Per court filings, the Small Business Administration has quietly changed the way its doles out grants, putting a pause on processing applications from women, people of color, and veteran-owned businesses in late May.
The Small Business Administration (SBA) appears to have stopped processing restaurant relief applications submitted by woman-, veteran-, and minority-owned businesses in late May, in part due to lawsuits alleging discrimination against white men.
The agency disclosed this procedural change last Thursday in a court filing, in response to ongoing litigation over how it has distributed aid.
“SBA is not currently processing any priority applications,” an agency official wrote in a declaration, referring to applications filed by women, veterans, and socially disadvantaged groups. (The agency defines “socially disadvantaged” applicants as “those who have been subjected to racial or ethnic prejudice or cultural bias,” including Black, Hispanic, Indigenous, and Asian Americans.) “SBA will only resume processing these applications once it completes processing for all previously filed non-priority applications, and only then if the [relief] is not first exhausted.”
If a restaurant is 51 percent or more owned by someone who identifies as a woman, veteran, or minority, it falls into the “priority” category. According to SBA, those priority applications are not currently being processed. The disclosure raises questions about how exactly money from the $28 billion Restaurant Revitalization Fund is getting distributed, and what measures SBA is taking to ensure that it does so equitably. It’s also raising calls on Congress to quickly replenish the aid so that no one goes empty-handed—pleas that appear to be gaining traction: On Thursday morning, a bipartisan group of senators and representatives introduced a proposal to refill the fund by $60 billion.
“SBA will only resume processing these applications once it completes processing for all previously filed non-priority applications, and only then if the [relief] is not first exhausted.”
When Congress created the restaurant relief grants in March, it intended to shore up a weathered hospitality sector, reeling from plummeting revenues during the coronavirus pandemic. The legislation also stipulated that SBA—the agency tasked with administering relief—prioritize restaurants owned by women, veterans, and people of color during its first three weeks, as a means to address gender and race-based economic disparities. (This isn’t entirely unusual: For example, SBA typically sets aside a proportion of government contracts for socially or economically disadvantaged groups as a means to ensure “a level playing field.”) The agency made it clear that other restaurants should still submit their applications within that time frame, which ran from May 3 to May 24, but that it would not process them until the priority window was up.
This process sparked numerous lawsuits, alleging that priority groups were a form of racial and sexual discrimination. America First Legal, a right-wing group helmed by former Trump advisor Stephen Miller, argued that the preferences violated the Constitution. Separately, the Wisconsin Institute for Law and Liberty, a conservative legal nonprofit, made a similar case, and argued that they put “white male applicants at significant risk.” Underpinning both lawsuits, at least in part, was the anxiety that there was simply not enough money to go around.
It’s a fair concern: Nine days after applications first opened, SBA reported that more than 266,000 businesses had applied for aid, requesting a total of more than $65 billion. In fact, requests from priority groups alone—which made up slightly less than half all applicants—exceeded the amount of aid available, the agency said. (SBA did not respond to requests for comment and declined to share a demographic breakdown of relief recipients so far.)
Last Friday, America First Legal issued a statement declaring that the Biden administration had “caved” in response to its lawsuit, and that it would no longer process applications from any priority groups.
Since then, the discrimination lawsuits have wound their way through the courts, but their impact on the rollout of the program have been mostly unclear.
That is, until last Friday, when America First Legal issued a statement declaring that the Biden administration had “caved” in response to its lawsuit, and that it would no longer process applications from priority groups. Both the legal group and SBA declined to comment on the announcement, but court filings indicate that SBA has in fact put applications by women, veterans, and people of color on pause. This is a subtle but significant change to the agency’s previous plans, in which it had intended to process “applications from all eligible applicants” on a first-come, first-serve basis following the initial three-week priority period.
The pivot may be partly in response to the success of the discrimination lawsuits: In mid-May, a federal judge made a preliminary ruling that Phil Greer, a white man who owned a restaurant in Texas, could face “irreparable harm” due to the relief roll-out process. Separately, on May 28, the Sixth Circuit Court of Appeals ruled that gender- and race-based priority groups carved out as part of the restaurant relief were unconstitutional, and ordered the agency to stop using the criteria to hand out aid. Based on SBA’s response to the ruling, it appears that the agency won’t challenge this decision.
The later you applied—priority or not—the more likely the fund will run out before the agency reviews your request.
“We feel like we’ve been vindicated by the Court of Appeals and that our position has been held to be correct,” said Dan Lennington, an attorney at Wisconsin Institute for Law and Liberty and counsel for the plaintiff in the Sixth Circuit case. “SBA has changed their process in apparently what seems to be a positive way.”
So what does that mean for restaurateurs? SBA has not specified when it will start processing applications filed by women, people of color, or veterans again. The later you applied—priority or not—the more likely the fund will run out before the agency reviews your request.
Keep in mind that this could change if other restaurants decide to sue SBA over its recent changes, explained George La Noue, a professor emeritus of public policy and political science at the University of Maryland, who has done research on SBA and preference groups.
“This is a very volatile situation,” he said. La Noue said it’s likely that restaurants owned by women and minorities could argue that they’re being unfairly excluded from relief under the recent changes. He also pointed out that restaurants that didn’t apply for relief at all could make the case that they would have—had they known SBA was going to alter its process the way it did.
“Refilling the Restaurant Revitalization Fund is the most important thing Congress can do to get their constituents back on their feet and help their communities thrive.”
For restaurant groups, the solution to the headaches caused by the restaurant relief fund is obvious: Replenish the pot.
“Refilling the Restaurant Revitalization Fund is the most important thing Congress can do to get their constituents back on their feet and help their communities thrive,” said Erika Polmar, executive director of the Independent Restaurant Coalition in a press release on Thursday morning.
Long story short: A stipulation meant to give women, veterans, and minorities a leg up in accessing Covid-19 restaurant relief spurred lawsuits that seem to have caused SBA to put those groups in a holding pattern. Greer, the former plaintiff behind one of the suits, said that the priority group system wouldn’t have bothered him, if only there was enough money for all restaurateurs. “Nearly every restaurant suffered pretty good losses during the shutdown,” he said on a phone call.
“[SBA] had listed women, veterans, African-Americans—it listed different categories [as priority groups] and I’m okay with that,” he added. “I thought that was great. But it’s just that somebody was left off.”