*UPDATE (7/7/20): “SBA throws in the towel and Congress extends the PPP deadline”
After Congress authorized hundreds of billions of dollars for small business relief during COVID-19, the Small Business Administration (SBA) imposed restrictions on applicants with an arrest or conviction history. We have written much in recent weeks about how these barriers, neither required nor contemplated by Congress, impede access to the two major relief programs for small businesses, nonprofits, and independent contractors: the Paycheck Protection Program (PPP) and the Economic Injury Disaster Loan (EIDL) program.
Following the introduction of a bipartisan Senate bill to roll back most of these barriers, Treasury Secretary Steven Mnuchin agreed on June 10 to revise the PPP restrictions. On Friday, June 12, SBA issued new regulations and application forms to ease some of the barriers in the PPP. The changes are more limited than the proposed Senate bill, and continue to reflect an SBA overreach in its approach to loan applicants with criminal records, at a time when we are nearing the June 30 closing date to apply for this much-needed assistance.
Meanwhile, two lawsuits have been filed against the SBA in federal court in Maryland, asserting that the SBA’s criminal history restrictions are beyond the agency’s authority, arbitrary and capricious, and contrary to the text of the CARES Act. The first lawsuit, filed on June 10, is brought by The New Civil Liberties Alliance on behalf of a corner store in Hagerstown, Maryland, which was denied PPP assistance based on its owner’s 2004 felony conviction, for which he is on parole. The second lawsuit, filed on June 16 by the ACLU, Public Interest Law Center, and Washington Lawyers’ Committee for Civil Rights and Urban Affairs, also asserts that the restrictions fall hardest on minority businesses due to the impact of over-criminalization on communities of color. The suit is on behalf of the owner of an electrical contracting business on parole for a 2012 drug conviction, a graphic designer with pending misdemeanor charges, and a nonprofit that provides job and entrepreneurial training for currently and formerly incarcerated individuals. None of the business owner plaintiffs in these two lawsuits would be eligible under the SBA’s new policies, which we analyze below. (Further information on the lawsuits is also below.)