll deny forgiveness and refer your case to the Office of Inspector General for investigation. At that point, you’re not just fighting a civil denial, you’re potentially facing criminal charges.

The 30-Day Appeal Deadline

When the SBA issues a final loan review decision denying forgiveness, you have 30 days to appeal to the Office of Hearings and Appeals. This deadline is absolute. File your appeal on day 31, and OHA will dismiss it as untimely.

The 30 days starts from when you receive the decision, not when the SBA issues it. Receipt is critical – the date you actually got the final loan review decision document. If your lender notified you before you received the official SBA decision, the earlier date might control. Document when you received notice.

Filing an appeal automatically places your loan in deferment status. You don’t have to start repaying while the appeal is pending. This protection is valuable – it gives you time to gather evidence and build your case without making payments on a potentially invalid denial.

File your appeal at appeals.sba.gov. The OHA has specific procedures and forms. Your appeal must include: a copy of the SBA’s final loan review decision, a statement of why the decision was wrong, supporting documentation and evidence, and explanation of your legal arguments.

What You Can Appeal

Only final SBA loan review decisions are appealable. Your lender’s decision to deny forgiveness is not appealable to OHA. The SBA must have completed its own review and issued a final written decision. If the SBA hasn’t reviewed your loan yet, there’s nothing to appeal.

You can’t appeal procedural issues or requests for more information. If the SBA sends you a letter asking for additional documentation, that’s not a final decision. Only after the SBA completes review and issues a determination denying forgiveness or reducing the forgiven amount can you appeal.

The scope of appeal is limited. OHA reviews whether the SBA made clear error in its decision. You have the burden of proof – you must show the SBA was wrong by a preponderance of evidence. It’s not enough to argue the SBA was harsh or unfair. You need evidence proving their factual findings were incorrect or their legal conclusions violated SBA regulations.

Building Your Appeal

Your appeal is limited to 20 pages plus exhibits. Those 20 pages need to clearly explain why the SBA’s denial was wrong. Don’t waste space on background or rhetoric. Focus on the specific reasons for denial and your evidence refuting them.

Gather documentation supporting your position. If the SBA said you didn’t prove payroll costs, compile payroll records, bank statements, tax filings showing you did. If they said expenses were ineligible, provide evidence those expenses were approved under SBA guidance. If they found discrepancies, explain them with contemporaneous documents.

Address each reason for denial specifically. If the SBA listed three grounds for denial – insufficient payroll documentation, ineligible expenses, and timing issues – your appeal must address all three. Ignoring one means you concede that ground.

Cite relevant SBA guidance and regulations. The OHA reviews whether the SBA correctly applied its own rules. If SBA guidance supported your position and the SBA ignored it, that’s clear error. If the regulations were ambiguous and you interpreted them reasonably, argue the SBA should defer to your interpretation.

Explain any discrepancies honestly. If there are gaps in your documentation, explain why. If your bank statements don’t perfectly match your forgiveness application, explain the difference. Trying to hide problems makes you look dishonest. Addressing them directly with reasonable explanations is more effective.

Consider expert evidence. An accountant’s affidavit explaining your payroll calculations or how you applied SBA guidance can be powerful. An expert saying “this is the correct interpretation of the regulation” carries weight with OHA judges.

The Appeal Process

After you file, the SBA has time to respond. They’ll submit their own brief defending the denial. They have access to your loan file, your application, all documents you submitted. They’ll argue their decision was correct based on the evidence.

You might get a chance to reply to the SBA’s response. Use this opportunity to address any new arguments the SBA makes. Don’t just repeat your initial appeal – focus on rebutting the SBA’s specific defenses.

Some appeals involve hearings, most don’t. OHA judges typically decide appeals based on written submissions. If there are disputed factual issues requiring witness testimony, a hearing might be scheduled. Hearings are conducted by phone or video conference.

The judge’s decision should come within 45 days after the record closes. In practice, decisions often take longer. While the appeal is pending, your loan stays in deferment – no payments required.

OHA decisions are binding on the SBA. If you win, the SBA must grant forgiveness according to OHA’s decision. If you lose, the SBA’s denial stands and you must repay the loan.

Further Appeal Options

If OHA rules against you, you can appeal to federal district court. This is a judicial appeal, not an administrative one. You’re asking a federal judge to review whether OHA’s decision was arbitrary, capricious, or contrary to law.

District court appeals are more complex and expensive than OHA appeals. You need a lawyer – representing yourself in federal court rarely succeeds. The standard of review is deferential – courts usually uphold agency decisions unless they’re clearly wrong.

Filing a district court appeal doesn’t defer repayment. Once OHA denies your appeal, the loan becomes due. You might be able to negotiate a payment plan while the court case proceeds, but the SBA can pursue collection.

Some borrowers consider bankruptcy if they lose appeals and can’t afford repayment. PPP loans are dischargeable in bankruptcy generally, unlike student loans. But bankruptcy has serious consequences – damaged credit, potential loss of assets, public record of financial failure. It’s a last resort, not a first option.

When Denial Indicates Criminal Investigation

Some forgiveness denials are clearly heading toward criminal charges. The SBA’s denial letter mentions fraud, false statements, or refers to the Inspector General. Or the denial is accompanied by document preservation requests or notice of investigation.

If you see these red flags, get a criminal defense lawyer immediately. The administrative appeal and potential criminal case require different strategies. What you say in your appeal can be used against you in a criminal prosecution.

Sometimes the right move is to not file an administrative appeal. If appealing requires you to make statements that could incriminate you, asserting your Fifth Amendment right might be smarter. You might lose the administrative appeal by default, but you protect yourself criminally.

Other times, filing the appeal is important even if criminal charges are possible. The appeal creates a record of your defense, shows good faith, and might resolve the issue civilly without criminal charges. An experienced lawyer helps you navigate these competing considerations.

Don’t assume denial means prosecution is inevitable. Many denials are purely civil – the SBA wants documentation or believes you spent funds wrong, but they’re not alleging intentional fraud. How you respond influences whether the case stays civil or escalates.

What We Do Differently

At Spodek Law Group, we handle both the administrative appeal and potential criminal exposure. Many firms only do one or the other. We do both because PPP forgiveness denials often raise both issues.

Todd Spodek is a second-generation criminal defense lawyer with years of federal court experience. Our team includes former prosecutors who understand how denials turn into criminal cases. We know when appealing helps and when it creates risk.

We review your loan file, forgiveness application, and the SBA’s denial decision. We identify the strongest arguments for appeal and the weakest points where the SBA might be right. We help you understand your realistic chances of success.

We prepare appeals that address the administrative law judges’ concerns while protecting you from potential criminal exposure. That means arguing your case strongly without making statements that could become evidence if DOJ investigates.

If the case involves fraud allegations, we coordinate the administrative appeal with criminal defense strategy. Sometimes we appeal aggressively, other times we negotiate resolution with the SBA, other times we focus on the criminal investigation and let the civil case follow.

The 30-day appeal deadline means you need to act immediately. Call Spodek Law Group as soon as you receive an SBA denial. We’re available 24/7 and handle cases nationwide. The consultation is confidential and risk-free.

Don’t try to appeal yourself. OHA judges are experienced administrative law judges who see poorly-prepared pro se appeals daily. Proper legal arguments, well-organized evidence, and strategic presentation make the difference between winning and losing.

If you miss the 30-day deadline, you’ve lost your administrative remedy. You’ll owe the full loan amount plus interest, and your only option is federal court appeal – which is harder and more expensive. Don’t let that happen. Call us now if you’ve received or are about to receive an SBA forgiveness denial.