Collected resources on record restrictions for small business relief

On this page, we have collected a variety of materials on the restrictions related to arrest or conviction imposed by the Small Business Administration (SBA) on small business owners seeking relief under the Paycheck Protection Program and Economic Injury Disaster Loan program.  Included are letters from legislators and major organizations, articles by us and by others, and official documents related to this issue.  We hope these resources will assist those working to ensure that much-needed relief is made fairly available to small business owners and their employees.  We continue to update this page with new resources (last updated May 27).

On April 21, Secretary Mnuchin seemingly closed the door on the SBA making any changes to its exclusionary policies at this time, but we encourage him to reconsider.  But there is no reason why the SBA cannot at any time rescind the new restrictions in its Interim Final Rule for the Paycheck Protection Program, as we advocate with 25 other organizations in our public comment on the SBA’s Interim Final Rule.  We also encourage Congress to curtail the SBA’s authority to unfairly deny relief to small businesses struggling to survive this crisis.

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New efforts to channel federal relief to small business owners with a record

After Congress authorized hundreds of billions of dollars in funds for small business relief during COVID-19, the Small Business Administration (SBA) imposed restrictions on applicants with an arrest or conviction history.  These barriers, neither required nor contemplated by Congress, impede access to the two major relief programs for small businesses, nonprofits, and independent contractors during the COVID-19 crisis.  The two programs are the newly created Paycheck Protection Program (PPP) and the ramped-up Economic Injury Disaster Loan (EIDL) program.

Three developments within the past week signal major pushback against or the possible reversal of at least some of these burdensome restrictions, which unfairly deny relief to worthy applicants.

First, at least 65 organizations submitted five public comments in opposition to the SBA’s criminal history restrictions for PPP relief.  Our organization joined 25 other groups in submitting a comment asking the SBA to rescind or modify the regulation on legal and policy grounds, citing recent court decisions that suggest the SBA may lack authority to impose record-based disqualifications at all.

These comments are the most recent expression of what has become a wave of bipartisan opposition to the SBA’s exclusionary policies, and growing coverage of the issues in the press.  We have been collecting relevant documents on our small business relief resource page.

Second, Treasury Secretary Steven Mnuchin signaled in a recent conversation with key Senators that he may be open to easing restrictions on PPP applicants with felony records from the last five years.

Third, the HEROES Act, passed by the House on Friday, includes provisions that would significantly constrain the SBA’s authority to deny applicants based on a record of arrest or conviction in both the PPP and EIDL programs.  If enacted into law, these provisions would mark a turning point in how federal law deals with discrimination based on criminal record.

We discuss these developments in detail after the jump.  Read more

Is SBA denying disaster relief based only on an arrest?

In response to COVID-19, Congress created the Paycheck Protection Program (PPP) and expanded the Economic Injury Disaster Loan (EIDL) program, appropriating hundreds of billions of dollars across these programs to assist small businesses affected by the pandemic and economic crisis.  As we have been pointing out in this space over the past five weeks, the Small Business Administration (SBA), which administers both programs, has imposed broad restrictions on access to relief based on arrest or conviction history, restrictions that were neither required nor contemplated by Congress.[1]

Until now, attention has been focused on small business owners unfairly denied PPP relief based on their record.  Members of Congress and major organizations have written in opposition to PPP regulations and policies that impose barriers based on a record, and dozens of media outlets have covered the issue.  But the EIDL disaster relief program has largely gone under the radar, in part because the SBA has not published guidance about how it is treating EIDL applicants with a record.

In a new development, documents posted anonymously on Reddit last week, and published by Law360 on May 3, purport to be internal SBA guidance for reviewing EIDL applications.  The documents instruct agency staff to deny relief to applicants if they have ever been arrested, unless the arrest was for a misdemeanor and occurred more than 10 years ago.  These leaked documents, also covered in detail by Entrepreneur this morning, would suggest that behind the scenes the SBA is imposing even greater record-related restrictions on COVID-19-related disaster relief than on PPP loans.

Upon review, we believe that this new information about the record-related standards being applied by the SBA to EIDL loans is likely correct.  We have heard from readers who were denied EIDL relief after SBA staff asked them questions over email about their arrest history, questions that correspond exactly to those in the leaked documents.  An SBA spokesperson, given an opportunity to correct the record if it needed correcting, declined to confirm or deny the information.

