A Sioux Falls loan company filed suit against the Small Business Administration, after the SBA determined the company was ineligible to receive loan forgiveness through a COVID-19 relief fund.
The Expansion Capital Group lawsuit, filed Monday, also names Isabella Guzman, the SBA administrator, Treasury Secretary Janet Yellen and the US federal government. Expansion Capital is an established small business lender across the United States.
Congress passed Covid-19 relief funding for American businesses in the early days of the pandemic as states forced widespread business shutdowns. Among those funds was the Paycheck Protection Program, which allowed the SBA to guarantee loans to small businesses. These loans, according to the law, would be canceled – effectively grants – if the companies that received them used the money to continue to pay employee salaries, rents, mortgages and other authorized expenses.
Loan companies and banks are generally excluded from SBA loan programs, as are other industries, such as casinos and political lobbyists. But when it comes to PPP loans, according to Expansion Capital’s complaint, Congress has authorized loans for any business. For example, casinos received PPP loans.
Expansion Capital applied for a loan on April 3, 2020 and received approval on April 10, 2020. The company ultimately received $874,000. But five days later, the SBA passed a rule that imposed an exclusion on lending institutions, meaning the company will have to repay the loan while others will be forgiven.
“Put simply, Congress has failed to pick winners and losers in the PPP,” the complaint from Expansion Capital states. “Congress has recognized that COVID-19 has spared no part of the economy and has made clear and unequivocal its willingness to address its effects with co-extensive support by providing temporary paycheck support to all Americans employed by all small businesses that met the law’s eligibility requirements — even businesses that might not normally have been eligible for other SBA programs.
The complaint describes the SBA’s decision as a “bait and switch,” and says Expansion Capital has faced the same issues other small businesses have faced keeping employees on the payroll as the economy s was collapsing.
“Faced with the same dire economic outlook as all corporate America, ECG wondered how to retain its employees and fire those who were furloughed to work in a certain downtown economic (sic) of uncertain duration,” the company said. complaint.
The SBA determined on April 26, 2021, more than a year after approval of expansion capital for its PPP loan, that it was not eligible for the forgiveness. An appeal was dismissed on December 21.
“After reviewing the documentation provided, the SBA concludes that the borrower is a financial business primarily engaged in lending, investing, or an ineligible business engaged in financing or factoring,” the SBA’s decision letter states. “The borrower is an ineligible entity.”
The same letter notes that pawnshops and cash-checking firms were eligible for loan forgiveness.
An SBA spokesperson did not respond. The lawsuit was filed in the U.S. District Court for the District of South Dakota.