*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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