SBA relaxes rule against business loans to probationers, while other federal agencies keep collateral consequences unchanged

June 30, 2015 CCRC Staff

The U.S. Small Business Administration (SBA) last week published a final rule for its federal Microloan Program that will for the first time allow microloans to small businesses owned by someone currently on probation or parole. In its announcement, the SBA noted that this will “aid[] individuals with the highest barriers to traditional employment to reenter the workforce.” The change was evidently prompted by a review of agency regulations requested by the Cabinet-level Federal Reentry Council established in 2010 by former Attorney General Eric Holder.

While the change is welcome, it leaves in place substantial restrictions for people under sentence in other SBA loan programs, discussed at length in a post on this site last December.

It is also striking for being the only relaxation of federal collateral consequences since the Reentry Council was established five years ago. As reported on this site, federal agencies are said to be “mostly satisfied” with their the way their regulations address the situation of people with a criminal record.

The SBA’s Microloan Program, which is focused on startups, minority and other underserved markets, provides loans up to $50,000 to help small businesses and certain not-for-profit childcare centers start up and expand. Microloans play an important role in distressed communities where access to conventional lending remains a challenge. The average microloan size is approximately $13,000.

“Small business ownership and self-employment are paths toward wealth creation and independence,” said SBA spokesman Miguel A. Ayala. “This option can be particularly useful for citizens who may have difficulty finding employment after returning to their community from prison. With millions of Americans looking to start over after incarceration or move past their criminal records, the SBA is removing barriers so that citizens can achieve economic security and be successful members of society.” . . . .

This action supports the goals of the Federal Reentry Council to reduce barriers to employment and reduce recidivism. It also implements key recommendations of the President’s My Brother’s Keeper Initiative to increase access to jobs, reduce violence, and provide a second chance.

If the SBA is concerned about encouraging reentry, then it needs to go further than simply expanding borrower eligibility under its microloan program. While giving probationers and parolees access to microloans -– and to employment with microloan borrowers — will certainly allow some to reestablish themselves as productive citizens, the real employment opportunities are with businesses funded under the larger 7(a) and 504 programs, for which probationers and parolees would remain absolutely barred. These businesses are also likely to be better protected against employee fraud or malfeasance. It is hard, therefore, not to see the proposed rule as a token gesture rather than a broad effort to open opportunities for those under supervision in the community.

We note that the SBA appears to be the only federal agency to date to have made any changes in its rules or policies in response to the initiative of the Federal Reentry Council.