A federal bankruptcy judge approved a preliminary injunction against the U.S. Small Business Administration on Friday, forcing the government to accept a Paycheck Protection Program loan application from Hidalgo County EMS.

Judge David R. Jones, the chief bankruptcy judge for the Southern District of Texas, made the decision Friday in a lawsuit filed by Hidalgo County EMS, a privately owned ambulance company based in Edinburg.

Hidalgo County EMS filed the lawsuit in April, when a bank rejected the company’s request for a Paycheck Protection Program loan. Attorneys for the Small Business Administration said companies in bankruptcy don’t qualify for the program.

During a hearing on Friday morning, Jones suggested that he attempted to avoid an injunction — and made his position clear during a hearing last month. Hidalgo County EMS and the Small Business Administration, however, couldn’t reach an agreement.

“This just doesn’t need to be where it is,” Jones said. “But if you folks want to push it, I am perfectly happy to oblige all of you.”

With nearly 850,000 residents spread across 1,570 square miles, Hidalgo County depends on a patchwork of public and private ambulance services to handle emergency calls.

Local governments in Mercedes, Weslaco and Palmview operate their own ambulances. Privately owned ambulance services compete for contracts in other cities — including McAllen, Edinburg, Mission and Pharr.

It’s a tough business in South Texas, where many residents can’t afford health insurance.

Med-Care EMS, which serves McAllen and Mission, filed for Chapter 11 bankruptcy in November 2018. Hidalgo County EMS, which serves Edinburg and Pharr, filed for Chapter 11 bankruptcy in October 2019.

Both reported millions in uncollectable debt from customers who couldn’t pay.

Med-Care EMS emerged from bankruptcy in April 2019. Hidalgo County EMS had planned to complete the restructuring process within the next few months.

The coronavirus pandemic scuttled that plan and left Hidalgo County EMS on perilous financial footing.

Hidalgo County EMS responded to about 2,300 emergency calls in Hidalgo County during March, according to data provided by the company. The number of calls dropped to 927 during the first half of April.

Faced with a financial crisis, Hidalgo County EMS requested a $2.6 million loan through the Paycheck Protection Program.

Lawmakers created the program to assist businesses and reduce unemployment during the pandemic. Banks process loan applications for the Small Business Administration, which administers the program.

Hidalgo County EMS applied through Dallas-based PlainsCapital Bank.

The loan application included a question about bankruptcy: “Is the Business or any owner presently suspended, debarred, proposed for debarment, declared ineligible, voluntarily excluded from participation in this transaction by any Federal department or agency, or presently involved in any bankruptcy?”

Hidalgo County EMS answered “yes.” As a result, PlainsCapital Bank rejected the loan application.

Concerned it wouldn’t be able to make payroll, Hidalgo County EMS filed a lawsuit against the Small Business Administration.

Hidalgo County EMS argued the Small Business Administration had improperly blocked people and businesses involved in bankruptcy proceedings from applying. An attorney for the Small Business Administration said the government had good reasons to exclude businesses in bankruptcy, including concerns about how they would repay the money.

Jones, the federal bankruptcy judge, sided with Hidalgo County EMS during a hearing on April 24.

“It’s entirely inappropriate that those words were added to that form in that list in that manner and I see no authority anywhere for including those words in that form,” Jones said. “It serves no purpose.”

Jones signed a temporary restraining order, which directed the Small Business Administration to process the loan application.

Hidalgo County EMS, however, couldn’t find a bank willing to accept the application.

PlainsCapital Bank stopped processing loan applications. Four other banks refused to accept the application.

“Whether we can cover Paycheck or not also depends on how fast our employees cash their checks,” according to a statement by David Elliott, a consultant who is serving as chief financial officer for Hidalgo County EMS during the bankruptcy process, dated Wednesday. “In that regard, I and other members of the management team have in the past, and remain willing today, to hold our Paycheck checks for a few days so that the bank account is not overdrawn.”

Hidalgo County EMS and the Small Business Administration returned to court Friday for a preliminary injunction hearing.

Without access to a Paycheck Protection Program loan or another source of cash, Hidalgo County EMS may be forced to reduce service, said Chief Restructuring Officer Omar Romero. Hidalgo County EMS would prioritize the most profitable ambulance contracts and may be forced to drop contracts to serve areas with poor, uninsured residents.

About 200,000 people may lose access to ambulance service, Romero said, and they would scramble to find another provider.

“To be honest with you, people would just die,” Romero said.

Attorney Nathaniel Peter Holzer, who represents Hidalgo County EMS, said federal law didn’t prohibit businesses in bankruptcy from applying for Paycheck Protection Program loans.

Holzer called the decision to exclude them arbitrary and capricious.

“I don’t know what they’re thinking,” Holzer said. “This makes no sense to me.”

Dominique V. Sinesi, an attorney who represented the Small Business Administration on Friday, said businesses in bankruptcy pose an unacceptably high risk.

“This is not some free gift of money,” Sinesi said, and the loans must be repaid if spent improperly.

Sinesi said Hidalgo County EMS failed to pay federal taxes before declaring bankruptcy, which indicated the company may not comply with Paycheck Protection Program rules.

Jones rejected the Small Business Administration’s explanation for categorically excluding businesses in bankruptcy.

“It is a frivolous argument,” Jones said. “It continues to be a frivolous argument.”

“This is not a loan program,” Jones said, referring to the fact that Paycheck Protection Program loans were designed to be forgiven if the borrower spends the money on allowable expenses. “It was never intended to be a loan program.”

Jones said he would require the administrator of the Small Business Administration to file a declaration by 5 p.m. on Monday, confirming the agency would comply.