Tag: SBA

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 […]

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SBA modifies criminal history restrictions in its loan programs

We have written at length about the broad criminal history restrictions imposed by the U.S. Small Business Administration in its business loan and disaster assistance programs. These restrictions, which first came to the public’s attention during the pandemic, have limited the availability of federally guaranteed bank loans to small businesses in developing communities, and stymied efforts to close the racial wealth gap through minority entrepreneurship. The SBA’s restrictive lending policies have never been justified by empirical evidence linking criminal history and creditworthiness, and may raise issues under the federal Equal Credit Opportunity Act.  It now appears that those policies are under review within the agency. Several weeks ago we reported on the SBA’s proposal to amend its rules on lending criteria to eliminate language that the agency has relied on for many years to support policies restricting federally guaranteed loans based on a business owner’s criminal history. In commenting on the proposed rule, we expressed the hope that this rule change would augur and end to the SBA’s consideration of  criminal history as an independent basis for denying credit. The SBA’s proposed amendment became final on April 10. While we remain guardedly optimistic that the new rule will have the […]

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Pending federal reforms promise support for justice-affected entrepreneurs

Word is getting around about pending reforms that would make federal support for small businesses more widely available to entrepreneurs with a criminal history. Notably, the U.S. Small Business Administration has recently taken steps to reduce or remove entirely criminal record-related restrictions in its loan and contracting programs.  These are steps that CCRC has been urging ever since the SBA’s restrictive policies first came to public attention during the pandemic. An article by Michael Friedrich published today by Arnold Ventures (AV) describes a number of reforms recently proposed or adopted by the SBA that will eliminate arbitrary program barriers based on criminal history that are unrelated to any established risk. These reforms should encourage more justice-affected business owners to seek SBA support for their entrepreneurial ventures in the form of federally guaranteed loans or federal contract set-asides for “socially and economically disadvantaged” businesses. The AV article points out that the near-exclusion from these programs based on criminal history “frustrate[s] federal efforts to contribute to economic development in disadvantaged communities, often the same low-income communities of color that have suffered the most during the era of mass incarceration and tough-on-crime policies.”    

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Applying for federal disaster assistance with a criminal record

In addition to its lending and other programs in support of small businesses, the U.S. Small Business Administration provides long-term low-interest loans under Section 7(b) of the Small Business Act directly to individuals, businesses, and nonprofits in declared disaster areas. The current devastation wrought by Hurricane Ian in Florida — the subject of a dedicated new page on the SBA’s website — reminded us of some research we published two years ago, at the height of the pandemic, about how people with a criminal record were faring under the SBA’s COVID-related disaster relief program.  The answer initially was “not well.” Our research indicates that neither FEMA (emergency aid) nor the USDA (farm loans) impose criminal record restrictions on disaster assistance.  But the SBA does.  What’s more, the SBA’s restrictions are not formalized in a regulation but buried in operating procedures. The criminal history restrictions on SBA economic injury disaster loans (EIDL) under the CARES Act were initially even more restrictive than those that applied to its PPP relief, and they too were never formalized in a rule. The PPP restrictions were rolled back in response to public outcry and lawsuits, and the following year the COVID-related EIDL policy was also […]

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SBA proposes rules affecting businesses owned by veterans with a record

Over the past two years, CCRC has been studying the restrictions imposed by the U.S. Small Business Administration on loans to small businesses owned by justice-affected individuals. Many of those same restrictions, which are grounded in an operating policy that recipients of federal assistance have “good character,” also apply by formal rule in the SBA’s business development program under 8(a) of the Small Business Act. For more than half a century, the so-called “8(a) program” has earmarked federal contracts for businesses owned by socially or economically disadvantaged individuals, and it has been a key driver of community development in urban areas. But the program’s “good character” test has historically excluded from participation many if not most business owned or managed by individuals with a criminal history. The 8(a) program also has satellite programs, including ones offering preferential treatment to businesses owned by women and veterans, though it is less clear whether these programs have similar criminal history restrictions. Recently, Congress returned responsibility for certifying program eligibility for veteran-owned business from the VA to the SBA, and the SBA has now published proposed certification rules for public comment. These proposed rules offer a first chance to speak to the SBA’s “good […]

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