Tag: SBA

Applying for SBA COVID-19 relief with a criminal record in 2021

Last Updated: September 9, 2021 In December 2020, Congress authorized additional COVID-19 financial relief for small businesses and nonprofits, available through the Small Business Administration (SBA). The SBA’s two primary programs for COVID-19 financial relief are the Paycheck Protection Program (PPP), which provides forgivable loans to small businesses and nonprofits to help keep their staff employed during the crisis; and the COVID-19 Economic Injury Disaster Loan (EIDL) program, which provides advances and loans to small businesses and nonprofits that experience a temporary loss of revenue due to COVID-19. After the first COVID-19 relief bill, the CARES Act, funded these programs in March 2020, the SBA imposed broad criminal history restrictions on applicants. In the face of pressure, the administration relaxed those restrictions several times over the course of the following months.  In March 2021, the Biden Administration removed an additional restriction.  In this post, we review those developments and describe the SBA’s current criminal history policies, also available on the SBA’s website (PPP and EIDL). To summarize, as a result of developments to date, the SBA now excludes from PPP relief only a narrow category of people with a criminal record: those 1) actually incarcerated or with pending felony charges; or 2) convicted, pleaded guilty or nolo contendere to, or commenced any form of parole or probation within the last 5 years for certain financial felonies. The category of those excluded from EIDL relief is broader: 1) anyone convicted of any felony within the past five years, and 2) anyone with any sort of pending criminal charges. We conclude with a series of recommended changes to the laws governing SBA loans that affect people with a criminal record, and to related SBA regulations and policies.  These recommendations include consideration of how a loan applicant’s criminal record is treated in the rules and policies governing the SBA’s general lending programs under Section 7(a) and 7(b) of the Small Business Act, whose only mention of criminal record is to authorize the SBA to “verify the applicant’s criminal background, or lack thereof,” including through an FBI background check. In Spring 2020, after Congress first authorized hundreds of billions of dollars for small business relief during the early months of COVID-19, the SBA, by rule and by policy, imposed unusually broad and frequently changing restrictions on applicants with an arrest or conviction history. It applied even more restrictive policies on application forms than in published regulations. Alerted to the problem by emails from affected small business owners, we identified and described the relevant policies, and collaborated with a consortium of other organizations to persuade the SBA to roll back these restrictions. As we documented, these criminal history restrictions, neither required nor contemplated by Congress, impeded access to the Paycheck Protection Program (PPP) and the Economic Injury Disaster Loan (EIDL) program, for small business owners, sole proprietors, and nonprofits. Paycheck Protection Program Facing a chorus of criticism, and the introduction of a bipartisan Senate bill to roll back most of the PPP criminal history restrictions, SBA eased some of them, in a limited fashion, on June 12. Shortly thereafter, multiple federal lawsuits were filed challenging the PPP restrictions. On June 24, SBA further relaxed them, this time in a far more significant fashion, notably making the business owners who had sued eligible. The change came less a week before the June 30 final deadline to apply for the original round of PPP. A day before the deadline, a federal judge ruled that the SBA’s criminal history restrictions, except for the June 24 policy change, were likely unlawful. The court extended the deadline, but only for those who had sued. Shortly thereafter, Congress extended the PPP application deadline to August 8 for everyone, giving many newly eligible business owners their first opportunity to apply. After Congress authorized a new round of PPP funding in December, the SBA reopened the program on January 11 for first-time participants, and on January 13 for certain business who are eligible to apply for Second Draw PPP Loans. The SBA’s criminal history restrictions reflecting the June 24 policy change, excluded applicants if: An owner of 20 percent or more of the equity of the applicant is presently incarcerated or, for any felony, presently subject to an indictment, criminal information, arraignment, or other means by which formal criminal charges are brought in any jurisdiction; or has been convicted of, pleaded guilty or nolo contendere to, or commenced any form of parole or probation (including probation before judgment) for, a felony involving fraud, bribery, embezzlement, or a false statement in a loan application or an application