We have never see a government program in the United States with such broad and arbitrary restrictions based on criminal history.  The purported EIDL guidance is devoid of nuance: it instructs staff to deny relief based on arrest history regardless of offense and regardless of whether the arrest resulted in prosecution, much less conviction.  The look-back period is limitless for felony arrests and a full decade for misdemeanor arrests.  The guidance inevitably produces unwarranted disparities: a person with a decades-old felony arrest that was never charged, or whose arrest resulted in an acquittal, is treated more severely than someone with a more recent misdemeanor conviction.  Finally, the guidance cannot be squared with existing published SBA policies, as discussed below.

In normal times, a sweeping and secretive restriction on disaster relief would be problematic.  In this global public health and economic crisis, it is inexcusable.

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Mnuchin defends record restrictions for SBA stimulus loans

We have written much in recent days about how the SBA has imposed new restrictions on participation in the Paycheck Protection Program (PPP) by small business owners with a record of arrest or conviction.  We were therefore surprised to hear Secretary Mnuchin at the White House press briefing yesterday assert that the new SBA rules are actually more favorable to this population than the old ones.  That is simply not true.

Prior to enactment of the CARES Act, the SBA’s rules for its 7(a) loan program—of which the PPP is the newest part—disqualified only people with open criminal cases.  People with past records were subject to an individual evaluation.  In launching the PPP, the SBA imposed entirely new mandatory disqualifications that were neither part of SBA’s preexisting regulations nor required by the CARES Act.  New PPP rules and policies prohibit loans to any small business owner who, in the past five years, had a felony conviction, plea, or was placed on probation, parole, or diversion, even without a conviction.

Yet at a press conference yesterday following Senate approval of additional PPP funds, Mnuchin claimed exactly the opposite.  Responding to a question about the President’s comment the day before that he would look into the issue of people with records being denied access to small business loans, the Secretary stated that he had “worked with the White House” to “specifically design” the PPP program to reflect criminal justice reform efforts led by Jared Kushner and others in the Trump Administration.  As a result, he said, the new five-year disqualification period is “significantly shorter than what had been done before . . . . There were a lot of people who wouldn’t have had access previously and we changed those regulations.”  (The clip is here, starting at 7:38; a transcript is below.)

The Secretary’s explanation is so wildly off the mark that it is hard to believe he was simply misinformed.  More likely, he was reporting on how the SBA’s 7(a) loan program has been administered in practice, unwittingly revealing an unwritten policy of categorical exclusion in spite of formal policies calling for individual review.  That peek at how a risk-averse bureaucracy actually operates out of the public eye would be no surprise to people who have experienced it.

In the run-up to the drafting of the new stimulus bill, several bipartisan coalitions and policy experts urged Congress and the SBA to ensure that  justice-involved people who have started small businesses—and their employees—can obtain stimulus funds.  But Mnuchin yesterday seemed to shut that door: “For now, we’re not going to do that.”

We strongly encourage the Secretary to take another look, and to do it quickly, before the new PPP funds are authorized and distributed.  As Marc Levin of the Texas Public Policy Foundation wrote in this space yesterday, “During this trying time, the SBA must reexamine these regulations to ensure that small businesses that made the most of one second chance don’t have it taken away through no fault of their own.”

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Second Chance Small Businesses Deserve Another Chance

As America prepares to get back to work, will some people be left behind? The Small Business Administration (SBA) has adopted rules for emergency COVID-19 loans that exclude otherwise eligible existing small businesses from relief solely because they are owned in part by individuals who have a criminal record. Given that at least 19 million Americans have a felony record, this overly broad exclusion threatens to unfairly deny a lifeline to deserving small businesses and their employees.

The Paycheck Protection Program (PPP) that was part of the $2 trillion relief legislation passed by Congress and signed by President Trump provides loans to small businesses that are forgivable if the business retains its employees during the period of at least eight weeks. While the legislation was vague on exclusions based on criminal background, the guidance adopted on April 2 by the SBA is overly broad, going far beyond excluding only those who have committed  offenses related to financial dishonesty such as bank fraud or extremely serious offenses such as rape and murder.

Among those excluded are small business in which an owner of 20 percent or more is currently facing charges for any offense, is currently on community supervision, or has been convicted of a felony in the last five years. For several reasons, this disqualifying language casts a much wider net than necessary.

First, simply because an individual is facing charges does not mean they are guilty. Indeed, some 20 percent of those arrested ultimately have their case dismissed or are acquitted.

Additionally, the current criteria exclude existing small businesses that are owned in part by the 4.5 million Americans on community supervision, which encompasses probation and parole. Yet initiatives like the Prison Entrepreneurship Program (PEP) have helped many Americans with a record become successful business owners.

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SBA has no excuse for excluding people with a record from stimulus relief

Some federal officials have claimed in recent days that the government is required to bar people with a criminal record from emergency loans under the Paycheck Protection Program (PPP) either by the CARES Act or by preexisting SBA rules.  Neither assertion is true.

