Applying for a USDA loan with a criminal record

This post is a part of CCRC’s Fair Chance Lending Project (FCLP), and was prepared by students from Yale Law School’s Community Economic Development Clinic, which is working with CCRC on the project. The FCLP promotes greater access to government-sponsored loans to justice-impacted small business owners and managers, particularly within the Small Business Administration loan guarantee programs. The post builds on briefing materials originally prepared by CCRC staff, including its former intern Jack Keating.

Applying for a USDA Loan with a Criminal Record

The United States Department of Agriculture offers a selection of guaranteed loan programs for farms and other small businesses in rural communities. While these USDA loan programs are broadly analogous to the Small Business Administration’s business loan guarantee programs, their eligibility requirements differ in at least one significant way: the USDA imposes no general criminal record restrictions on loan eligibility for justice-impacted individuals who own or manage small businesses. Instead, USDA imposes only narrow record-based restrictions that are specifically required by statute, and that are likely to apply to very few loan applicants. Because applicants for SBA loans are more likely to be racial or ethnic minorities than applicants for the USDA’s financial products, the disparate impact of the SBA’s uniquely stringent criminal background requirements is amplified

In this post, we describe the restrictions on lending to justice-impacted individuals within programs administered by the USDA, focusing mainly on the agency’s flagship Business & Industry Loan Guarantees Program. CCRC’s Fair Chance Lending Project is focused on advocating for changes to SBA lending policies, and we believe that other agencies’ practices may provide instructive alternative models that can guide the SBA as it modernizes its rules.  Thus, in a final section we discuss the implications of USDA loan policies for those of the SBA.

Eligibility criteria in USDA lending programs

The USDA offers a variety of lending products designed to spur rural and small-town economic development. The largest business lending program run by the USDA is the Business & Industry (B&I) Loan Guarantees program, which provided $1.66 billion in guarantees in FY 2020.[1] Like the SBA’s 7(a) loan program, which guarantees loans to small businesses primarily in urban areas, the B&I program offers a guarantee on loans made by private lenders. The B&I program offers an 80% guarantee on loans made to rural businesses, which can include “for-profit or non-profit businesses, cooperatives, federally-recognized Tribes, public bodies, or individuals engaged or proposing to engage in a business.”[2]

To receive a loan guaranteed by the B&I program, the USDA does not require the sweeping criminal background checks and good character evaluations that the SBA uses in its lending programs. Instead, USDA regulations governing guaranteed loans instruct lenders to conduct a general “credit evaluation” analyzing six different “credit factors,” only one of which is the applicant’s “credit history” and “character.”[3] The regulation does not define what goes into a review of character, nor does it call for a criminal background check in this connection.[4] Indeed, it states that ””[w]hen the borrower’s credit history or character is negative, the lender will provide satisfactory explanations to indicate that any problems are unlikely to recur.”[5]  The rule leaves it up to the lender to decide whether an applicant’s criminal history needs to be reported to the USDA, and does not specify what criteria lenders are to use to determine whether “any problems are unlikely to recur.”

The USDA loan programs are subject to two very general conviction-related statutory prohibitions, which have been incorporated into separate chapters of USDA rules. One prohibits the extension of any USDA benefit, including a guaranteed loan, to “any person who is convicted under Federal or State law of planting, cultivating, growing, producing, harvesting, or storing a controlled substance in any crop year… during that crop year, or any of the four succeeding crop years.”[6] The other prohibition requires the USDA to permanently debar anyone convicted of fraud in connection with a USDA program, with the caveat that the prohibition may be reduced to 10 years “if the Secretary considers it appropriate.”[7] 

The USDA application forms request information beyond what is in the statute and regulations. Form RD 4279-1, the main application form for the B&I program, requires that applicants attach the “record of any pending or final regulatory or legal (civil or criminal) action against the business, parent, affiliate.” This record is used by the USDA to make a preliminary determination as to whether the project “will not meet Rural Development’s minimum credit standards for a sound loan, is ineligible, does not have sufficient priority or that funds or guarantee authority are not available for the project.”[8] While more research into agency practice would be helpful, there is no indication in USDA guidance or application forms that the Agency will make a negative determination based on an applicant’s criminal history — unless narrow statutory prohibitions described in the preceding paragraph apply.

