More than four years after COVID-19 shut down the economy, small businesses across the country are still fighting the SBA in court. From escape rooms to the Harlem Globetrotters, from community theaters to taco shops—they're suing the agency that was supposed to help them.
And some of them are winning.
The lesson is clear: if you have the resources to fight back, you have a chance. The SBA's decisions aren't always final. And their mistakes can be costly—for them.
The Cases Piling Up
According to Cascade PBS investigations, a contingent of small businesses continues to file lawsuits against the SBA claiming they were wrongly denied aid. The plaintiffs include:
- Escape rooms
- A Paralympics museum
- The Michigan State Fair
- The Harlem Globetrotters
- Community theaters
- Concert halls
- Restaurants
- Event venues
These aren't scammers trying to get away with fraud. These are legitimate businesses that applied for pandemic relief, got denied (often for nonsensical reasons), and decided to fight back through the legal system.
Success Stories
The Terrorist Watch List Mix-Up: $62,500 Settlement
A Seattle rideshare driver applied for a disaster loan. The SBA denied him. Why? Because they confused him with another man whose name appeared on a terrorist watch list. Same name, wrong person. The SBA couldn't be bothered to verify.
The driver sued. The SBA paid a $62,500 settlement rather than defend their negligence in court.
Outcome: $62,500 settlement
Winter Wonderland: $10 Million Victory
A British Columbia-based company stages a Christmas "Winter Wonderland" event at Seattle's T-Mobile Park. When they were denied pandemic relief, they didn't wait around. They filed a complaint in federal court in 2021 and were quickly awarded $10 million.
Having the resources to file suit quickly made all the difference. The SBA folded rather than fight.
Outcome: $10 million awarded
The Wendy's Franchisee Fight
Tanveer Sangha took over operations for his family's two Wendy's locations in Lewis County, Washington, just before COVID hit. He applied for PPP and used the $333,000 loan exactly as intended—to pay employees. The SBA took the rare step of denying forgiveness anyway.
Now Sangha is suing the SBA in federal court, arguing the denial was arbitrary and capricious.
Outcome: Ongoing litigation
The Community Theater Injustice
One of the most infuriating patterns involves community theaters. Many were denied Shuttered Venue Operators Grants (SVOG) while nearly identical competitors were approved.
The Studio Theatre in Arkansas was denied. Meanwhile, grants were funded for neighboring nonprofit community theaters including:
- Argenta Community Theater in North Little Rock
- Royal Players in Benton, Arkansas
Both theaters are "nearly identical to the Studio Theatre in material aspects, including not paying performers." Same business model. Same structure. Different outcome. No explanation.
This arbitrary treatment is exactly what courts are designed to address. When a government agency treats identical applicants differently without justification, that's actionable.
Why Legal Action Works
The SBA is a bureaucracy. Bureaucracies hate litigation. Here's why fighting back in court can be effective:
1. Discovery matters. In a lawsuit, you can force the SBA to turn over documents explaining why you were denied. Information asymmetry works against borrowers—discovery levels the playing field.
2. Settlements are cheaper than trials. The SBA often settles rather than defend bad decisions in court. Fighting to the end costs money and creates public records of their failures.
3. Arbitrary decisions don't survive scrutiny. When an agency denies one applicant while approving an identical one, that's "arbitrary and capricious" under administrative law. Courts overturn such decisions.
4. Media attention helps. Lawsuits generate news coverage. The SBA doesn't want headlines about denying pandemic aid to the Harlem Globetrotters.
5. Congressional pressure follows. Lawsuits often prompt Congressional inquiries. No agency wants to explain to the Senate why they're being sued by escape rooms.
The Access Problem
Here's the catch: companies with resources to fight back in court have been the most successful. A British Columbia company can afford lawyers to file federal complaints. A rideshare driver might take years to find legal help.
This creates a two-tier system:
- Businesses with money: Sue, win settlements, get relief
- Businesses without money: Accept denial, close down, move on
The smallest, most vulnerable businesses—the ones pandemic relief was designed to help—often can't access the legal system. They just disappear.
Those with resources to sue often get relief.
Those without resources accept unfair denials.
The system rewards those who already have advantages.
What Grounds Can You Sue On?
If you're considering legal action against the SBA, common grounds include:
Arbitrary and Capricious Decision-Making: If the SBA denied you while approving similar applicants, or if their reasoning makes no sense, courts can overturn the decision.
Failure to Follow Procedures: The SBA has published rules about how applications must be processed. If they didn't follow their own rules, that's grounds for challenge.
Due Process Violations: If you weren't given adequate opportunity to respond to SBA concerns before denial, your due process rights may have been violated.
Misidentification: Like the terrorist watch list case—if the SBA confused you with someone else, that's clear error.
Incorrect Information: If the SBA based their decision on factually wrong information and refused to correct it, courts can intervene.
Before You Sue: Exhaust Administrative Remedies
Courts generally require you to exhaust administrative options before suing. This means:
- File reconsideration requests
- Appeal denials through SBA channels
- Document every interaction
- Get denials in writing
- Request your complete file via FOIA
Only after the SBA has had multiple chances to correct their errors should you file suit. Courts will ask whether you gave the agency opportunity to fix the problem.
Documentation Is Everything
If you're considering legal action, your documentation needs to be ironclad:
Keep everything. Every email, letter, rejection notice, and application confirmation. Every phone call log with dates, times, and names of SBA employees you spoke with.
Request your file. Under FOIA, you can request your complete loan file from the SBA. This often reveals the actual reason for denial—which may be different from what they told you.
Find comparators. If similar businesses were approved while you were denied, document the similarities. Arbitrary treatment is your strongest argument.
Build a timeline. Courts like clear timelines showing what happened when. Create a chronology of every interaction with the SBA.
Finding Legal Help
Not every lawyer handles SBA cases. Look for attorneys with experience in:
- Administrative law
- Small business matters
- Federal government litigation
- SBA loan cases specifically
Some attorneys take these cases on contingency, meaning they only get paid if you win. This can make legal action accessible even if you can't afford upfront fees.
Legal aid organizations may also help if you qualify based on income. The Small Business Administration itself has resources listing legal assistance options—ironically, given they're the ones you might be suing.
Class Actions: Strength in Numbers
Some businesses have joined together in class action lawsuits against the SBA. Class actions allow similarly situated plaintiffs to combine their cases, reducing individual costs and increasing pressure on the agency.
If you've been denied pandemic relief, search for existing class actions you might join. You may not need to file your own case—you might be able to join one already in progress.
1. Exhaust all SBA administrative appeals
2. Request your complete file via FOIA
3. Document all communications in writing
4. Find comparator businesses that were approved
5. Consult an attorney experienced in administrative law
6. Check for existing class actions to join
7. Calculate whether the amount at stake justifies legal costs
The Bigger Picture
Every lawsuit against the SBA creates precedent. Every settlement documents failure. Every court victory makes it harder for the agency to get away with arbitrary decisions next time.
The businesses fighting in court aren't just fighting for themselves. They're fighting for accountability. They're creating records of SBA misconduct that can be used by future plaintiffs. They're forcing an agency to face consequences for its failures.
That matters even if you never file suit yourself. The more businesses that fight back, the more careful the SBA has to be. Sunlight is the best disinfectant, and courtrooms provide a lot of sunlight.
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