There is nothing in federal law, including the CARES Act, that requires the Small Business Administration (SBA) to disqualify small businesses from applying for PPP loans based on an owner’s past arrest or conviction history.  Prior to enactment of the CARES Act, the SBA’s rules disqualified only people with open criminal cases from the 7(a) loan program of which the PPP is the newest part.  Yet in launching the PPP, the SBA inexplicably decided to impose entirely new record-related restrictions on a population that is already severely disadvantaged: the new PPP rules and accompanying application forms prohibit loans to any small business owner convicted of a felony within the past five years, or placed on probation or parole during that time, even if all court-imposed penalties have been fully satisfied.  In fact, the SBA even disqualifies people whose felony charges never led to a conviction, but instead were dismissed after completion of pretrial diversion.

Our one-pager, “At a Glance: Barriers to the Paycheck Protection Program (‘PPP’) Based on Arrest or Conviction,” available in PDF and included below, explains the new barriers to relief under the PPP as well as preexisting barriers under the 7(a) program.

The SBA’s new policy, which comes at perhaps the worst possible time for struggling small businesses, cannot be squared with recent Congressional efforts to support people with past justice involvement in their efforts to reintegrate into the community, by enabling them to compete fairly for federal employment and contracts.  Eligibility requirements for federal relief should be relaxed in these circumstances, not made more restrictive as the SBA has done.  A coalition of conservative groups today urged in a letter to Senator McConnell that Congress take steps to roll back this counterproductive SBA policy, joining advocates who wrote last week directly to the federal executive officials most directly responsible for it.  We hope Congress will curb the SBA’s authority to discriminate against small business owners with a record in its new stimulus package.

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Bipartisan coalition calls on SBA to roll back record-related restrictions in COVID-19 small business loan programs

On April 17 a diverse bipartisan group of civil rights, advocacy, and business organizations, including CCRC, sent a letter to Treasury Secretary Mnuchin and SBA Administrator Carranza expressing concern over the restrictions imposed by the SBA on people with a record of arrest or conviction under two programs recently authorized by Congress in response to the COVID-19 crisis.  The letter points out that these unwarranted restrictions on loan programs intended to aid small businesses and non-profits will have a significant and detrimental impact in communities across the country, and a particularly harsh effect on minority business owners and employees who are disproportionately affected by the criminal legal system as a result of institutional discrimination.  It urges that federal relief be made equitably accessible to all who need it.

The letter describes how the SBA’s program restrictions based on record are

  • unnecessary and confusing
  • inconsistent with Congress’ intent in enacting the CARES Act
  • overbroad and unfair
  • racially discriminatory

In conclusion, the letter urges the SBA to take the following steps:

  • At a minimum, bring the record restrictions for PPP and EIDL programs in line with those that applied to Section 7(a) and 7(b) loans under regulations adopted prior to enactment of the CARES Act.
  • Relax existing rules and policies that restrict access to PPP or EIDL financial assistance for people with a record in the urgent circumstances presented by the pandemic, in line with the purposes of the CARES Act.
  • Ensure that the application forms for SBA financial assistance accurately reflect the eligibility requirements and are written in a clear manner.

An Appendix to the letter describes how the new rules and policies governing the Payroll Protection Program are more restrictive than those governing the 7(a) program generally, and how barriers based on arrest or conviction may also disqualify people with any sort of a record from loans under the EIDL program authorized under the SBA’s existing 7(b) disaster loan program.

The letter —available in PDF and reprinted below – was sent by the following organizations:

American Civil Liberties Union
Chicago Lawyers’ Committee for Civil Rights
Collateral Consequences Resource Center
Community Legal Services of Philadelphia
Drug Policy Alliance
FreedomWorks
Georgia Justice Project
Interfaith Action for Human Rights
Jewish Council for Public Affairs
Justice & Accountability Center of Louisiana
Justice Action Network
Leadership Conference on Civil and Human Rights
National Association of Criminal Defense Lawyers
National Employment Law Project
Public Interest Law Center
Reproductive Justice Inside
Safer Foundation
Washington Lawyers’ Committee for Civil Rights and Urban Affairs
Women Against Registry

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Organizations call on Congress to remove record-related barriers to small business relief

A bipartisan group of civil rights, advocacy, and business organizations, including CCRC, are calling on Congress to take immediate action to remove barriers based on arrest or conviction history for small business owners seeking COVID-19 federal relief.  This is an issue we have been covering in depth in recent posts.  This call to action—available in PDF and reprinted below—is issued by the following organizations (with additional sign-ons welcome; contact us here):

