Senate bill would deliver relief to small biz owners with a record

*UPDATE (7/7/20):  “SBA throws in the towel and Congress extends the PPP deadline

After Congress authorized hundreds of billions of dollars 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: the Paycheck Protection Program (PPP) and the Economic Injury Disaster Loan (EIDL) program.

A major development in Congress signals the likely elimination of most of these restrictions, which would make crucial economic assistance newly available to many small business owners with a record.  On June 4, Senators Rob Portman (R-OH), Ben Cardin (D-MD), James Lankford (R-OK), and Cory Booker (D-NJ) introduced the Paycheck Protection Program Second Chance Act.

This bipartisan Senate bill would allow those with a record to apply for PPP funds, subject to only two record-based restrictions that are far narrower than the current PPP restrictions.  Under the Senate bill, the SBA would not be permitted to deny an applicant based on arrest or conviction, unless the owner of 20% or more of the equity of the applicant is: 1) currently incarcerated; or 2) was convicted in the last 5 years of felony financial fraud or deception.  The second restriction may be waived by the SBA.

The provisions of the Senate bill are nearly identical to analogous provisions in the HEROES Act, which passed the House on May 15, giving some basis for optimism that this reform will become law.  CCRC Executive Director Margaret Love is quoted in the Senate bill press release: “This bill represents a momentous bipartisan effort to roll back overbroad regulatory barriers that rely on arrest and conviction history to unfairly exclude small businesses from critical economic assistance, with a particularly adverse impact on minority-owned businesses and their employees.”  The press release also includes statements from the four Senators and Holly Harris, Executive Director of Justice Action Network, with a common theme that people who have paid their debt to society, turned their lives around, and started small businesses should celebrated rather than denied federal assistance.

While the Senate bill would expand access to PPP, unlike the HEROES Act it does not address the SBA’s record restrictions for EIDL disaster relief, which have been even more exclusionary than the PPP restrictions.  According to an alleged SBA document leak in early May, which we believe was reliable, the agency was denying relief to any EIDL applicant who had ever been arrested, unless the arrest was for a misdemeanor and occurred more than 10 years ago.  But on May 20, an SBA spokesperson, without disputing the authenticity of the leaked documents, nonetheless stated that this information “is incorrect. An applicant with a felony conviction in the last 5 years would be declined.”  The 5-year felony restriction for EIDL disaster relief is consistent with the PPP restrictions, suggesting that sometime in May, the agency started to evaluate EIDL applicants under the PPP standards.  We would hope and expect that if the Senate bill were enacted, the SBA would also apply the bill’s relaxed PPP eligibility standards in considering EIDL applicants.