Author: CCRC Staff

Editorial staff of the Collateral Consequences Resource Center

Applying for an SBA loan with a criminal record

*NEW: Applying for SBA COVID-19 relief with a criminal record in 2021 (March 8, 2021)

Loans from the U.S. Small Business Administration (SBA) are a key resource for small businesses fighting to survive during this pandemic.  SBA loans are generally loans provided by private lenders and guaranteed by the federal government.  The $2+ trillion stimulus package (the CARES Act) signed into law today, includes more than $300 billion in funding for new SBA loans called the “Paycheck Protection Program,” some of which are eligible for forgiveness.

These loans are to be provided under SBA’s primary loan program, the 7(a) loan program, but they increase eligibility for 7(a) loans, extend their allowable uses, and allow for loan forgiveness, among other provisions.  (See H.R. 748, sec. 1102; 15 U.S.C. 636(a)).  Notably, a Paycheck Protection Loan may be used—in addition to already-allowable uses under 7(a)—for payroll support (including paid sick, medical, or family leave, and group health care benefit costs during leave), employee salaries, mortgage payments, rent, utilities, and any other debt incurred before February 15, 2020.  See H.R. 748, sec. 1102.  Further, for all 7(a) loans made between February 15, 2020 and June 30, 2020, loaned funds would be eligible for forgiveness if used for payroll costs (with a couple of exceptions), and certain other expenses to maintain “payroll continuity” during a four-month period.  A business must submit certain documents to apply for forgiveness, and the forgiveness amount is reduced if the number of employees or their compensation has been reduced.  Se H.R. 748, sec. 1106.

In this post, we explore considerations for people with a criminal record who wish to apply for a 7(a) small business loan, including the “Paycheck Protection Program” loans that will be funded through the CARES Act.  We also discuss disaster loans for small businesses in areas severely impacted by the Coronavirus (COVID-19), which the SBA is already making available.

After reviewing existing SBA loan eligibility rules and vetting policies for 7(a) applicants, we have questions about the extent to which these new loans will be available to people with a criminal record.  Generally, the SBA excludes any business with a principal who is on probation, parole, or similar form of supervision; or who is currently facing any charges.  And while a closed criminal case is not automatically disqualifying, SBA requires that every 7(a) applicant’s principals be “of good character,” and conducts a character evaluation that for people with a felony conviction, certain misdemeanor convictions, or a recent case, requires a full FBI background check before loan funds may be approved.  This evaluation specifically requires disclosure of expunged convictions and certain non-conviction records.  Moreover, if a person has not completely satisfied a sentence “and other conditions of the court,” they are ineligible for a loan.  Certain broad language in the CARES Act suggests that the SBA might not impose eligibility requirements that would apply to 7(a) loans in normal times, including ineligibility due to an open criminal matter or lack of “good character.”  We hope that would be the case, given the urgent need for relief and the considerable barriers that people with records already face in the economy even in the best of times.  We will look for guidance from the SBA as to how it will interpret this language.  [See the updates at the top of this post.]

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Legalizing marijuana and expunging records across the country

*NEW: Marijuana legalization and expungement in early 2021

As the legalization or decriminalization of marijuana has now reached a majority of the states, the expungement of criminal records has finally attained a prominent role in the marijuana reform agenda.  Laws to facilitate marijuana expungement and other forms of record relief, such as sealing and set-aside, have now been enacted in more than a dozen states.  Most of these laws cover only very minor offenses involving small amounts of marijuana, and require individuals to file petitions in court to obtain relief.  But a handful of states have authorized streamlined record reforms that will do away with petition requirements and cover more offenses.  In the 2020 presidential race, Democratic candidates have called for wide-ranging and automatic relief for marijuana records.

Given these important developments that we expect will continue in the present legislative season, we have put together a chart providing a 50-state snapshot of:

(1) laws legalizing and decriminalizing marijuana;

(2) laws that specifically provide relief for past marijuana arrests and convictions, including but not limited to conduct that has been legalized or decriminalized; and

(3) pardon programs specific to marijuana offenses.

We hope this tool will help people assess the current state of marijuana reform and work to develop more expansive, accessible, and effective record relief.

