Software Company Sues to Avoid Repaying $750,000 PPP Loan

(Bloomberg) -- A California software company that received a federal Paycheck Protection Program loan of more than $750,000 sued the government over new guidelines attempting to restrict who can get such assistance.

Zumasys Inc. said in a suit filed Monday against the Small Business Administration and Treasury Department that it is now concerned it will have to pay back the forgivable loan the company and its two subsidiaries received in mid-April, some of which has already been spent to keep nearly 70 employees on payroll.

Facing criticism that much of the money intended to help small businesses weather the economic shock of the coronavirus pandemic was going to larger enterprises, the government said on April 23 that companies applying for PPP loans were required to certify that federal assistance was “necessary,” taking into account their access to other sources of liquidity.

But San Clemente-based Zumasys says it is entitled to the money under the original terms, and the company wants an order canceling the April 23 guidance and barring the government from enforcing it.

The SBA and Treasury Department didn’t immediately respond to requests for comment on the suit.

Several large companies that initially took PPP loans, including Shake Shack Inc. and Ruth’s Chris Steak House Inc., have returned them in response to public criticism.

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The company, which provides software programming and data security services, says it “has access to other credit facilities, but the uncertainty of current economic conditions, and purpose of the PPP, caused Plaintiffs to request PPP loan funds to support ongoing operations.” Zumasys said enforcing the new guidance would thwart the purpose of the federal stimulus program by putting companies deeper in debt.

Mona Hanna, a lawyer for Zumasys with Michelman & Robinson in Irvine, California, said many companies would likely terminate workers or shut down completely rather than take on more debt in the current economic environment.

”And that’s why we filed this lawsuit,” she said. “We want the court to tell us whether or not this guidance, given by the SBA and Treasury, is valid, or is it in fact invalid and unenforceable. We need to know.”

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