SBA circumvents ban on canceling strip club pandemic relief loans

(Reuters) – The US Small Business Administration has said it will ignore a regulatory ban on adult business assistance and will accept requests for a strip club pandemic relief loan remission .

According to a case filed in federal court in Michigan on Friday, the agency said it will treat loan forgiveness requests from dozens of adult businesses “regardless” of its rule prohibiting businesses of a “lascivious sexual nature” from receiving agency assistance.

The ban has been challenged in several lawsuits by adult companies, which argued it unconstitutionally blocked their access to pandemic relief under the Paycheck Protection Program.

The $ 800 billion program offered government-backed forgivable loans to small businesses that needed help dealing with payrolls and other expenses in the context of the COVID-19 pandemic.

DV Diamond Club, which operates a strip club in Flint, Mich., Said in the file that the SBA notified her by email in early June that it would process loan cancellation requests by it and dozens of other adult businesses that sued the SBA last year.

The companies involved in the case have collectively received more than $ 10.7 million in loans, according to public records.

U.S. District Judge Matthew Leitman in Flint issued a preliminary injunction last May prohibiting the SBA from enforcing its rule to exclude these companies from the PPP program.

The SBA appealed Leitman’s decision to the U.S. 6th Court of Appeals, but the case was stayed pending the agency’s decision on the loan cancellation.

According to the recent Michigan case file, the SBA said it would cancel loans for adult businesses that have sued and “obtained first tier PPP loans under preliminary court injunctions.” .

Bradley Shafer, an attorney who represents the DV Diamond Club and others, said the SBA has yet to make a similar decision regarding PPP loans in the second round of the program or grants under the Revitalization Fund. restaurants, another relief program that Congress created this year. .

Shafer represents adult businesses seeking redress under these programs and argued that the SBA’s relaxed position in the Diamond Club case indicates the agency has no compelling government interest in upholding the ban. .

“If you give exceptions to that, it means it’s not that important,” he said on Monday.

A spokesperson for the agency did not immediately respond to a request for comment on Monday.

Strip clubs have argued in court that the ban on SBA aid to sex-related businesses amounted to an unconstitutional restriction on speech. In one case, the 2nd Circuit ruled that the SBA could apply the ban to a New York club.

The case is DV Diamond Club Of Flint LLC v Small Business Administration, US District Court, Eastern District Of Michigan, No. 20-cv-10899.

For the Complainants: Bradley Shafer, Matthew Hoffer and Zachary Youngsma of Shafer & Associates

For the SBA: James Gilligan of the US Department of Justice

Read more:

Strip clubs, other “disadvantaged” companies entitled to emergency loans in the event of a pandemic: American judge

Strip club relaunch reveals lingering uncertainties over US small business aid

Circuit 2 says SBA may exclude strip clubs from pandemic relief

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