As of this writing, 26 states, D.C., and one territory have legalized or decriminalized marijuana to some degree.  Eleven states and D.C. have done both.  Seventeen states and D.C. have enacted expungement, sealing, or set-aside laws specifically for marijuana, or targeted more generally to decriminalized or legalized conduct.  Four states have pardon programs for marijuana offenses.  Our 50-state chart documenting these laws is available here.  We will update this chart to cover new legislative developments as they occur.  For example, just this week both chambers of the Virginia legislature passed a bill that would decriminalize possession of small amounts of marijuana and limit access to records of such offenses.

This comment describes some of the history of marijuana decriminalization, legalization, and expungement reforms, recent trends, and the current state of the law in this area.  It attempts to provide evidence for what Professor Douglas A. Berman recently described as the “linking and leveraging” of the marijuana reform and expungement movements.

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Automatic expungement falls short in Canada

The John Howard Society of Canada has a new post about a failed piece of Canadian legislation that would have provided automatic expungement of criminal records in that country.  The post describes the effort to remedy the shortcomings of the current “one-at-a-time” record-clearing system, which it says is expensive (more than $600 to apply), bureaucratic, and “systematically works against poor and marginalized people.”  As an example, it documents Canada’s serious “takeup” problem with its recent efforts to clear cannabis possession convictions: “despite the government’s claims of an enhanced process to grant pardons for cannabis possession now that it is legal, only a handful of the 250,000 or so Canadians with such records have received pardons so far.”

The post also discusses our report documenting U.S. expungement reforms in 2019, noting that while the problem of criminal records in this country is “much greater” than it is in Canada, we seem to be making better progress in dealing with it.

We reprint the introduction to the post below, and link to the piece.

Expunging criminal records

February 26, 2020

Last year Senator Kim Pate introduced a bill that would provide automatic expungement of criminal records in Canada.  Under this bill, criminal records would automatically be sealed after a certain amount of time had elapsed following a criminal sentence unless there had meanwhile been a new criminal charge or conviction.

Expungement of criminal records is important because a criminal record has many harmful effects for a person’s entire lifetime, even decades after the end of their sentence.  It is important to keep in mind that 3-4 million Canadian adults, or about 1 in 8, has a criminal record of some kind.  Wherever you live in Canada, you likely have neighbours with a record.  But, as another post on this blog showed, most people never commit a second crime, and this likelihood declines with every year that passes.

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New Jersey steps out as Reintegration Champion of 2019

Editors’ note: CCRC recently released its report on 2019 criminal record reforms, which recognized New Jersey as the “Reintegration Champion” of 2019, for having the most consequential legislative record of any state in the past year.  The following comment describes New Jersey’s laws enacted in 2019.  New Jersey’s various restoration of rights laws are further described in the state’s profile in the CCRC Restoration of Rights Project.

In December 2019, Governor Phil Murphy signed into law S4154, now L.2019, c.269, as part of his Second Chance Agenda.  The law is a strong step towards criminal justice reform, and places New Jersey on the map as a leader in expungement policy.  Along with easing access to the existing expungement process,  it creates a new “clean slate” system that provides for expungement of all but the most serious violent offenses after ten years. It additionally sets in motion a process aiming to automate all clean slate expungements.  The substantive provisions of the law are set to go into effect on June 15, 2020, and we anticipate a large increase in expungements following its implementation.

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Report Card: Grading states on 2019 record reforms

The following is an excerpt from our recent annual report on legislative reforms, Pathways to Reintegration: Criminal Record Reforms in 2019.

Report Card

For the first time this year we have prepared a “Report Card” on how state legislatures performed in 2019 in advancing the goals of reintegration.  We have not covered all states, only those we thought most and least productive.  We hope this new feature of our annual reports will provide an incentive to legislatures across the nation, and a tool for legislative advocates.

New Jersey gets the top mark as Reintegration Champion of 2019 for the most consequential legislative record of any state last year.

In this inaugural year, New Jersey gets the top mark as Reintegration Champion of 2019 for the most consequential legislative record of any state last year.  New Jersey’s “Clean Slate” law authorized an automated record-clearing process for many thousands of misdemeanor and felony convictions going back decades, and extended eligibility and improved procedures for petition-based discretionary expungement  relief.  New Jersey enacted two other important laws promoting reintegration.  One limited felony disenfranchisement to people in prison, immediately restoring the vote to about 80,000 people still completing their sentences in the community.  Unlike the executive orders that have this effect in New York and Kentucky, New Jersey’s law will not be easily retracted when the statehouse changes hands.  Another new law repealed provisions mandating suspension of driver’s licenses for conviction of drug and other non-driving crimes, for failure to pay court debt, and for failure to pay child support.

