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United States Small Business Administration
Office of Hearings and Appeals
PAYCHECK PROTECTION
PROGRAM APPEAL OF:
Franklin Capital Holdings LLC
Appellant
Appealed from:
SBA PPP Loan Number 7738557004
Issued: July 10, 2022
Docket No. PPP-7738557004
APPEARANCES
Jonathan White, Esq., Clark Hill PLC, for Franklin Capital Holdings LLC
Lolitha McKinney, Esq., Office of General Counsel, for the U.S. Small Business Administration
DECISION
I. Introduction and Jurisdiction
On January 31, 2022, the U.S. Small Business Administration (SBA) Office of Capital Access
issued a final Paycheck Protection Program (PPP) loan review decision that found Franklin Capi-
tal Holdings LLC (Appellant) ineligible for its PPP loan, because “[Appellant] is a financial
business primarily engaged in lending, investments or an ineligible business engaged in financ-
ing or factoring.” Administrative Record (AR) at 20.
On March 7, Appellant, through counsel, filed a timely appeal petition in this matter with the Of-
fice of Hearings and Appeals (OHA) of SBA; OHA conducts PPP appeals under the authority of
13 C.F.R. Part 134, Subpart L, and the appeal petition was assigned to me.
For the reasons discussed below, I DENY Appellant’s appeal petition and AFFIRM the final
SBA loan review decision.
II. Background
On April 19, I issued a Notice and Order to establish: (a) a deadline for SBA’s production of the
administrative record; (b) a deadline for any objections to the administrative record by Appel-
lant; (c) a deadline for SBA’s response, if any, to the appeal petition; and (d) the date for the
closing of the record. See 13 C.F.R. § 134.1206.
On April 28, SBA filed the administrative record, and on May 19 Appellant filed an objection to
the record stating that the record contained duplicate documents and requesting that it be correct-
ed or clarified. On May 20, I denied Appellant’s request for the reasons set forth in my docketed
order. See Order Denying Appellant’s Request to Correct or Clarify the Administrative Record.
SBA did not file a response to Appellant’s appeal petition and the record was closed on June 3.
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A. The Final SBA Loan Review Decision
As stated above, SBA found that Appellant, as a financial business primarily engaged in lending,
was ineligible for its $295,100 PPP loan under 13 C.F.R. § 120.110(b), noting that the prohibi-
tion against the issuance of Section 7(a) loans to financial business was to be found in SBA’s
Standard Operating Procedure (SOP) 50 10 5(K), Apr. 1, 2019, as well as in SBA’s first Interim
Final Rule, 85 Fed. Reg. 20811, 20812, Apr. 15, 2020. See AR at 20-21.
SBA therefore “determined that forgiveness in the amount of $0.00 is appropriate.” AR at 21.
B. The Appeal Petition
Appellant’s March 7 appeal petition does not dispute that Appellant is engaged in the business of
lending, see generally Appeal of Forgiveness Denial of Paycheck Protection Program Loan
(hereinafter “Appeal”), but instead argues that:
1. Although PPP loans are “a form of 7(a) loan,” id. at 4, the prohibition of lending to finan-
cial businesses applicable to Section 7(a) loans does not apply to PPP loans because “the
CARES Act made no reference to the applicability of . . . the SBA regulations related to 7(a)
program loan eligibility.” Id. at 6.
2. SBA approved the issuance of Appellant’s loan. Id. at 7.
3. The April 15, 2020, Interim Final Rule, which stated that “Businesses that are not eligible
for PPP loans are identified in 13 CFR 120.110 and described further in SBA’s Standard
Operating Procedure (SOP) 50 10,” 85 Fed. Reg. 20812, was made effective after Appel-
lant applied for and received its loan. See Appeal at 6-8.
III. Discussion
A. Standard of Review
Appellant has the burden of proving all elements of its appeal. Specifically, Appellant must
show that the final SBA loan review decision was based on a clear error of fact or law. See 13
C.F.R. § 134.1210.
B. Analysis
1. The Fact That the CARES Act Made No Reference to the
Applicability of 13 C.F.R. § 120.110 to PPP Loans Is Irrelevant.
The CARES Act, 15 U.S.C. § 36a(36)(B), stated: “Except as otherwise provided in this para-
graph, the Administrator may guarantee [PPP] loans under the same terms, conditions, and pro-
cesses as a loan made under [Section 7(a)].”