for federal financial assistance within the last five years or any other felony within the last year. See Interim Final Rule on Paycheck Protection Program as Amended by Economic Aid Act (published on Jan. 14, 2021 in the Federal Register); see also FAQs for Lenders and Borrowers (effective Dec. 9, 2020). On March 3, 2021, following an announcement from the Biden White House, the SBA removed the one-year lookback restriction related to non-financial fraud felonies, consistent with bipartisan Congressional support for reducing criminal history restrictions in the Paycheck Protection Program. Therefore, the current policy excludes an applicant if: An owner of 20 percent or more of the equity of the applicant is presently incarcerated or, for any felony, presently subject to an indictment, criminal information, arraignment, or other means by which formal criminal charges are brought in any jurisdiction; or has been convicted of, pleaded guilty or nolo contendere to, or commenced any form of parole or probation (including probation before judgment) for a felony involving fraud, bribery, embezzlement, or a false statement in a loan application or an application for federal financial assistance within the last five years. Economic Injury Disaster Loans For most of 2020, SBA was nontransparent about its criminal history restrictions for COVID-19 Economic Injury Disaster Loans (EIDL) and advances. According to an alleged leak of documents on May 3, 2020 (which we believe was reliable), the SBA for some time had been denying applicants if they had ever been arrested, unless the arrest was for a misdemeanor and occurred more than 10 years ago. On May 20, 2020, an SBA spokesperson, without disputing the authenticity of the leaked documents, nonetheless stated that their information “is incorrect. An applicant with a felony conviction in the last 5 years would be declined.” Several months later, in an FAQ published on September 8, 2020, the SBA finally disclosed its criminal history restrictions for COVID-19 EIDL, which were broader than the May 20, 2020 spokesperson’s statement (and broader than the PPP restrictions): Applicants [for COVID-19 EIDL] may be declined if they have been convicted of a felony in the past five years; or ever been engaged in the production or distribution of any product or service that has been determined to be obscene by a court…are currently suspended or debarred from contracting with the federal government or receiving federal grants or loans; and/or those who are presently subject to an indictment, criminal information, arraignment, or other means by which formal criminal charges are brought in any jurisdiction. Those restrictions remained operative through at least FAQs that were effective Feb. 4, 2021. However, in new FAQs published and effective September 8, 2021, SBA incorporated the current criminal history restrictions of the Paycheck Protection Program into the COVID-19 EIDL program, replacing all previous guidance: Ineligible entities:…. • Any 20% or more owner of the applicant currently incarcerated • Any 20% or more owner of the applicant presently subject to an indictment, criminal information, arraignment, or other means by which formal criminal charges are brought in any jurisdiction for any felony • Any 20% or more owner of the applicant, within the last 5 years, for any felony involving fraud, bribery, embezzlement, or a false statement in a loan application or an application for federal financial assistance, has 1) been convicted; 2) pleaded guilty; 3) pleaded nolo contendere; or 4) commenced any form of parole or probation (including probation before judgment)? • Any 20% or more owner of the applicant, in the past year, has been convicted of a felony committed during and in connection with a riot or civil disorder or other declared disaster…. See FAQ Regarding COVID-19 EIDL (effective Sep 8, 2021). Preexisting SBA 7(a) Requirements The 7(a) statute authorizes the SBA to “verify the applicant’s criminal background, or lack thereof,” including through an FBI background check. An SBA regulation makes ineligible “[b]usinesses with an Associate who is incarcerated, on probation, on parole, or has been indicted for a felony or a crime of moral turpitude.” An SBA policy statement goes beyond this regulation to makes ineligible businesses with an Associate currently under specified forms of diversionary or conditional dispositions, order of protection, a sex offender registry, or facing any charges in any jurisdiction. This policy statement further provides that various principals of a business “must be of good character.” (The “good character” determination requires disclosure and documentation of: 1) current charges; 2) arrests in the past 6 months; and 3) any (excluding minor vehicle violations) convictions, guilty and no contest pleas, or placement on pretrial diversion or any form of parole or probation, at any time. Expunged and sealed records must be disclosed. A person