Background
Oak Lawn Respiratory and Rehabilitation Center, LLC, along with two other nursing homes, sought loans under the Paycheck Protection Program established by the CARES Act. The Small Business Administration had adopted a Corporate Group Rule capping loans at twenty million dollars for all businesses in a single corporate group. Oak Lawn and its affiliated entities had received more than twenty million dollars in loans before seeking forgiveness. The SBA limited forgiveness to the cap, leaving the nursing homes with debt for the excess amounts. The district court granted summary judgment in favor of the agency.
The court’s reasoning
The court found that the CARES Act and Section seven of the Small Business Act did not forbid the SBA from setting aggregate limits on loans for corporate groups. The statute empowered the agency to guarantee loans but did not require it to guarantee the maximum amount for every applicant. The SBA’s definition of a corporate group based on common control was a reasonable interpretation of the term business concern. The court noted that many federal agencies treat affiliated businesses as a single entity for regulatory purposes. The agency’s reason for the rule, ensuring limited resources were distributed to the largest possible number of borrowers, was cogent. The court rejected arguments that the rule was arbitrary or capricious, noting that agencies need not resolve every possible problem immediately. The court also found that applying the rule was not retroactive because the loan forgiveness, not the loan itself, was subject to the cap.
What it means going forward
The decision confirms that the SBA can aggregate loans across affiliated businesses to enforce program caps, preventing large corporate groups from exhausting funds intended for smaller, independent entities. It establishes that separate state-law organization does not automatically preclude federal agencies from treating affiliated entities as a single group for lending limits.