SBA finalizes rule limiting consideration of criminal history in loan programs

Today, the Small Business Administration’s rule removing most criminal history restrictions in its federally guaranteed loan programs will be published in final form. This marks an important step in opening additional sources of business capital to justice-impacted entrepreneurs, and a boon to developing communities that thrive on the success of their small businesses.

The final rule makes few changes from the version published last fall for comment, which proposed removing most criminal history restrictions from the SBA’s business and disaster loan programs. The proposed rule is described in this post. The only substantive difference in the final rule is that business owners under indictment, along with those actually incarcerated, will remain ineligible for federally guaranteed loans.

The SBA noted that of the 19 comments received on the proposed rule, almost all were favorable. It also pointed out, as it did last fall, that there is no data indicating an enhanced risk of default from this population of entrepreneurs. At the same time, the SBA comments that even though it will no longer be conducting extensive criminal records checks on loan applicants, lenders may continue to do so.

In describing the background of the now-final rule, the SBA cites some eye-catching statistics iindicating that in recent years it has been giving lenders the green light on hundreds of loan applications from business owners with a felony record, while disapproving only a handful. These statistics, which are consistent with the SBA’s responses to FOIA requests with which CCRC is familiar, would seem to indicate that the SBA has available to it data that could shed light on actual risk through default rates.  We look forward to learning more about this data, which could give banks additional incentives to make loans to hustice-impacted entrepreneurs.

We have recently attended several programs sponsored by the Treasury Department and its agencies in which the issues raised by “fair chance lending” have been explored, and we expect to be continuing that conversation in weeks to come.

 

Margaret Love

Margaret Love is CCRC's Executive Director. A former U.S. Pardon Attorney, she represents applicants for executive clemency in her private practice in Washington, D.C.. She is lead co-author of Collateral Consequences of Criminal Conviction: Law, Policy, and Practice (4th ed. 2021), and served as an advisor to the ALI Model Penal Code: Sentencing.

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