may then be approved if they have satisfied all sentencing conditions and do not have a felony conviction, misdemeanor conviction for a crime against a minor, recent misdemeanor conviction, or recent charges. Otherwise, in any of these situations, the SBA requires that they undergo an FBI fingerprint background check followed by an individual “good character” determination by the SBA.) Recommended reforms Along with the Justice Roundtable, we recommend that the Biden Administration and the 117th Congress make the following changes in the SBA’s Paycheck Protection Program and 7(a) Loans: Executive Branch Proposals The SBA should thoroughly review and revamp its general 7(a) rules and policies to remove any exclusions based on criminal history. The SBA should ensure that if any criminal history restrictions remain in regulations, the restrictions in policy documents and application forms for the Paycheck Protection Program (PPP) and other loans within the general 7(a) program are no broader than the regulations require. Legislative Proposals Amend the Small Business Act to prohibit the SBA from excluding people from eligibility for 7(a) loan assistance based on criminal history. Strengthen the Paycheck Protection Program Second Chance Act (S.3865), a bipartisan Senate bill that would prohibit many criminal history restrictions for PPP relief, by removing categorical exceptions for applicants with an equity ownership of 20 percent or more who are incarcerated or were convicted of certain felonies. Note: This post was originally posted on Jan. 21, 2021, and has been updated to reflect that on March 3, 2021, the SBA issued new rules removing a one-year look-back restriction related to non-financial fraud felonies, and that on September 8, 2021, the SBA issued new guidance for COVID-19 EIDL. Read more

Senate bill would deliver relief to small biz owners with a record

*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.  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. A major development in Congress signals the likely elimination of most of these restrictions, which would make crucial economic assistance newly available to many small business owners with a record.  On June 4, Senators Rob Portman (R-OH), Ben Cardin (D-MD), James Lankford (R-OK), and Cory Booker (D-NJ) introduced the Paycheck Protection Program Second Chance Act. This bipartisan Senate bill would allow those with a record to apply for PPP funds, subject to only two record-based restrictions that are far narrower than the current PPP restrictions.  Under the Senate bill, the SBA would not be permitted to deny an applicant based on arrest or conviction, unless the owner of 20% or more of the equity of the applicant is: 1) currently incarcerated; or 2) was convicted in the last 5 years of felony financial fraud or deception.  The second restriction may be waived by the SBA. The provisions of the Senate bill are nearly identical to analogous provisions in the HEROES Act, which passed the House on May 15, giving some basis for optimism that this reform will become law.  CCRC Executive Director Margaret Love is quoted in the Senate bill press release: “This bill represents a momentous bipartisan effort to roll back overbroad regulatory barriers that rely on arrest and conviction history to unfairly exclude small businesses from critical economic assistance, with a particularly adverse impact on minority-owned businesses and their employees.”  The press release also includes statements from the four Senators and Holly Harris, Executive Director of Justice Action Network, with a common theme that people who have paid their debt to society, turned their lives around, and started small businesses should celebrated rather than denied federal assistance. While the Senate bill would expand access to PPP, unlike the HEROES Act it does not address the SBA’s record restrictions for EIDL disaster relief, which have been even more exclusionary than the PPP restrictions.  According to an alleged SBA document leak in early May, which we believe was reliable, the agency was denying relief to any EIDL applicant who had ever been arrested, unless the arrest was for a misdemeanor and occurred more than 10 years ago.  But on May 20, an SBA spokesperson, without disputing the authenticity of the leaked documents, nonetheless stated that this information “is incorrect. An applicant with a felony conviction in the last 5 years would be declined.”  The 5-year felony restriction for EIDL disaster relief is consistent with the PPP restrictions, suggesting that sometime in May, the agency started to evaluate EIDL applicants under the PPP standards.  We would hope and expect that if the Senate bill were enacted, the SBA would also apply the bill’s relaxed PPP eligibility standards in considering EIDL applicants. Read more

CCRC statement on recent events