American Civil Liberties Union
Chicago Lawyers’ Committee for Civil Rights
Collateral Consequences Resource Center
College & Community Fellowship
Community Legal Services of Philadelphia
#cut50
Drug Policy Alliance
FreedomWorks
Georgia Justice Project
Interfaith Action for Human Rights
Jewish Council for Public Affairs
Justice & Accountability Center of Louisiana
Justice Action Network
Leadership Conference on Civil and Human Rights
Main Street Alliance
National Association of Criminal Defense Lawyers
National Employment Law Project
Out For Justice
Public Interest Law Center
Reproductive Justice Inside
Root & Rebound
Safer Foundation
Washington Lawyers’ Committee for Civil Rights and Urban Affairs
Women Against Registry

*Note: the letter was originally issued on April 10 and was last updated on April 17.

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Federal judge certifies class for landmark Florida felony voting trial

The monumental felony voting rights case in Florida moves another step forward, expanding in scope.  On Tuesday, the federal trial judge overseeing the case certified a class of all persons who have served sentences for felony convictions, who would be eligible to vote in Florida but for unpaid court debt.  With the trial scheduled to begin via remote communication on April 27, the decision enables the court to issue a ruling on the merits in time for the November election that would apply to the entire class of several hundred thousand (or more) potential Florida voters.

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The Marshall Project reports on criminal history barriers to small business relief

In the past two weeks we have written at length about the U.S. Small Business Administration (SBA)’s “bumpy guidance on criminal history requirements” for small business financial relief during the COVID-19 pandemic (see also “Applying for an SBA loan with a criminal record“).  Today, Eli Hager of The Marshall Project has picked up the story with a new piece that draws on our research and will bring the story to a wider audience.  We hope this will prompt the SBA to revise its policy, or guide Congress toward clearer and fairer standards if it passes a planned new round of small business assistance.

Before the pandemic, the SBA didn’t automatically disqualify people for small business loans based on a past criminal record, and we can’t understand why it would suddenly decide to do so now, when small businesses across the country are struggling to stay afloat.  (Preexisting policy, described here, disqualifies a business if it has a principal who is incarcerated, is under supervision, is facing charges, or lacks “good character.”)  The new SBA policy—which automatically disqualifies even certain people who have completed a diversionary program and were never convicted—seems entirely at odds with the wave of recent state and federal law reforms aimed at encouraging reintegration.

The Marshall Project piece notes that “never in recent U.S. history have so many conservatives and liberals agreed that people with criminal histories deserve a second chance—especially job-creating small-business owners.”  It is no wonder that the SBA “did not respond Tuesday to multiple requests for clarification,” when its new policy is so indefensible.

An excerpt from The Marshall Project piece, “Trump Administration Tells Some Business Owners ‘Do Not Apply’ for Coronavirus Loans,” is included below:

Michelle E. of Scottsdale, Arizona, was relieved when President Trump last month signed into law the sweeping stimulus package intended to keep the U.S. economy afloat during the coronavirus pandemic.

Michelle and her husband have owned a small hardwood flooring business for 18 years. She hoped the law’s $350 billion for small-business loans would help them avoid laying off any of their five employees, whom she said are like family. So she got a loan application through her bank.

But as she filled it out, Michelle saw the question: Had any of the business owners pleaded guilty to or been on probation for a criminal offense? Michelle immediately thought of her husband, who is on probation because he took a guilty plea on a theft charge after taking home the scope of someone else’s rifle on a hunting trip, something he says he did accidentally. His name and her last name are being withheld because his criminal case, and the couple’s loan application, are pending.

“Because of that, our employees can’t get help from the United States government?” Michelle said.

It’s a little noticed frustration compared to the logistical problems of the Trump administration’s rollout of the CARES Act. A set of new regulations for implementing the law, issued by the Small Business Administration, prohibits small-business owners with criminal records from accessing the desperately needed loans.

“We have never seen such a sweeping mandatory disqualification based on a criminal record, in any area of the law,” wrote the Collateral Consequences Resource Center, a nonprofit, nonpartisan website that tracks how federal, state and local laws affect people with past charges or convictions. The site is run by Margaret Love, who was the U.S. Pardon Attorney during the Clinton administration.

[. . . .]

Critics of the new regulations said the rules waste precious time examining people’s pasts when so many are, with each new day, losing their lives or livelihoods.  One New Jersey pet-supply store owner with a 10-year-old felony conviction put it this way in an email to the Collateral Consequences Resource Center: It is as if, after Hurricane Katrina flooded New Orleans, rescuers flying in helicopters asked families stranded on their roofs if they had ever faced a criminal charge.“

And if anyone answered yes,” he wrote, “they would move along to the next house.”

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