SBA May Cap PPP Guarantees/Forgiveness by Corporate Group; Affiliated LLCs May Be Aggregated and Rule Is Not Retroactive to Pre-Rule Applications

1. Introduction

Case: Forest View Rehabilitation and Nursing Center, LLC v. United States Small Business Administration (captioned in the opinion as Oak Lawn Respiratory and Rehabilitation Center, LLC, et al. v. United States Small Business Administration, et al.)
Court: U.S. Court of Appeals for the Seventh Circuit
Date: July 14, 2026
Panel: Easterbrook, Jackson-Akiwumi, and Lee, Circuit Judges (opinion by Easterbrook)

The dispute arises from the Paycheck Protection Program (PPP) created by the CARES Act, which authorized the Small Business Administration (SBA) to guarantee PPP loans and, subject to conditions, forgive principal—effectively turning some loan amounts into grants.

Oak Lawn was one of 203 nursing homes under common control. Although individual facilities applied as separate limited liability companies (LLCs), the SBA applied its “Corporate Group Rule” (published at 85 Fed. Reg. 26,324 (May 4, 2020)) to cap the total PPP borrowing/forgiveness available to affiliated businesses within a single “corporate group” at $20 million. The group obtained over $41 million in PPP loans, but the SBA limited forgiveness to $20 million.

Key issues: (1) Whether the SBA had statutory authority, under the CARES Act and SBA’s §7(a) lending framework, to impose a corporate-group aggregate cap; (2) whether the rule was arbitrary and capricious; (3) whether Oak Lawn was properly treated as part of a single corporate group; and (4) whether applying the rule to Oak Lawn was impermissibly retroactive.

2. Summary of the Opinion

The Seventh Circuit affirmed summary judgment for the SBA. It held that:

  • The Corporate Group Rule did not render any entity “ineligible” for PPP; it limited the amount of federal guarantee/forgiveness available across affiliated entities, which the statute did not forbid.
  • The CARES Act and §7(a) confer substantial administrative discretion; the SBA’s emergency rulemaking authority supported adoption of the corporate-group cap.
  • The rule was not arbitrary and capricious because the SBA gave a rational explanation: conserving limited appropriations to spread PPP access among more borrowers.
  • Substantial evidence supported the administrative finding that the 203 nursing homes were controlled by a partnership (Gubin Enterprises/Moishe Gubin and Michael Blisko) that held majority control, bringing them within the Corporate Group Rule.
  • The rule’s application to Oak Lawn was not retroactive: forgiveness decisions and repayment obligations were prospective, and Oak Lawn could have withdrawn or declined to draw funds after the rule’s publication.

3. Analysis

3.1. Precedents Cited

Forest View Rehabilitation and Nursing Center, LLC, No. PPP-6431697306 (SBA Office of Hearings & Appeals Oct. 16, 2023)

The Seventh Circuit treated the administrative adjudication as the relevant agency decisionmaking record for judicial review. The opinion relied on the administrative judge’s determinations on two disputed, case-specific points: (i) whether Oak Lawn belonged to a corporate group under common control; and (ii) whether applying the Corporate Group Rule was “retroactive.” The appellate court did not re-try those facts; it asked whether “substantial evidence” supported the agency’s findings and concluded it did.

2024 U.S. Dist. LEXIS 234023 (N.D. Ill. Dec. 30, 2024)

The district court’s grant of summary judgment for the SBA was affirmed. The appellate opinion’s role was to validate the legal framework the district court accepted: that the SBA had discretion to structure PPP guarantee/forgiveness limits via rulemaking and that the corporate-group aggregation was legally permissible and rationally explained.

Esmark, Inc. v. NLRB, 887 F.2d 739, 755-57 (7th Cir. 1989)

Cited as an example of federal regulatory contexts (there, labor law) where affiliated entities may be treated as one for regulatory purposes. The citation supports the proposition that “separate incorporation” under state law does not necessarily compel a federal agency to treat each affiliate as wholly independent when implementing federal statutory schemes.

