Dan Bearden thought that getting a $947,000 COVID-19 relief loan would be just the lifeline his Van Buren trucking company needed to survive bankruptcy reorganization.
But the U.S. Small Business Administration denied Dancor Transit Inc.’s application for the Paycheck Protection Program because the company is in Chapter 11 bankruptcy.
Dancor, like several other companies across the country in bankruptcy restructuring, sued the SBA for preventing firms in bankruptcy from accessing forgivable loans under the federal Coronavirus Aid, Relief & Economic Security Act.
“If we don’t get the loan, I’m not sure what the future is going to hold for this company,” Bearden said. “It’s been in business 38 years. It’s like we’ve been getting slapped in the face every time we turn around. But that’s the way it goes.”
The loan application form asks if a company is “presently involved in any bankruptcy.” If the company answers “yes,” the loan will be denied.
Dancor filed a complaint against the SBA on April 20 inside its case in U.S. Bankruptcy Court in Fort Smith. It wants the judge to remove the phrase on the loan application that asks if a company is “presently involved in any bankruptcy.”
“Without a PPP loan, it is questionable whether Dancor can meet payroll, rent, utility, or debt obligations as they continually come due,” Dancor’s attorney, Kevin Keech of Little Rock, wrote in the filing. “Without a PPP loan, Dancor may cease to be a viable company and may have to convert its case to a Chapter 7 liquidation, which will result in many of its creditors receiving little to no payment in satisfaction of their debts.”
As of Thursday morning, the SBA had not responded to the lawsuit.
Meanwhile, Dancor has reapplied for a PPP loan, and a case in Texas offers some encouragement. A bankruptcy judge there criticized the SBA for denying the Hidalgo County Emergency Service Foundation’s PPP loan just because it is in bankruptcy.
Bankruptcy Judge David Jones issued a temporary restraining order on April 24 that allowed the ambulance service to disregard the part of the application that asks if an applicant is “presently involved in any bankruptcy.”
The judge called the question bankruptcy discrimination.
“This can’t be what Congress intended,” Jones said, according to a transcript obtained by Arkansas Business. “This can’t be the way that we are supposed to treat our fellow man in this time.
“It is my hope that my government that I serve will realize the error that it has made and that it will act appropriately and ensure that all of our citizens have access to the support they needed,” he said.