SBA bypasses ban to forgive strip clubs for pandemic relief loans

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(Reuters) – The US Small Business Administration has said it will ignore the regulatory ban on helping adult businesses and will accept applications for forgiveness loans for pandemic relief from strip clubs.

According to a statement in Michigan federal court on Friday, the agency said that will handle forgiveness statements for loans from dozens of adult businesses “regardless” of its rule that prohibits “lustful sex” companies from receiving agency assistance.

The ban has been challenged in numerous lawsuits by adult companies who claimed it unconstitutionally blocks their access to pandemic assistance under the Payroll Protection Program.

The $ 800 billion program offered government-backed, forgiving loans to small businesses that needed help paying salaries and other expenses amid the COVID-19 pandemic.

DV Diamond Club, which operates a strip club in Flint, Michigan, said in filing that the SBA had notified him via email in early June that it would be processing loan forgiveness applications to him and dozens of other adult companies that have filed with trial at the SBA last year.

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

U.S. District Judge Matthew Leitman in Flint issued a preliminary injunction last May, when the SBA was unable to enforce its rule prohibiting these businesses from participating in a PPP program.

The SBA appealed Leitman’s decision to the US 6th Circuit Court of Appeals, but the case was adjourned pending the agency’s decision to forgive the loan.

According to a recent Michigan filing, the SBA said it would forgive loans to adult companies that filed lawsuits and “received PPP loans in the first place pursuant to preliminary injunctions.”

Bradley Schafer, an attorney representing DV Diamond Club and others, said the SBA has yet to make a similar decision with respect to PPP loans made in the second round of the program, or grants under the Restaurant Recovery Fund, another aid program created by Congress this year. … …

Schafer represents adult companies seeking assistance through these programs, and argues that the SBA’s relaxed stance on the Diamond Club case indicates that the agency does not have a compelling government interest in upholding the ban.

“If you make exceptions to this, then it’s not that important,” he said on Monday.

An agency spokesman did not immediately respond to a request for comment on Monday.

Strip clubs said in court that the SBA’s ban on assisting sex-related businesses was an unconstitutional restriction on free speech. In one case, the 2nd District issued an SBA ruling. can enforce a ban on the New York club.

Case – DV Diamond Club Of Flint LLC v Small Business Administration, US District Court, Eastern District of Michigan, no. 20-cv-10899.

From Plaintiffs: Bradley Schaefer, Matthew Hoffer and Zachary Youngsma of Shafer & Associates

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

Read more:

Strip clubs, other “dysfunctional” businesses eligible for emergency loans during a pandemic: US judge

Incentives for Strip Clubs Indicate Lingering Uncertainty About US Small Business Aid

2nd Circuit Says SBA May Ban Strip Clubs Due To Pandemic

Jody Godoy

Jody Godoy talks about banking and securities law. Contact her at jody.godoy@thomsonreuters.com.



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