McCleskey v. CWG Plastering, LLC, 897 F.3d 899, 901-03 (7th Cir. 2018)

Used similarly to illustrate cross-doctrinal acceptance of aggregating affiliated entities (there, pension law). The case reinforces the opinion’s broader point: federal law often looks to economic reality, control, or affiliation rather than formal state-law entity boundaries, depending on statutory purpose and permissible regulatory design.

Teed v. Thomas & Betts Power Solutions, L.L.C., 711 F.3d 763 (7th Cir. 2013)

Another Seventh Circuit example (there, Fair Labor Standards Act) underscoring that treating affiliated businesses as a unified enterprise can be appropriate to prevent regulated parties from defeating federal policy via corporate form. The PPP context, in the court’s view, posed a similar risk: a large enterprise could multiply the statutory cap by slicing operations into many LLCs.

United States v. Bestfoods, 524 U.S. 51 (1998)

Bestfoods stands for the idea that, absent a regulation, courts typically rely on common law (including corporate separateness principles) in assessing parent/subsidiary liability. The Seventh Circuit invoked Bestfoods to acknowledge the baseline: state-law form can matter. But the court used Bestfoods to pivot to the key distinction in this case—there was a regulation (the Corporate Group Rule), and the court found no general statute or decision that forbids agencies from adopting affiliation-based lending limits.

3.2. Legal Reasoning

(A) Eligibility vs. the amount guaranteed/forgiven

Oak Lawn’s primary statutory argument was built on §7(a)’s reference to loans “to any qualified small business concern” and language in 15 U.S.C. §636(a)(36)(D) that “any” qualified small business “shall” be eligible for guarantees if conditions are met. Oak Lawn argued that because each nursing home was a separate LLC, each was separately “eligible” and therefore entitled to its own uncapped PPP guarantee/forgiveness up to statutory per-borrower limits.

The court reframed the question: the Corporate Group Rule does not declare an applicant ineligible; it limits the size of the federal guarantee/forgiveness benefit across a commonly controlled group. The court emphasized that neither §7(a) nor the CARES Act guaranteed that every eligible applicant would receive the maximum possible guarantee. It pointed to the CARES Act’s “may” language (15 U.S.C. §636(a)(36)(B)) to confirm discretion in issuing guarantees “up to” specified amounts.

(B) Statutory silence is not a prohibition; emergency rulemaking fills operational gaps

The court accepted Oak Lawn’s premise that §7(a) does not expressly authorize aggregate corporate-group limits. But it rejected the leap from “not expressly authorized” to “forbidden.” Given the PPP’s appropriated-funds constraint and Congress’s grant of emergency rulemaking authority (15 U.S.C. §9012), the SBA could adopt pragmatic constraints to manage scarcity.

This is the opinion’s core administrative-law move: in a resource-limited, mass-administered benefits program, statutory silence about one particular allocation mechanism does not compel a “race to the courthouse” in which early applicants must receive maximum benefits until funds are exhausted.

(C) “Business concern” need not track state-law entity boundaries

The opinion stressed that “business concern” is not defined in the statute and that SBA affiliation concepts existed pre-pandemic (citing 13 C.F.R. §121.301(f)). Oak Lawn’s state-law formalism—each LLC must be treated as a distinct “business concern”—was treated as a possible reading but not one mandated by statutory text.

The court’s examples (including the discussion of large law firms structured as partnerships of professional corporations) illustrate an anti-circumvention principle: absent an express command to treat each entity separately, the federal government may consider control/affiliation to prevent multiplication of caps through entity engineering.

(D) Arbitrary-and-capricious review: rational conservation rationale sufficed

The SBA’s stated rationale in the Federal Register—“promot[ing] the availability of PPP loans to the largest possible number of borrowers”—was accepted as a “cogent reason.” The court also noted the program’s enormous scale (nearly 12 million loans totaling almost $800 billion) and the absence of any claim that the rule caused funds to go unused. That combination made the arbitrariness challenge especially difficult: the rule directly addressed scarcity, and Oak Lawn did not undermine the factual premise of scarcity or the fit between the cap and the goal of broader distribution.

