Categories: Legal

Showdown: California Firm Zumasys Sues SBA And Treasury Over PPP Loan

As the deadline looms for businesses to return Paycheck Protection Program (PPP) loans they were ineligible for, a California software company is suing the Small Business Administration (SBA) and the U.S. Treasury Department.

Zumasys Inc. filed the suit Monday (May 4) in response to guidance from the agencies issued last week, Bloomberg News reported.

The SBA and Treasury have ordered companies applying for the forgivable bailout money to certify federal assistance was necessary. The regulators reminded owners to consider whether the business has access to other sources of liquidity.

Zumasys Inc. argues it is entitled to its $750,000 loan under the original terms. The San Clemente-based firm has asked a judge to cancel the April 23 directive and prevent the government from enforcing it, the news service reported. Companies have until May 14 to repay the cash.

In addition, the suit said Zumasys is worried that it must return the forgivable loan the company and two subsidiaries received last month. Some of it, the company said in the lawsuit, has been spent to keep about 70 employees on payroll.

Per the report, the SBA and Treasury did not respond to requests for comment.

The attorney representing Zumasys, Mona Hanna of Michelman & Robinson in Irvine, California, told Bloomberg many companies would likely terminate workers or shut down rather than take on more debt.

“And that’s why we filed this lawsuit,” she said. “We want the court to tell us whether or not this guidance, given by the SBA and Treasury, is valid, or is it in fact invalid and unenforceable. We need to know.”

The $2.2 trillion CARES Act passed by Congress included PPP loans to keep businesses afloat during the coronavirus pandemic. The initial $310 billion program launched on April 3 was exhausted in 13 days, small businesses alleged they were shut out as publicly traded companies, nationwide franchises and preferred bank customers got the funds. The second round of funding was approved late last month for $349 billion, designated for smaller firms. The loans are forgivable if 70 percent of the proceeds are spent on salaries and certain other expenses.

A handful of large companies that took PPP loans, including the Los Angeles Lakers, Shake Shack Inc. and Ruth’s Chris Steak House Inc., have returned them in response to criticism from small and medium-sized businesses (SMBs) that the smaller firms were being excluded.

Get our hottest stories delivered to your inbox.

Sign up for the PYMNTS.com Newsletter to get updates on top stories and viral hits.

——————————

New PYMNTS Study: Subscription Commerce Conversion Index – July 2020

Staying home 24/7 has consumers turning to subscription services for both entertainment and their day-to-day needs. While that’s a great opportunity for providers, it also presents a challenge — 27.4 million consumers are looking to cancel their subscriptions because of friction and cost concerns. In the latest Subscription Commerce Conversion Index, PYMNTS reveals the five key features that can help companies keep subscribers loyal despite today’s challenging economic times.

Recent Posts

SEC Probes Timing Of Eastman Kodak’s Announcement Of $765M Loan

Eastman Kodak’s surprise announcement of plans to reinvent itself as a drug manufacturer has run afoul of the U.S. Securities…

4 mins ago

Intuit Inks Deal To Purchase Order Management Provider TradeGecko

Intuit, maker of QuickBooks, has inked a deal to purchase inventory and order management technology provider TradeGecko. The deal is…

21 mins ago

Booking.com To Trim Employee Roster By 25 Pct Globally

Booking Holding Inc., the Connecticut-based company that owns travel website Booking.com, plans to reduce its workforce by as many as…

38 mins ago

Grab Launches Microinvestment Solution, Consumer Loans, BNPL Plans

Grab Financial Group (GFG), a Southeast Asia financial technology (FinTech) and ridesharing company, is expanding its reach with the announcement on…

50 mins ago

The State Of Main Street In 2020’s Second Half

The first half of 2020 was a tough time to run a small business on Main Street as stay-at-home orders…

2 hours ago

Today In Payments: Amex Grows BNPL Options; Facebook Unveils Commerce Accelerator Plans

In today’s top news, American Express has unveiled a new payment option, and Facebook has revealed plans for a Commerce…

2 hours ago