More troubled businesses and nonprofits — from Catholic dioceses to rural hospitals — are suing the Small Business Administration for blocking companies in bankruptcy from getting COVID-19 relief loans, WSJ Pro Bankruptcy reported. At least a dozen lawsuits have been filed in courts across the U.S. that seek access to Paycheck Protection Program loans for businesses restructuring in chapter 11. The companies, joined by legal experts and some members of Congress, say there is nothing in the CARES Act, the law authorizing the loan program, that makes businesses in chapter 11 ineligible for the emergency funding. Companies on the front lines of the pandemic have sued the SBA for barring them from the loan program because of their bankruptcies. Texas-based ambulance company Hidalgo County EMS, Springfield Hospital in Vermont as well as the Calais Regional Hospital and Penobscot Valley Hospital in Maine have filed lawsuits seeking a total of nearly $10 million in PPP loans. Businesses want access to the emergency funding because the PPP loans don’t have to be paid back if the money is used to cover employee paychecks, avoiding layoffs. SBA chief Jovita Carranza, in consultation with Treasury Secretary Steven Mnuchin, determined that providing PPP loans to companies in bankruptcy “would present an unacceptably high risk of an unauthorized use of funds or non-repayment of unforgiven loans,” the SBA said on Friday. Several members of Congress have urged Carranza to amend PPP applications or waive the agency’s bankruptcy restriction to allow funding to critical-access hospitals and federally qualified health centers. Sens. Bernie Sanders (I-Vt.), Patrick Leahy (D-Vt.) and Rep. Peter Welch (D-Vt.) recently wrote to Carranza, saying that the SBA’s decision “denies the potential for critical funding to hospitals, health centers, and other essential services that are reorganizing their debt in a responsible way.” Sen. Susan Collins (R-Maine) and Sen. Angus King Jr. (I-Maine) also urged the SBA to allow financially distressed hospitals to access PPP loans.