Finally, the USDA, like all federal agencies, is subject to the general government-wide rules on nonprocurement grants and agreements that are imposed by the Office of Management and Budget.[9]  Accordingly, USDA rules require that a loan applicant certify that it has not been disbarred or suspended or recently convicted of a crime warranting disbarment.[10] Thus, USDA Form RD 4279-1 requires the applicant to certify “that neither it nor any of its principals:

  1. Are presently excluded or disqualified:
  2. Have been convicted within the preceding 3 years of any of the offenses listed in § 180.800 (a) or had a civil judgement rendered against it for one of those within that time period;
  3. Are presently indicted for or otherwise criminally or civilly charged by a government entity (Federal, State, or local), commission of the offenses listed in § 180.800 (a); or
  4. Have had one or more public transactions (Federal, State, or local) terminated within the preceding three years for cause or default.“[11]

The USDA imposes further criminal record restrictions if a corporate applicant has itself been recently convicted of a federal felony, also pursuant to government-wide procurement statutes. A corporate applicant must complete Form AD-3030, entitled “Representations Regarding Felony Conviction and Delinquent Status for Corporate Applicants.” This form requires applicants, clearly defined as the entity itself and not any individuals affiliated with the entity, to answer the following two questions:

  1. Has the Applicant been convicted of a felony criminal violation under any Federal law in the 24 months preceding the date of application?
  2. Does the Applicant have any unpaid Federal tax liability that has been assessed, for which all judicial and administrative remedies have been exhausted or have lapsed, and that is not being paid in a timely manner pursuant to an agreement with the authority responsible for collecting the tax liability?[12]

Part A of this certification is required by § 745 of the Consolidated Appropriations Act of 2022, which requires that no federal agency should enter into a contract, memorandum of understanding, or cooperative agreement with, make a grant to, or provide a loan or loan guarantee to, any corporation that was convicted of a felony criminal violation under any Federal law within the preceding 24 months, where the awarding agency is aware of the conviction, unless a Federal agency has considered suspension or debarment of the corporation and has made a determination that this further action is not necessary to protect the interests of the Government.[13]

While the “unless” clause of the statute seems to permit the USDA to make an exception to the felony prohibition that applies to corporations, a notice on using AD-3030 issued by the USDA in 2013 states that a “yes” response to the certification questions above “renders the applicant ineligible for assistance.”[14] In any event, importantly, the criminal history of the business itself is by necessity relevant to its creditworthiness.

It is noteworthy that prior to 2015 the USDA’s appropriations statute extended the prohibition on USDA contracting with or making loans or grants to corporations with recent convictions to corporate officers or agents, and accordingly the certification required by AD-3030 asked about the criminal history of corporate officers or employees.[15] In 2015, the requirements of the Appropriations Acts were made uniform across all federal agencies and the prohibition on lending to corporate officers or agents with felonies was repealed. In response, the USDA removed the inquiry into the criminal histories of corporate officials from its form.[16]

In addition to the B&I program, the USDA administers a suite of smaller lending and grant programs, including the Rural Microentrepreneur Assistance Program, Rural Business Development Grants, the Rural Economic Development Loan & Grant, and more. CCRC’s preliminary analysis suggests that these programs also do not require the types of extensive criminal background checks required by the SBA and instead target specific types of criminal histories that relate to the type of financial product the Agency is providing. For example, the application form for Rural Business Development Grants requires the same certification regarding debarment as the B&I program, as well as the completion of Form AD-3030 for corporate applicants.[17] We are unable to locate publicly available application forms for the other programs listed above. However, their regulations, notices of solicitation of applications and other guidelines only note the same prohibitions on applicants who are subject to debarment or corporate applicants with a felony within 24 months.[18]

To summarize, the USDA’s restrictions on loan applicants with criminal histories are either required by statutes targeted to specific crimes that apply to all USDA programs, or are imposed by OMB nonprocurement rules on all federal agencies.  In both cases, the restrictions are temporary.

Implications for SBA criminal record policies  

The SBA’s program of loans to small businesses is far and away the largest in the nation. In fiscal year 2021, for example, it guaranteed more than $44.7 billion in loans through its signature business lending programs, 7(a) and 504, dwarfing the USDA’s analogous loan guarantee program available to applicants from rural areas, which (as previously noted) provided only $1.66 billion in guarantees in FY 2020.

In stark contrast to the USDA loan programs, and as discussed in previous CCRC posts, the SBA’s policies on guaranteeing loans impose extremely broad restrictions based on criminal history that apply to all 20% owners and employees with management responsibilities. This type of inquiry differs from that undertaken by the USDA not only in its overall punitiveness, but also in the extent to which it goes beyond the statutory requirements of the agencies’ lending programs. The relevant SBA statute allows but does not require the agency to “verify the applicant’s criminal background… through the best available means.”[19] The SBA has in turn interpreted that permissive language to mandate sweeping criminal background checks that push well beyond what the statute demands.

By contrast, the USDA has not expanded upon the specific narrow criminal history restrictions mandated by statute, those discussed above prohibiting loans to applicants who have been convicted of cultivating a controlled substance or fraud in connection with USDA programs. In addition, as described above, the USDA immediately changed Form AD-3030 to omit inquiry into individual criminal histories when its appropriations statute no longer required that inquiry.

The SBA’s comparatively expansive interpretation of its general authorizing statutes has important implications for CCRC’s advocacy for policy change at the SBA for two reasons. First, as the SBA makes regulatory and policy changes that limit or eliminate the unnecessary consideration of criminal histories, the fact that other agencies have similar policies will help justify the SBA’s changes. Given the lack of direct statutory authority for most of the SBA’s restrictive policies, it could be argued that the SBA has no more reason to bar justice-impacted individuals than the many agencies that only consider limited types of criminal histories or do not consider criminal record at all.