There then followed a number of relaxations of Section 7(a) eligibility criteria that would other-
wise be applicable to PPP loans, see, e.g., id. § 36a(36)(D), but there was no provision that made
13 C.F.R. § 120.110 inapplicable to PPP loans. Thus Appellant has it exactly backwards; to pre-
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Docket No. PPP-7738557004
clude the regulation’s applicability to PPP loans, the CARES Act would have had to do so ex-
pressly, and it did not – that is, it was not “otherwise provided” in the Act that 13 C.F.R §
120.110 did not apply to PPP loans.
Compliance with the regulation therefore remained an applicable “condition” for the guarantee
of PPP loans, as for all Section 7(a) loans. See Lender and Development Company Loan Pro-
grams, SOP 50 10 5(K), Apr. 1, 2019, at 104, citing 13 C.F.R. § 120.110(b): “SBA cannot guar-
antee a loan that provides funds to businesses primarily engaged in lending or investment.”
2. SBA Did Not Approve Appellant’s Loan.
Appellant asserts that SBA approved its loan:
(a) “SBA understood that Franklin was in the business the SBA now claims is an ineligi-
ble business when it approved the Loan Application.” Appeal at 7.
(b) “[t]he SBA approved . . . the Loan Application . . . .” Id.
SBA did not approve Appellant’s loan, nor did it determine Appellant’s eligibility to receive its
PPP loan before the loan was made. As provided by the CARES Act, Appellant’s lender ap-
proved, made, and funded the loan, based on Appellant’s self-certifications and exclusive of any
SBA involvement. See 15 U.S.C. § 636(a)(36)(F) (ii)(I): “[A] lender . . . shall be deemed to have
been delegated authority by the [SBA] Administrator to make and approve [PPP loans].”
3. 13 C.F.R. § 120.110(b) Was Applicable at the Time of Appellant’s Loan Application.
Appellant applied for its PPP loan on April 4, 2020, see AR at 325, that is, before the April 15,
2020, effective date of the first Interim Final Rule, 85 Fed. Reg. 20811, which specified the ap-
plicability of 13 C.F.R. § 120.110 to PPP loans, id. at 20812.
Nevertheless, in its March 27, 2020, enactment of the CARES Act, Congress placed the PPP un-
der Section 7(a) of the Small Business Act, as Appellant concedes. See CARES Act § 1102(a)
(adding paragraph 36 to 15 U.S.C. § 636(a)). Thus, the preexisting ineligibility rules of 13
C.F.R. § 120.110 applicable to other Section 7(a) loans also applied to PPP loans, even before
the issuance of the April 15 Interim Final Rule: “[T]he Administrator may guarantee [PPP loans]
under the same terms, conditions, and processes as a loan made under [Section 7(a)].” 15 U.S.C.
§ 636(a)(36)(B). Despite Appellant’s assertion, see Appeal at 6, there is therefore no “retroactiv-
ity” entailed in the application of 13 C.F.R. § 120.110 to PPP loans.
Consequently, there was also no 11-day gap in the applicability of 13 C.F.R. § 120.110(b) to PPP
loans for Appellant hurriedly to exploit; the Interim Final Rule simply confirmed the preexisting
applicability of this regulation to PPP loans, which dated from March 27, 2020, i.e., the enact-
ment of the CARES Act.
IV. Conclusion
Appellant did not show that SBA’s final loan review decision denying Appellant forgiveness of
its PPP loan was based on a clear error of fact or law; Appellant was ineligible for its loan under
13 C.F.R. § 120.110(b) and a PPP loan for which a borrower was ineligible cannot be forgiven.
See Interim Final Rule, 85 Fed. Reg. 33010, 33012, June 1, 2020, Section III, para. 1(E).
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Accordingly, Appellant’s appeal petition is DENIED and SBA’s final loan review decision
denying Appellant forgiveness of its loan is AFFIRMED.
This is an initial decision. Appellant may request reconsideration of my decision by e-mailing a
petition for reconsideration to OHAPPPInquiries@sba.gov no later than Wednesday, July 20,
2022. The petition for reconsideration must clearly show an error of fact or law material to my
decision. See 13 C.F.R. § 134.1211(c)(1).
However, unless a petition for reconsideration is filed, or the SBA Administrator, solely within
her discretion, decides to review or reverse my decision, this decision shall become the final de-
cision of SBA on Tuesday, August 9, 2022. See id. § 134.1211(b).
SO ORDERED.
_______________________________
Roger W. Mehle
Administrative Judge
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