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Adult businesses suing to get PPP loans. So far, the nightclubs are winning

Robert Channick, Chicago Tribune on

Published in News & Features

Launched April 3, the federal paycheck program offers businesses with fewer than 500 employees forgivable loans of up to $10 million to cover eight weeks of payroll. The initial $349 billion in funding ran out in less than two weeks, with many smaller businesses shut out, as banks allegedly prioritized larger clients ahead of mom-and-pop stores.

The $310 billion second round of PPP, which began April 27, has been more inclusive, with banks and the SBA pushing out loans to smaller businesses. The funding also isn't being depleted as quickly, with nearly $147 billion left as of Wednesday.

In fact, the amount of available PPP funding has increased in the last week, according to the SBA, as some businesses returned the money under pressure from the government, which said it would not forgive the loans if companies had access to alternative sources of capital. Chicago-based Potbelly Corp. is among the companies that have returned funds.

While there may still be plenty of money to go around, that doesn't diminish the urgency of the lawsuits brought against the SBA by adult nightclubs, Lirot said.

On May 11, a Michigan federal court ruled that the DV Diamond Club of Flint could not be denied a PPP loan based on the prurient sexual nature provisions of the original SBA ineligibility rule, which went into effect in 1996. The decision noted that Congress expanded the PPP to include other previously ineligible businesses, such as nonprofit organizations and small casinos.

"While Congress may once have been willing to permit the SBA to exclude these businesses from its lending programs, that willingness evaporated when the COVID-19 pandemic destroyed the economy and threw tens of millions of Americans out of work," the Michigan judge ruled. "Simply put, Congress did not pick winners and losers in the PPP."

 

The SBA filed an appeal with the 6th Circuit in Cincinnati on May 13. Two days later, the appellate ruling opened the door to a PPP loan for the DV Diamond Club and other adult nightclubs.

The lawsuit filed April 13 in Wisconsin federal court by Camelot Banquet Rooms, which owns and operates the Silk Exotic Gentlemen's Club in Milwaukee, may be even more relevant for the Admiral.

The court ruled May 1 in favor of the Milwaukee gentlemen's club, saying nude dancing is a form of expression protected by the First Amendment, and the SBA "has singled them (adult nightclubs) out for unfavorable treatment based solely on the content of their speech."

The SBA appealed the ruling May 4 in Chicago's 7th Circuit Court.

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