In commending New Jersey’s legislative accomplishments, we would be remiss not to recognize the key role played by Governor Phil Murphy in making criminal record reform the cornerstone of his legislative agenda, and by key legislative leaders, who together persuaded the legislature to enact in a single year a bolder set of reintegration laws than any other in the country to the present time.[i]

As runner-up, Colorado enacted 10 laws on criminal records, voting rights, ban-the-box, and immigration.

Colorado is runner up for our new Reintegration Champion award, based on a prolific legislative record that is a close second to New Jersey’s.  In 2019 Colorado enacted ten record reform laws, among them an ambitious rewriting of its code chapter on criminal records, a law restoring voting rights to parolees and one extending ban-the-box to private employers, and two new measures to avoid deportation as a consequence of conviction. Colorado’s productive 2019 followed an almost equally productive 2018, when its legislature regulated occupational licensing agencies and gave its courts authority to remove mandatory collateral penalties.

Honorable mention goes to 6 states (IL, MS, NV, NM, ND, WV) for productive legislative seasons, while 5 other states (AR, DE, CA, NY, UT) were recognized for a specific notable new law.    

Honorable mention for a productive legislative season goes to six states: Illinois and Nevada (with nine and eight laws, respectively, some significant); New Mexico and North Dakota (for their comprehensive first-ever record-sealing schemes, and ban-the-box bills);  Mississippi (for its extensive regulation of occupational licensing, management of diversion courts, and repeal of mandatory driver’s license penalties for drug and other non-driving crimes); and West Virginia (for two significant laws, on record relief and occupational licensing, as well as a diversion bill).  Five additional states deserve recognition for notable enactments:  Arkansas for a major revision of its occupational licensing law; California and Utah for their automated record relief laws (though Utah’s scheme is not as far-reaching as New Jersey’s, and California’s is prospective only); New York for two measures to limit access to undisposed (pending) cases; and Delaware for its first comprehensive expungement scheme.

Low marks go to three of the seven states that enacted no record reform laws at all in 2019: the legislatures of Alaska, Georgia, and Michigan have been the least productive in the land in recent years where restoration of rights and status is concerned.  Kansas, Massachusetts, Wisconsin, and Pennsylvania also produced no new laws in 2019, but all four states enacted major record reforms in 2018 so we give them a pass.

We conclude by noting that many of the states not mentioned in this inaugural Report Card made progress last year in limiting access to and use of criminal records, and we were hard-pressed not to single a few more of them out for credit.  It is clear to us that almost every state sees criminal record reform as an important and challenging legislative agenda.  We anticipate that in 2020 states that have been comparatively cautious in their recent law-making will be inspired to take larger steps as they see what more ambitious jurisdictions have already been able to accomplish.

Note: In response to this report, New Jersey Governor Phil Murphy tweeted:

Read the full report here.

[i] See, e.g., Governor Murphy’s statement accompanying his “conditional veto” in August 2019 of an early version of the bill that would become the Clean Slate law that he signed on December 19, 2019.  In that statement, after applauding the legislature’s extension of eligibility for petition-based expungement, he noted the example set by Pennsylvania’s own Clean Slate law the year before:

“Only those individuals who actually apply for an expungement, meaning those who are aware of this potential remedy and have the wherewithal to navigate the legal process or afford an attorney to assist them, would be able to seek the relief afforded by the expungement process. This method is not the most efficient means for clean slate expungement, nor will it deliver relief to all eligible individuals who need it. To avoid this shortcoming, we should follow the lead of Pennsylvania and undertake the necessary steps to establish an automated, computerized expungement system that would allow people with multiple convictions for less serious, non-violent crimes who maintain a clean record for ten years to clear their criminal histories without having to hire a lawyer or wade through a paperwork-intensive process. Our system is not set up to do this now, and undertaking this task will require buy-in and commitment from all three branches of government. On behalf of the executive branch, that is a commitment I am more than willing to make.”

See https://www.state.nj.us/governor/news/news/562019/docs/S3205CV.pdf.  Senator Sandra Cunningham, Senate President Sweeney and Speaker Coughlin were particularly effective partners in the negotiations that resulted in the bill that was approved by the legislature in December.