CCRC stands with those opposing police violence against black people and other forms of racism throughout society.  Black lives matter. Our organization promotes public discussion of how criminal records are used to hold people back in civil society.  Discrimination based on a record hits the black community harder than any other, thanks to the long history of officials using the criminal law as a weapon to keep black people marginalized and subjugated. Most recently, we have documented the Small Business Administration’s decisions to exclude many people from COVID-19 relief due to arrest or conviction, which disproportionately harms minority business owners during an already precarious moment.  We have also covered felony disenfranchisement litigation in Florida, where a federal judge held unconstitutional the denial of voting rights to people who have served their time but still owe restitution and fines they cannot afford to pay. In this time of national turmoil, many protesters have been and will continued to be arrested. Most will be released without charges, some will be charged, and some will be convicted.  But every single one of them will end up with a criminal record. Very few states make it easy to avoid the stigma that even a bare arrest record produces, even when it is not accompanied or followed by any charges.  Our flagship resource, the Restoration of Rights Project, documents that even those protesters who are released without charges will need to petition a court or agency to seal or expunge the record of their arrest in order to avoid a lifelong record that can create barriers in housing, employment, and education.  In some states, courts or agencies have discretion to deny relief even where the government found no basis to prosecute. Our Model Law on Non-Conviction Records (2019) recommends that states automatically expunge arrest records that do not result in charges or conviction, as well as charges that do not result in conviction, and that they do it promptly.  While 15 states do provide for automatic or expedited relief following a non-conviction disposition in court, 35 do not.  And, only a handful of states automatically expunge arrests where no charges are filed.  The filing of expungement petitions, costly and cumbersome in normal times, will be especially difficult due to limited access to courts during COVID-19. It is especially wrong to saddle people who have never even been charged with a lifelong record.  This should be one of the first changes in the criminal law to work for in coming months, and it should be an easy one to accomplish. For people who are convicted, 38 states have laws that allow at least some misdemeanors to be expunged or sealed; 31 of these states also make certain felonies eligible.  Waiting periods, filing fees, and other requirements apply.  In recent years, 7 states have enacted automatic relief for certain misdemeanors, dispensing with the petition requirement for those who qualify.  But there is no authority to expunge or seal federal records, including records of uncharged arrests; and, the laws on record sealing in the District of Columbia are some of the most restrictive in the country. In two forthcoming posts, we will survey the laws pertaining to non-conviction and conviction record relief across the country.  At least with respect to non-conviction records, a menu of recommended reforms is already readily available in our Model Law. Read more

New efforts to channel federal relief to small business owners with a record

*UPDATE (7/7/20):  “SBA throws in the towel and Congress extends the PPP deadline” After Congress authorized hundreds of billions of dollars in funds for small business relief during COVID-19, the Small Business Administration (SBA) imposed restrictions on applicants with an arrest or conviction history.  These barriers, neither required nor contemplated by Congress, impede access to the two major relief programs for small businesses, nonprofits, and independent contractors during the COVID-19 crisis.  The two programs are the newly created Paycheck Protection Program (PPP) and the ramped-up Economic Injury Disaster Loan (EIDL) program. Three developments within the past week signal major pushback against or the possible reversal of at least some of these burdensome restrictions, which unfairly deny relief to worthy applicants. First, at least 65 organizations submitted five public comments in opposition to the SBA’s criminal history restrictions for PPP relief.  Our organization joined 25 other groups in submitting a comment asking the SBA to rescind or modify the regulation on legal and policy grounds, citing recent court decisions that suggest the SBA may lack authority to impose record-based disqualifications at all. These comments are the most recent expression of what has become a wave of bipartisan opposition to the SBA’s exclusionary policies, and growing coverage of the issues in the press.  