Emory Bankruptcy Developments Journal


The Small Business Administration (“SBA”) has been providing disaster relief in the form of Economic Injury Disaster Loans (“EIDLs”) since its inception in 1953. In the context of the COVID-19 pandemic, the CARES Act charged the SBA with issuing forgivable loans through the Paycheck Protection Program (“PPP”) to small businesses which would otherwise face permanent closure. Though the CARES Act did not specifically grant the SBA authority to do so, the SBA interpreted its powers to include the ability to set requirements for loan approval which were not laid out in the Act itself. Specifically, the SBA promulgated a rule indicating that loan applicants presently involved in a bankruptcy petition were ineligible for PPP loans. This rule has become the subject of extensive litigation and courts have been forced to answer the question of whether the SBA’s conduct violates 11 U.S.C. § 525(a), which prohibits discrimination in the award of certain government programs by governmental entities. Some courts have found the SBA to have violated this provision, while others have declined to rule against the SBA. Among the reasons cited for finding for the SBA is the argument that the Chevron Doctrine constrains the judiciary’s ability to scrutinize the actions of the agency. The result of this judicial split is an uneven application of bankruptcy law and a violation of the Code’s overall purpose.

This Comment first discusses the history of PPP loans and Economic Injury Disaster Loans generally. Next, this Comment surveys the statutory landscape of section 525(a) and the existing case law arising from PPP loan litigation. The subsequent analysis considers the merits of various arguments presented both against and in favor of the SBA’s position and explains why Economic Injury Disaster Loans, such as PPP loans, should be protected under section 525(a). Finally, this Comment concludes by looking at how resolution of the PPP loan dispute will impact small businesses in the future and by offering a legislative solution for closing the gaps in the Code’s current provisions.