Religious College Loses RFRA Challenge to SBA's Loan Forgiveness Rules

 In Gordon College v. U.S. Small Business Administration, (D DC, July 18, 2024), the D.C. federal district court dismissed claims by a religious nonprofit college that its rights under RFRA as well as the 1st and 14th Amendments were infringed when it was denied forgiveness of a $7 million loan that it received under the Covid era Paycheck Protection Program. Loan forgiveness was available to qualifying small businesses. Gordon College's loan forgiveness application was denied because it had over 500 employees and thus did not meet the SBA's small-business size standard. Rejecting plaintiff's RFRA claim, the court said in part:

... [P]laintiff fails to identify a “sincere religious belief” that has been infringed by application of the PPP’s 500-employee cap to plaintiff.... Absent here ... is any articulated connection between plaintiff’s asserted need to have more than 500 employees and its exercise of religion.  Plaintiff, for example, does not allege that “any religious group” has “as one of its tenets” the requirement that an associated religious institution have more than 500 employees ... or that it has treated having more than 500 employees to “ris[e] to [any] level of significance in [its] religion.”...

As to plaintiff's Constitutional challenges, the court said in part: 

... [T]he application of the PPP’s 500-employee cap to plaintiff is neutral and generally applicable, thereby triggering rational basis review, rather than strict scrutiny.  Plaintiff has failed to bring a rational-basis challenge by not plausibly alleging that no reasonable set of facts could provide a rational basis for the PPP’s 500-employee cap.  Accordingly, plaintiff’s Free Exercise and Equal Protection claims are dismissed....

Here, plaintiff alleges that “[d]efendants have interfered with the autonomy of [plaintiff] to define its own doctrine, membership, employment, staffing, affiliation, and other internal requirements” by “insisting on certain requirements [sic] for determining staffing and employment.... [P]laintiff has failed ... to explain why the PPP’s 500-employee cap... interfered with any “matters of faith and doctrine.”  Plaintiff’s religious autonomy claim is thus dismissed.

SBA Says Churches and Other Religious Organizations Are Now Eligible For SBA Loans

On April 3, the Small Business Administration announced that faith-based organizations, including houses of worship, are eligible to receive SBA loans regardless of whether they provide secular social services. (FAQ Document) (Press Release).  This applies both to the Paycheck Protection Program designed to keep small business workers employed, and to the Economic Injury Disaster Loan Program which provides small businesses and non-profits working capital. The FAQ Document says in part:

...[N]o otherwise eligible organization will be disqualified from receiving a loan because of the religious nature, religious identity, or religious speech of the organization. The requirements in certain SBA regulations— 13 C.F.R. §§ 120.110(k) and 123.301(g)—impermissibly exclude some religious entities. Because those regulations bar the participation of a class of potential recipients based solely on their religious status, SBA will decline to enforce these subsections and will propose amendments to conform those regulations to the Constitution. Although 13 C.F.R. § 120.110(a) states that nonprofit entities are ineligible for SBA business loans (which includes the PPP program), the CARES Act explicitly makes nonprofit entities eligible for the PPP program and it does so without regard to whether nonprofit entities provide secular social services.