Background
Oak Lawn Respiratory and Rehabilitation Center and two other nursing homes sued the Small Business Administration after being denied full forgiveness of Paycheck Protection Program (PPP) loans received under the CARES Act. The three nursing homes were part of a group of 203 nursing homes operating under common control through a partnership between Gubin Enterprises and Michael Blisko. Sixty-one of these 203 nursing homes collectively received more than $41 million in PPP loans, each potentially eligible for forgiveness under the statute’s individual $10 million-per-business limit.
To stretch limited appropriations, the SBA adopted the Corporate Group Rule, capping total PPP loan guarantees to affiliated business groups at $20 million regardless of the number of separate entities. When the nursing homes applied for loan forgiveness in 2021, the SBA limited that benefit to $20 million per corporate group, leaving the remainder as outstanding debt. After administrative judges and the district court ruled against them, the nursing homes appealed to the Seventh Circuit.
The Court’s Holding
The Seventh Circuit affirmed the SBA’s authority to enforce the Corporate Group Rule. The court held that Section 7(a) of the Small Business Act does not define “business concern” and therefore permits the agency to interpret the term to include affiliated businesses as a single entity for lending-limit purposes. Although Section 7(a) applies “to any qualified small business concern,” this language does not mandate that separately incorporated entities receive separate loan guarantees. The statute empowers—but does not require—the agency to issue guarantees, affording the SBA significant discretion in administering the program.
The court found the Corporate Group Rule rationally based on ensuring limited PPP resources reached the greatest number of borrowers. The 203 nursing homes constituted a single corporate group because the Gubin-Blisko partnership maintained majority voting and investment interests in each entity and could direct their conduct. The rule was not applied retroactively; Oak Lawn received its loan after the Rule became effective and could have declined to draw funds once the Rule was published. The court rejected challenges based on fractional-ownership scenarios the rule did not address, noting that agencies responding to urgent pandemic needs were entitled to prioritize the most pressing issues.
Key Takeaways
- The SBA may treat multiple separately incorporated businesses as a single “corporate group” for PPP loan limits when they share majority ownership and control.
- Undefined statutory terms like “business concern” may be interpreted by agencies to encompass affiliated entities for regulatory purposes when the interpretation is rational.
- Separately incorporated entities cannot circumvent aggregate lending caps by operating as multiple small entities under common control.
- The CARES Act’s “may guarantee” language does not entitle applicants to full loan forgiveness; agencies retain discretion to allocate limited resources.
Why It Matters
This decision is significant for multi-entity businesses that received PPP loans and for the framework governing future emergency lending programs. It confirms that the SBA can group affiliated businesses as a single entity for compliance with statutory lending limits, regardless of separate incorporation. The ruling prevents loan recipients from circumventing caps through corporate structuring and establishes that federal agencies possess substantial interpretive flexibility when statutory language leaves key terms undefined, provided the interpretation serves a rational government purpose.
The decision also reinforces judicial deference to agency action during crises. The court acknowledged that emergency rulemaking during the COVID pandemic justified focusing on pressing questions without resolving every conceivable scenario. This precedent will influence how courts review regulatory actions taken under time pressure in future national emergencies and shapes expectations for how federal lending programs respond to resource constraints.