The opinion also rejected a more technical arbitrariness argument: that the rule did not address complex fractional-ownership scenarios (the court’s A/B/C hypothetical). The court held agencies need not anticipate and resolve every edge case immediately, particularly in an emergency. Failing to address uncommon or later-arising complications does not render the initial rule irrational.

(E) Corporate-group status and the role of partnerships as “common parent”

The Corporate Group Rule defines a single “corporate group” as affiliated businesses “majority owned, directly or indirectly, by a common parent.” Oak Lawn argued a “common parent” must be a single entity like a corporation or LLC and could not be a partnership.

The court rejected that limitation. Partnerships are entities in law and can control affiliates. The administrative record supported findings that the Gubin-Blisko partnership held over 55% investment interest and more than 50% voting membership control in each LLC—enough to treat all 203 nursing homes as a single corporate group able to “direct the conduct” of each facility.

(F) No impermissible retroactivity

Oak Lawn focused on timing: it applied before May 4, 2020 (the rule’s effective date), but the bank disbursed funds on May 18, 2020. The court found no retroactivity problem because:

  • The operative benefit at stake—forgiveness—was necessarily future-facing as of the disbursement date.
  • Oak Lawn could have withdrawn its application or declined to draw the funds once the rule was published.
  • The SBA did not revoke the guarantee already made; it limited how much of the loan would later be forgiven, which the court treated as withholding an expected subsidy rather than imposing a penalty for past conduct.

3.3. Impact

The decision strengthens three propositions likely to matter beyond PPP disputes:

  1. Aggregation to prevent cap circumvention: Where a federal benefits or lending statute imposes per-recipient caps but does not define “business concern” with entity-form precision, agencies have room to aggregate affiliated entities by control/ownership to prevent multiplication of caps.
  2. Administrative discretion in scarcity regimes: In appropriations-limited programs, courts may be reluctant to infer that Congress required “first come, first served” maximum awards absent clear statutory text—especially where Congress grants emergency rulemaking authority.
  3. Retroactivity challenges face headwinds when benefits are prospective: When a rule affects future forgiveness/subsidy determinations rather than undoing completed transactions or imposing new liabilities for past conduct, courts may characterize the change as prospective—even if an application was initiated earlier.

Practically, the opinion signals that highly affiliated enterprises cannot rely on state-law fragmentation (multiple LLCs) to expand federal loan-forgiveness entitlements, and it endorses the SBA’s approach to prioritizing broader program access during emergencies.

4. Complex Concepts Simplified

  • PPP “loan forgiveness”: Although structured as a loan, PPP could become a grant if statutory conditions were met. This case turned on how much of a loan the SBA would forgive, not whether the borrower could obtain a loan at all.
  • “Corporate Group Rule”: An SBA policy limiting total PPP loans/forgiveness to $20 million for a set of affiliated entities majority-owned (directly or indirectly) by a common controller, to spread limited funds across more borrowers.
  • Affiliation / control: A federal regulatory concept looking at who can direct business decisions (through voting power, ownership, or other mechanisms), even if operations are split among multiple legal entities.
  • “Arbitrary and capricious” (APA review): A court will uphold an agency rule if the agency offered a rational explanation connected to the facts and statutory objectives; the court does not choose the “best” policy.
  • “Substantial evidence”: A deferential evidentiary standard on review of agency factfinding; the question is whether a reasonable mind could accept the evidence as adequate to support the agency’s conclusion.
  • Retroactivity: A rule is retroactive if it attaches new legal consequences to completed past conduct. Here, the court viewed forgiveness as a future benefit, so limiting it was not treated as retroactive punishment.

5. Conclusion

The Seventh Circuit’s decision affirms the SBA’s authority to impose an aggregate PPP cap across commonly controlled affiliates under its emergency rulemaking powers, and it rejects challenges based on entity separateness, arbitrariness, and retroactivity. The opinion’s broader significance is its endorsement of affiliation-based aggregation as a legitimate anti-circumvention tool in federal benefits and lending programs—particularly when Congress funds a program with finite appropriations and delegates flexible implementation authority to an agency.