VIDEO: Governmental Barriers to Small Business Financing for People with a Criminal History

On November 18, the Georgetown Center for Business & Public Policy hosted an informative and provocative forum on “Understanding Governmental Barriers to Small Business Financing for People With a Criminal History.”

A video recording of the program is now available on YouTube.

This event marks the first public discussion of our organization’s new initiative aimed at illuminating and reducing barriers to small business financing based on criminal history. The panelists were Sekwan Merritt, owner of an electrical contracting business in Baltimore, David Schlussel of CCRC, Awesta Sarkash of the Small Business Majority, and Chris Pilkerton, a former SBA general counsel and acting SBA administrator.

Sekwan Merritt, who has built a thriving business and employs several people who also have a record, illuminated the challenges he faces as a justice-affected entrepreneur in gaining access to business capital. Merritt, a graduate of the Georgetown Pivot Program, was one of the plaintiffs in the litigation that led to the SBA’s rollback of its PPP restrictions after he was denied this emergency COVID-19 federal relief. He explained that because he is still on parole he is ineligible for the SBA’s general loan programs and that the kinds of questions asked on SBA application forms frequently deter people from even applying. Merritt also described the need for a holistic assessment as part of an overall credit evaluation, recognizing achievements such as educational attainment, rather than a frequently-disqualifying early inquiry into criminal record.

CCRC’s David Schlussel described how the SBA’s “broad and blunt” record-related restrictions first came to the public’s attention in the early months of the pandemic, when hundreds of thousands of small businesses—a substantial percentage of which were Black-owned—were disqualified from government-supported relief. Schlussel traced the history of the SBA’s restrictive loan policies to the 1950’s, noting that they are neither required nor specifically authorized by statute. He quoted from a 1978 SBA statement justifying these policies based on its belief that the SBA “should not be involved in rehabilitation processes,” that “good character is essential in any creditworth transaction,” and that the possibility of reincarceration creates a risk of absentee management.

Schlussel described the conclusion of a 2005 law review article by Taja-Nia Henderson that the SBA restrictions appear to violate civil rights laws in their heavy impact on Black business owners, and he noted that there has been no empirical study linking criminal record with creditworthiness. In any case, the SBA has apparently not attempted to justify its policies since 1978, even as they have become increasingly restrictive in recent years. He noted that the other major federal lending agency, the USDA, has nothing comparable for its rural small business and agricultural lending programs.

Awesta Sarkash of the Small Business Majority was effective in describing the difficulties minority- and women-owned small businesses generally have in accessing capital, noting that these difficulties are exacerbated when a business owner or manager has a criminal record. Sarkash also emphasized the importance of resources to support early-stage entrepreneurs, such as her organization’s educational portal, and community development financial institutions (like Baltimore Community Lending that helped Sekwan Merritt manage a large contract). Chris Pilkerton, a former SBA general counsel and acting SBA administrator, made a number of very cogent suggestions about how to address this important public policy question through coalition building, message coordination, bipartisanship, and education.

Several of the panelists noted that the SBA is by far the country’s most influential player in facilitating small business access to capital, and that its policies necessarily influence both private lenders and state legislatures considering analogous state loan programs.

The panel was moderated by Dr. Crystal Francis, assistant director of program management of the Georgetown Pivot Program, who engaged with the panelists in a wide-ranging discussion and facilitated audience questions.

The video of the event is available here.

As CCRC continues to develop our “Fair Chance Lending” project, we are finding that agencies and organizations involved in small business and community financing are eager to extend their agendas to address barriers based on a criminal record. Regular visitors to our website can expect to hear about this issue frequently in the months to come.