Second, this comparison is important because it further emphasizes the heavy burdens the SBA policy places on minority loan applicants. The USDA offers financial products to a significantly whiter clientele than the SBA: only 22% of Americans who live outside of metro areas, and are therefore potentially eligible for USDA business lending programs, are racial/ethnic minorities, compared with 42% of the metro population. In addition, 96% of owners of American agricultural land are White, whereas 19.9% of all small businesses in the U.S. are minority-owned.[20] The SBA erects a higher bar for a more diverse applicant pool marked by a much higher percentage of justice-affected individuals. The adverse impact of SBA loan policies on racial minorities has been established,[21] and it is an important reason why the SBA should limit its criminal history review, as the USDA does, to what is required by statute.

In sum, in order to align itself with the practices of the other federal agency with broad authority to guarantee small business loans, to avoid disparate treatment of minority small business owners, the SBA should revise its policies to curtail or eliminate entirely the consideration of applicants’ criminal history in its lending programs.


[1] U.S. Dep’t of Agr., USDA Rural Development: A Portfolio with a Purpose (2020). Available at:

[2] U.S. Dep’t of Agr., OneRD Guarantee Loan Initiative: Business & Industry Loan Guarantees (2020), available at  The B&I program is open to applicants from “Rural areas not in a city or town with a population of more than 50,000 inhabitants.” Id.

[3] 7 C.F.R. § 5001.202(b)(1).

[4] Compare the standards applied by the SBA for determining whether an applicant for a 7(a) business loan has the necessary “good character,” which depend entirely on the applicant’s criminal history. See CCRC Staff, Applying for an SBA loan with a criminal record, March 27, 2020,

[5] Id.

[6] 21 U.S.C. § 889; 7 C.F.R. § 718.6 (generally prohibiting extension of “USDA benefits” to anyone convicted of the identified actions related to controlled substances).

[7] 7 U.S.C. § 2209j.

[8] 7 C.F.R. § 1980.451(g).

[9] See 2 C.F.R. § 180.335.

[10] See 2 CFR § 180.800 (2008) for the causes for debarment. These include financial crimes like fraud or embezzlement, as well as “violation of the terms of a public agreement or transaction so serious as to affect the integrity of an agency program.”

[11] U.S. Dep’t of Agr., Form RD 4279-1 (Rev. 2017).

[12] U.S. Dep’t of Agr., Form AD-3030 (Rev. 2019).

[13] Consolidated Appropriations Act, 2022, Pub. L. No. 117-103, § 745.

[14] U.S. Dep’t of Agr., Notice CM-737 (2013).

[15] Compare Consolidated and Further Continuing Appropriations Act, 2013, Pub. L. No. 113-6, § 732 (barring lending to corporations with a convicted agent) with Consolidated and Further Continuing Appropriations Act, 2015, Pub. L. No. 113-235, § 745 (not barring lending to corporations with a convicted agent). Compare U.S. Dep’t of Agr., Form AD-3030-Y (Rev. 2012) (inquiring about agents’ criminal records) with U.S. Dep’t of Agr., Form AD-3030 (Rev. 2019) (not inquiring about agents’ criminal records; in use since FY2015).

[16] See Representations Regarding Tax Delinquent and Felony Conviction Status for Corporate Applicants and Awardees in Non-Procurement Programs Renewal — OMB Number 0505-0025, (2016). (“During fiscal years 2012-2014, similar appropriation restriction provisions were not uniform across the government.…In FY 2015 Congress enacted slightly different government-wide provisions for all agencies and departments.  In response, USDA created a new set of forms that adhered to the change for use by all of its agencies and staff offices.”)

[17] U.S. Dep’t of Agr., Rural Business Development Grant Application Forms (2019). Available at:

[18] U.S. Dep’t of Agr., NOSAs and NOFAs (2022). Available at:

[19] 15 U.S.C. 636(a)(1)(B).

[20] Who Owns the Land? Agricultural Land Ownership by Race/Ethnicity, Rural America/ Rural Development Perspectives (2002). Available at:; U.S. Census Bureau, Annual Business Survey (2021). Available at:

[21] See Shawn Bushway et al., Small Businesses, Criminal Histories, and the Paycheck Protection Program, RAND, 2020,; see also Keith Finlay, et al., Criminal Disqualifications in the Paycheck Protection Program, U.S. Census Bureau, 2020,


Johnathan Terry is a second-year Yale Law School student and a member of the Community and Economic Development Clinic interested in issues of criminal-legal system reform and racial equity.

Josh Hochman is a first-year student at Yale Law School enrolled in the Community and Economic Development Clinic and researching issues of economic and racial inequality.”

Gabriel Gassmann is a first-year student at Yale Law School. He is a member of the Community and Economic Development Clinic and is interested in issues of economic and educational equity.