Minority-Owned Small Businesses Weren’t Able To Apply For COVID-19 Aid

Two minority-owned small businesses have filed a class action lawsuit against the U.S. government alleging that they were shut out of the COVID-19 small business lending program by large companies that received millions of dollars.

The owners of a financial consulting business and jewelry business say that they and other minority-owned small businesses were unable to even apply for loans through the Coronavirus Aid, Relief, and Economic Security (CARES) Act.

They accuse the U.S. Small Business Administration, SBA Administrator Jovita Carranza, Secretary of the Treasury Steven Mnuchin, and the United States of America of favoring larger businesses and discriminating against small businesses owned by minorities and women.

Do you own a small business? Were you able to apply for COVID-19 aid through the CARES Act? Get legal help here.

The plaintiffs each say that their businesses has been harmed by how the CARES Act aid was disproportionally dispersed by the government.

The jewelry store owner alleges that most of her business is done at trade shows and for weddings held in the spring and early summer. She says that these events have been postponed indefinitely or cancelled, leaving her with only negligible income through online sales.

The owner of the financial consulting business reportedly sells insurance, pensions, and retirement policies. He says that his business requires that he meet with clients in-person and, because of the outbreak, he can no longer meet with his clients. Further, he says that his clients can no longer afford his services due to the coronavirus outbreak.

Both plaintiffs say that, despite applying for COVID-19 aid as early as they thought possible, they were denied because the program ran out of funding.

“Defendants failed to appropriately protect the interests of a large part of this country’s economic engine – sole proprietorships, self-employed individuals, or independent contractors – by giving preference to businesses who maintained W2 employees on payroll,” contends the minority-owned small businesses class action lawsuit.

“In fact, Defendants knowingly, intentionally, and illegally discriminated against minority-owned and woman-owned Nonemployer Businesses.”

The complaint points out that the CARES Act provided nearly $350 billion in aid to businesses with less than 500 employees through Paycheck Protection Program Loans.

However, these PPP Loans were allegedly first offered to businesses with employees, not “nonemployer businesses” which are mainly owned by minorities and women.

“By the time the Defendants allowed these Nonemployer Businesses to submit applications, the money was gone — nearly $350 billion,” say the plaintiffs.

According to the minority-owned small businesses class action lawsuit, while the CARES Act intended for all small businesses to benefit from the $350 billion payout, the Act did not detail how that was to occur. Instead, the Small Business Administration and U.S. Treasury came up with discriminatory distribution methods.

Unfortunately for minority-owned small businesses, the government decided to designate two application time periods.

Businesses with up to 500 W2 employees were reportedly eligible for the initial application process starting April 3, 2020.

Businesses without employees would be allowed to apply for CARES Act loans during the second period starting April 10, 2020.

By the time the initial applications were process, there were no funds left for the second round of applicants, allege the plaintiffs.

The class action lawsuit also points out that the SBA and Treasury failed to issue guidance for non-employee minority-owned small businesses until April 14, further pushing back applications due to a lack of information.

“The first wave of applicants, businesses with payroll employees, were given a 14- day window of opportunity to apply for the PPP loans before the funds were exhausted,” alleges the minority-owned small businesses class action lawsuit.

“In contrast, the second group, Nonemployer Businesses, only had a one-day window to apply before the funds were exhausted.”

The plaintiffs allege that of the 9.9 million firms owned by women in the United States, 89.5 percent of them do not have W2 employees and, thus, did not qualify to apply for COVID-19 Aid until the second round of applications.

Similarly, 96 percent of all African American-owned businesses do not have W2 employees.

The SBA and Treasury knew that opening CARES to businesses with W2 employees would disproportionally harm women and minority-owned small businesses, alleges the complaint.

The Impact of Coronavirus on Minority-Owned Small Businesses

Economists can only speculate on the mid- to long-term effects the COVID-19 outbreak and related restrictions will have on small businesses. From essential workers demanding proper protective equipment, increases in remote work, allegations of price gouging, and false advertising, the coronavirus has affected nearly all businesses.

The minority-owned businesses class action lawsuit seeks to represent all minority and women-owned “non-employer” businesses. They are seeking damages for alleged violations of the Fifth Amendment of the Constitution.

The COVID-19 outbreak has affected nearly all aspects of daily life. Top Class Actions is staying on top of the legal issues with a guide to coronavirus lawsuits.

The plaintiffs and proposed Class Members are represented by Glen E. Frost, Matthew P. Kraeuter, Sean P. Hatley, and Elizabeth M. Burlington of Frost Law.

The Minority-Owned Small Businesses Class Action Lawsuit is Infinity Consulting Group LLC, et al. v. The United States of America, et al., Case No. 8:20-cv-00981-GJH, in the U.S. District Court for the District of Maryland.

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