Sizzler sues SBA for access to PPP funds

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The steak and salad bar chain Sizzler sued the U.S. Small Business Administration in a last ditch effort to secure a second paycheck protection program loan just days before the fund dried up, arguing that the agency was improperly suspending the company over its bankruptcy filing last year.

The Mission Viejo, Calif., Based company said it had repeatedly applied for a $ 2 million PPP loan, which would be its second, but was barred from doing so due to a “suspension.” of his bankruptcy claim, even though Sizzler came out of bankruptcy in January.

Sizzler said the SBA changed its mind in April and said it would no longer prevent companies emerging from bankruptcy protection from obtaining PPP loans.

For the company, the timing of the trial is important because the PPP is expected to expire in a few days. Sizzler filed his complaint on Monday. The PPP fund will expire on Memorial Day.

“There is a high probability that the remaining PPP funds will be completely exhausted even before May 31,” says the complaint. “Although Sizzler Restaurants did everything in their power to secure a second PPP loan, the SBA’s illegal rules, regulations and practices designed to illegally prevent debtors from participating in PPP prevented it from doing so.”

This is hardly the first dispute between a restaurant chain and the SBA over its rules for the program, which was created last year as part of Congress’ first stimulus package. Restaurants have been heavy (but not the heaviest) users of the fund, which has helped a number of businesses keep staff on hand during a pandemic in which much of their business was banned .

The fast-casual chain Cosi, for example, sued the SBA last April for its failure to secure PPP funds.

Sizzler received a PPP loan in April 2020, for $ 3.9 million, according to his lawsuit. But the company declared bankruptcy last September, arguing that the pandemic and the closure of indoor restaurants as well as the refusal of landlords to grant a reduction in rent led to the filing. The company said at the time that it operated just over 109 sites.

In his lawsuit, Sizzler said its restaurants “remained under severe, if not absolute, restrictions on indoor dining” when it emerged from bankruptcy. She then requested a second PPP loan “to increase the chances of success of its emergence and save as many jobs as possible in the process.”

The company said it went to its original lender, JPMorgan Chase Bank, for the second loan, but was turned down because of the rule that banned bankrupt businesses from applying for such loans.

Sizzler argues that “nothing” in the stimulus packages governing P3s excludes debtors from Chapter 11 of the fund.

It also argues that 190,000 claims were still pending as of March 24 due to “unresolved” deadlocks on claims.

After JPMorgan Chase turned down Sizzler’s loan, the company applied through MidFirst Bank and its application was successful under various requirements, all of which were quickly resolved except for the bankruptcy filing. .

MidFirst sought advice on lockdowns several times in April, after the SBA changed the rules on companies coming out of bankruptcy. The lender also sent a certification letter to the agency in support of the request, but it was never approved. It was not until May 13 that the application was removed from the agency’s review portal, but at that point “most of the PPP funding opportunities were no longer available.”

Sizzler was able to find a bank capable of submitting an application, the Southwestern National Bank, but as of May 21, the company’s application was still pending.

“Denial of access to PPP deprives Sizzler Restaurants of a significant amount of money in the short term,” the company said, which would hamper its ability to operate under its bankruptcy plan.

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