PPP Loan Forgiveness Denied? 5 Reasons Why and What to Do Next

Were you denied your Paycheck Protection Program (PPP) loan forgiveness? You’re not alone. These denials were caused by any number of reasons, some as minor as an inverted set of numbers or a missing signature.

In this article, we’ll cover the top five reasons why you might have been denied, and the next steps for filing your appeal with the SBA.

About the Paycheck Protection Program

When the Coronavirus shuttered thousands of businesses across the U.S., Congress stepped in with the Paycheck Protection Program as part of the Coronavirus Aid, Relief and Economic Security (CARES) Act to keep small businesses operating, and their employees paid. These loans are forgivable under certain circumstances.

Small businesses were allowed to use the PPP funds to pay for:

• Up to eight weeks of payroll (see description below)
• Employee healthcare and other benefits
• Mortgages, rent, and utilities
• Mortgage interest payments
• Covered worker protection expenditures
• Business software or cloud services directly related to business operations
• Other expenses as well

If the loan was used for these purposes, and at least 60% of the loan was used on payroll expenses, the SBA should fully forgive the loan. However, for unforgiven loans, you may seek an additional six-month deferment to begin repayment.

Qualifying Payroll Expenses for the PPP

Many business owners assume that payroll is just that – the money paid to employees. But qualifying payroll expenses include more than just normal day to day payroll. Here is a list of qualifying expenses:

• Compensation, such as salaries, wages, commissions, tips, etc., up to $100,000 per employee annually (or $8,333 per month).
• Paid time off, such as vacation, parental, family, medical, or sick leave
• Separation or dismissal allowances
• Payments towards retirement benefits
• Group vision, dental, disability, or life insurance
• Taxes, such as payment of state or local taxes assessed on the compensation of employees

If you were denied PPP loan forgiveness because you did not use 60% of the loan on payroll, take a look at this list again and see if you can get to that 60% mark.

Remember, you are unable to use qualified wages for loan forgiveness IF you are claiming the Employee Retention Credit (ERC). In other words, if applying for the ERC and PPP forgiveness, you can't use the same wages in the same timeframe for both programs.

Top 5 Reasons Why PPP Loan Forgiveness Requests Are Denied

As of February 2022, 84% of PPP loans have been forgiven – almost $700B worth. While the majority of loans have been forgiven, some are still being denied by the SBA. Here are the top five reasons why your PPP loan forgiveness might have been denied:

• Your documents were incomplete
• You weren’t eligible for the loan
• Your calculations were wrong
• You forgot to sign your documents
• You didn’t use the money for its intended purpose (60% or more on payroll)

Appeal Your PPP Loan Forgiveness Denial Within 30 Days

From the time you receive your forgiveness denial letter you have 30 days to file an appeal. This is an important distinction, it's from the day that you were notified – not from the time your lender was notified – as this can add some time on the clock.

If your lender notifies you that you’ve been denied, have your SBA notification time-stamped with that day’s date to ensure you are within the grace period when submitting your appeal.

Here's How To Appeal Your PPP Loan Forgiveness Denial

To file an appeal for extending your PPP loan deferment period, begin by gathering the following documentation:

• A dated copy of the SBA letter, including the date you received it
• An explanation and documents supporting your case for loan forgiveness approval, including:
  - Signed copies of payroll tax filings reported to the IRS
  - Signed State quarterly employee wage reporting copies
  - Signed Unemployment tax filings
  - Signed copies of Federal tax returns showing self-employment/partner income
  -Other documents to highlight your appropriate use of funds
• Your information including:
  - Name, Address, Phone number(s)
  - Email address(es)
• Your signature, your attorney or power of attorney holder signatures on any necessary documents

Once you have you documents, review them for accuracy, dates, and signatures, then submit them electronically via the SBA Office of Hearings and Appeals.

What Happens After Your Appeal

The SBA will assign a judge from the Office of Hearings and Appeals (OHA) to review your case, who has 45 days to respond and issue a Notice and Order decision to your appeal. This is a legal notice.

If you are still in disagreement with the SBA’s decision, you have an additional 10 days to respond after service of the Notice and Order decision. If you fail to respond, the OHA’s decision is finalized after 30 days; however, you still have two additional options:

• File a request for OHA reconsideration
• Appeal the OHA decision with the applicable federal district at the address below:

Small Business Administration
Associate General Counsel for Litigation
409 Third Street, SW
Washington, DC 20416

Your appeal will be reviewed per the OHA’s docket. In the meantime, be sure to keep in close contact with your lending institution to keep them apprised of your efforts.

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