Background
Oak Lawn Respiratory and Rehabilitation Center, LLC, along with two other nursing homes, sought loans under the Paycheck Protection Program established by the Coronavirus Aid, Relief, and Economic Security Act. The Small Business Administration had adopted a Corporate Group Rule limiting the total loan amount to twenty million dollars for all businesses in a single corporate group. Oak Lawn and its affiliates received loans exceeding this cap because the bank was unaware of the group’s total borrowing. When seeking loan forgiveness, the SBA limited the benefit to the cap, leaving the nursing homes with debt for the excess amounts. The district court granted summary judgment in favor of the SBA.
The court’s reasoning
The Seventh Circuit held that the CARES Act and Section seven of the Small Business Act did not forbid the SBA from setting aggregate limits for corporate groups. The court found that the statute did not define a business concern exclusively by state law organization, allowing the agency to treat affiliated businesses as a single entity for regulatory purposes. The court rejected the argument that the rule was arbitrary, noting the agency’s cogent reason to ensure limited resources reached the largest possible number of borrowers. The court also found that applying the rule was not retroactive because the loan forgiveness, which was the contested subsidy, was determined after the rule became effective.
What it means going forward
The decision confirms the SBA’s authority to enforce aggregate loan caps on affiliated businesses, ensuring that PPP funds are distributed more broadly across the economy rather than concentrated in large corporate groups.