SBA rolls back many criminal history barriers just before deadline

*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.  We have written much in recent weeks about how these barriers, neither required nor contemplated by Congress, impede access to the two major stimulus relief programs for small businesses, nonprofits, and independent contractors: the Paycheck Protection Program (PPP) and the Economic Injury Disaster Loan (EIDL) program.

On June 12, the SBA eased some of the restrictions for PPP, just as two lawsuits were filed in federal court challenging the restrictions.  Today, SBA further relaxed its criminal history barriers for PPP assistance, this time in a far more significant fashion, and in a manner that makes the business owners who are suing the SBA now eligible to apply.  However, the new regulation and application form come less a week before the June 30 deadline to apply for relief.

The new policies include two important changes to eligibility.  First, being on parole or probation is no longer disqualifying, unless the parole or probation “commenced” within the last year for any felony, or with the last 5 years “for any felony involving fraud, bribery, embezzlement, or a false statement in a loan application or an application for federal financial assistance.”  Second, pending misdemeanor charges are no longer disqualifying; only pending felony charges are. (The new rule and application form are linked below.)

Plaintiffs suing the SBA have asked the judge to extend the deadline to apply for PPP and void the SBA’s criminal history barriers.  Today’s policy change makes the business owners plaintiffs eligible to apply, which could potentially moot the case.  According to counsel Joanna Wasik of the Washington Lawyers’ Committee, the lawsuit “continues because newly eligible business owners must have more time to hear about the new rule and apply for the much-needed loans, and a smaller group of business owners remain excluded by the SBA.”  Counsel ReNika Moore of the ACLU commented, “All small business owners and their workers — regardless of any criminal record — should have access to this economic lifeline, and we won’t stop fighting until it’s afforded to all.”

The new criminal history questions on the application form are:

5. Is the Applicant (if an individual) or any individual owning 20% or more of the equity of the Applicant presently incarcerated or, for any felony, presently subject to an indictment, criminal information, arraignment, or other means by which formal criminal charges are brought in any jurisdiction?

6.  Within the last 5 years, for any felony involving fraud, bribery, embezzlement, or a false statement in a loan application or an application for federal financial assistance, or within the last year, for any other felony, has the Applicant (if an individual) or any owner of the Applicant 1) been convicted; 2) pleaded guilty; 3) pleaded nolo contendere; or 4) commenced any form of parole or probation (including probation before judgment)?

Looking ahead to what small business owners with records may expect from the SBA in the future, we will work to ensure that SBA does not forget the lessons learned during the past three months.  At a minimum, the SBA should accord the same treatment to applications from people with criminal records under the regular 7(a) and 7(b) small business loan programs as it is now apparently willing to accord them in applications for these initial stimulus funds.  Furthermore, going forward we will continue to work for the elimination of all categorical bars to small business funding based on an owner’s criminal record, which experience in past there months has shown is an imperfect proxy for credit-worthiness.  We see no reason why all applicants should not in future be subjected to the same standards.

The new regulation:

The new application form:

ACLU press release:

Washington Lawyers’ Committee press release: