Legacy brand Sizzler filed a lawsuit to force the U.S. Small Business Administration to approve its application for a second Paycheck Protection Program loan worth $2 million, arguing the entity is unfairly stonewalling the process because of its bankruptcy.
The 63-year-old chain is fighting to lift a “hold” on its application, which it believes is due to its bankruptcy status. Sizzler notes in the lawsuit that this runs counter to new rules. On April 6 the SBA published new guidance saying it would no longer prevent bankrupt companies from obtaining loans as long as they obtained confirmation of a reorganization plan, a process Sizzler finished in January.
But on May 13, the SBA informed MidFirst Bank, Sizzler lender, that it would remove from its review portal any PPP loan application that was still pending review due to hold codes. Sizzler loan application was not approved and was withdrawn. The restaurant scrambled to engage another lender that could resubmit an application, but when it did, the “hold” cold still applied.
The PPP closes May 31, and Sizzler said there’s a “substantial likelihood” that the remaining PPP funds will be completely exhausted even before that date.
“Though Sizzler Restaurants has done everything in its power to obtain a Second Draw PPP loan, the SBA’s unlawful rules, regulations, and practices designed to unlawfully exclude debtors from participating in the PPP have prevented it from doing so,” the restaurant states in the filing. “Sizzler Restaurants will suffer a real and substantial loss if deprived of access to PPP funds. This will manifest both as the loss of opportunity to obtain funds that will most likely turnout to be forgivable, which other non-debtor entities are able to obtain, as well as the loss of cash to pay employees and basic operating expenses.”
“Denial of access to the PPP denies Sizzler Restaurants a significant amount of money in the near-term, which would significantly facilitate the Reorganized Debtors’ ability to perform under the confirmed plan and obtain its discharge,” the brand continues. “Urgent action is needed to right these wrongs before it is too late and Sizzler Restaurants is left without a remedy.”
READ MORE: Steakhouse Icon Sizzler Files for Bankruptcy
At the onset of the pandemic, Sizzler applied for a $3.9 million PPP loan, and received the funds on April 13, 2020. The chain said it used 100 percent of the funds for its authorized uses, and expects it to be completely forgiven. However, the brand said the loan was ultimately insufficient to counteract COVID restrictions. As a result, Sizzler filed for bankruptcy in September.
At the time the bankruptcy reorganization plan was confirmed in January, Sizzler said its locations still faced “severe, if not absolute, restrictions on indoor dining.” When a third round of PPP opened, Sizzler immediately tried to obtain a second PPP loan to “increase the likelihood of its successful emergence and save as many jobs as possible in the process.”
Sizzler applied for a second PPP loan three times. The first was through JPMorgan Chase Bank, but that was quickly denied because of the bankruptcy. The chain then turned to MidFirst Bank in February. When that application was withdrawn, Sizzler turned to Southwestern National Bank and resubmitted an application, but the same “hold” code related to the bankruptcy was there on May 21.
“Since the creation of the PPP, the SBA has unlawfully administered the PPP by excluding certain types of businesses, including those “involved in a bankruptcy,” from eligibility for the PPP with no legitimate basis for doing so,” the filing states. “The arbitrary and capricious exclusion of debtors from the PPP is plainly incompatible with the very purpose of the PPP and in contravention of the anti-discrimination provisions of the Bankruptcy Code.”
As of May 24, 11.6 million loans worth $795.9 billion have been approved.
