Sioux Falls lender sues Small Business Administration over COVID-19 loan forgiveness
A Sioux Falls lending company has filed suit against the Small Business Administration, after the SBA determined the company was not eligible to receive loan forgiveness through a COVID-19 relief fund.
Expansion Capital Group’s lawsuit, filed Monday, also names Isabella Guzman, the SBA’s administrator, Treasury Secretary Janet Yellen and the U.S. federal government. Expansion Capital is a lender for established small businesses throughout the United States.
Congress passed Covid-19 relief funding for U.S. businesses during the early days of the pandemic as states forced widespread business closures. Included among those funds was the Paycheck Protection Program, which authorized the SBA to guarantee loans to small businesses. Those loans, the law noted, would be forgiven – in effect making them grants – if the businesses that received them used the money to continue to pay wages to employees, rents, mortgages and other allowable expenses.
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Lending companies and banks are typically excluded from SBA loan programs, as are other industries, such as casinos and political lobbyists. But when it came to PPP loans, Expansion Capital’s complaint argues, Congress authorized loans for any business. For examples, casinos received PPP loans.
Expansion Capital applied for a loan on April 3, 2020, and received approval on April 10, 2020. The company eventually received $874,000. But five days later, SBA adopted a rule that imposed an exclusion on lending institutions, meaning the company will have to repay the loan while others are forgiven.
“Simply put, Congress did not pick winners and losers in the PPP,” Expansion Capital’s complaint says. “Congress recognized that COVID-19 spared no portion of the economy and clearly and unequivocally expressed its will to meet its effects with co-extensive support by providing temporary paycheck support to all Americans employed by all small businesses that satisfied the statute’s eligibility requirements – even businesses that may have been ineligible for other SBA programs during normal times.”
The complaint describes the SBA’s decision as a “bait and switch,” and it says Expansion Capital confronted the same problems other small businesses faced in keeping employees on the payroll as the economy tanked.
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“Facing the same dire economic outlook as every business in America, ECG grappled with how to retain its employees and return those on furlough to work amidst a certain economic downtown (sic) of uncertain duration,” the complaint says.
The SBA determined on April 26, 2021, more than a year after Expansion Capital was approved for its PPP loan, that it was not eligible for forgiveness. An appeal was declined on Dec. 21.
“After review of the documentation provided, the SBA concludes that borrower is a financial business primarily engaged in lending, investments or an ineligible business engaged in financing or factoring,” the SBA’s decision letter says. “The borrower is an ineligible entity.”
The same letter notes that pawn shops and cash checking businesses did qualify for loan forgiveness.
A spokesman for the SBA did not respond. The lawsuit was filed in the U.S. District Court for the District of South Dakota.
This article originally appeared on Sioux Falls Argus Leader: Expansion Capital Group sues SBA over COVID-19 loan forgiveness
