CARES Act
PACEM Solutions International LLC v. U.S. Small Business Administration
Date: Aug. 4, 2025
Issue: Whether the SBA violated the Administrative Procedure Act (APA) by concluding PACEM’s loan was ineligible for debt relief under the Coronavirus Aid, Relief, and Economic Security Act (CARES Act).
Case Summary: In a unanimous decision, a Fourth Circuit panel affirmed the district court’s ruling that the SBA properly concluded PACEM’s $5 million loan was ineligible for COVID-19 debt relief under the CARES Act.
In 2023, PACEM sued the SBA over its denial of debt relief. PACEM had applied in 2018 for a $5 million Section 7(a) loan, which private lenders issue to small businesses with an SBA guarantee. The loan required PACEM to repay the principal within one year, but PACEM missed multiple payments and renegotiated modified repayment agreements. Under the CARES Act, the SBA paid Atlantic Union over $35,000 to cover two months of PACEM’s interest.
In 2021, Atlantic Union declared PACEM in default, prompting PACEM to contact the SBA. After investigating in 2022, the SBA determined PACEM was never eligible for CARES Act loan repayment, stopped making payments, and demanded the return of the $35,000. PACEM alleged that the SBA’s refusal to make debt relief payments violated the CARES Act, was arbitrary and capricious under the APA, and violated the Due Process Clause of the Fifth Amendment.
Judge Leonie Brinkema of the Eastern District of Virginia granted summary judgment to the SBA, ruling the SBA did not violate the CARES Act because the statute clearly stated the agency was not required to make payments on nonperforming loans. Affirming the district court, the panel explained the CARES Act clearly limited relief to loans in “regular servicing status,” and because PACEM repeatedly missed payments and renegotiated the loan several times, the panel found no basis to question the SBA’s determination. By March 2020, when Congress passed the CARES Act, PACEM’s loan was already more than six months past due under its original agreement, according to the panel.
The panel also determined the SBA did not act arbitrarily or capriciously in concluding PACEM’s loan was ineligible for relief. The panel explained the CARES Act did not require the SBA to disburse payments for every 7(a) loan but instead distinguished between loans in regular servicing status and those that were not. The SBA sent an email to PACEM outlining the basis for its eligibility determination. The panel reasoned that by explaining that PACEM’s loan was ineligible for repayments under the CARES Act, the SBA satisfied its statutory duty to provide a “satisfactory explanation for its actions, including a rational connection between the facts found and the choice made.”
Bottom Line: The CARES Act did not obligate SBA to disburse payments for each small business loan, instead, it drew a distinction between loans in regular servicing status and those that were not.
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