We have been collecting relevant documents on our small business relief resource page. Second, Treasury Secretary Steven Mnuchin signaled in a recent conversation with key Senators that he may be open to easing restrictions on PPP applicants with felony records from the last five years. Third, the HEROES Act, passed by the House on Friday, includes provisions that would significantly constrain the SBA’s authority to deny applicants based on a record of arrest or conviction in both the PPP and EIDL programs.  If enacted into law, these provisions would mark a turning point in how federal law deals with discrimination based on criminal record. We discuss these developments in detail after the jump.  Public Comments Urge SBA To Rescind its Restrictions The SBA’s Interim Final Rule for the Paycheck Protection Program has come under scrutiny during the public comment period, which concluded on Friday.  Collectively, more than 65 organization wrote five comments in opposition to the criminal history exclusions. The Interim Final Rule makes ineligible for PPP relief any individual who owns 20% or more of the equity of a business and is presently incarcerated, on probation, on parole, or subject to charges.  Additionally, the regulation as supplemented by the PPP application form makes ineligible any owner of a business if they have in the last 5 years, for a felony: 1) been convicted; 2) pleaded guilty; 3) pleaded nolo contendere; 4) been placed on pretrial diversion; or 5) been placed on parole or probation. The first public comment, filed on behalf of a diverse bipartisan group of organizations, including our own, calls on SBA to rescind or modify its “needlessly restrictive and unfairly discriminatory” rules. The comment highlights that many people with a record, facing challenges in securing employment, have established their own small businesses and hired many employees with a record.  “Driving them out of business will result in a severe impact on employment of a population that is already disadvantaged in the workplace.”  The comment also points out the particularly adverse impact on business owners and employees of color, “arrested and convicted at disproportionately high rates due to institutional racism, ensuring that business owners of color will be disproportionately excluded from critical economic assistance.” Finally, the comment articulates how the SBA’s exclusions are contrary to the intent of Congress in enacting the CARES Act, which calls for relief on an emergency basis and includes a specific provision that “any business concern … shall be eligible” for relief if it has the requisite number of employees.  The comment argues that the SBA’s rules are not only at odds with the CARES ACT, but also “inexplicably depart from prior [SBA regulations] and are unsupported by any explanation.” The comment cites three recent federal court decisions to suggest that the SBA may lack statutory authority to impose the exclusions at issue: A federal court in Michigan found unlawful a different SBA rule that made certain categories of businesses ineligible for PPP—including banks, lobbying firms, certain private clubs, and sexually oriented businesses providing “prurient” products. See DV Diamond Club of Flint, LLC, et al. v. United States Small Business Administration, et al., No. 20-CV-10899, 2020 WL 2315880, at *1 (E.D. Mich. May 11, 2020).  The court held that because Congress made PPP funds available to “all” small business that satisfy the eligibility requirements in the CARES Act with respect to number of employees, the SBA’s more restrictive eligibility rules (drawn from exclusions in preexisting SBA policies) unlawfully exceed the statute.  This reasoning would seem to apply equally to the SBA’s criminal history exclusions. Two federal bankruptcy courts, one in New Mexico and one in Texas, held that the SBA’s decision to exclude bankrupt debtors, an exclusion not in the CARES Act, was arbitrary and capricious, and in excess of statutory authority. See In re: Roman Catholic Church of the Archdiocese of Santa Fe, No. 18-13027 T11, 2020 WL 2096113 (Bankr. D.N.M. May 1, 2020); In re Hidalgo County Emergency Service Foundation, Case no. 19-20497; Adv. pro. No. 20-2006, 2020 WL 2029252 (Bankr. S.D. Tex., Apr. 25, 2020). The comment urges the SBA to immediately remove the ineligibility for persons charged with a crime: “Punishing individuals who have not been convicted of wrongdoing in a court of law is fundamentally unfair and jeopardizes the economic well-being of thousands of employers and employees.”  The group urges the SBA to rescind the 5-year ineligibility period for individuals convicted of a felony, placed on pretrial diversion/probation/parole for a felony, or currently on probation or parole.  To the extent the SBA has authority to restrict eligibility for PPP beyond the criteria in the CARES Act itself, they should be limited to felony convictions for financial fraud from the past 3 years, subject to an individualized assessment and waiver. A second comment by the Institute for Justice Clinic on Entrepreneurship illustrates the real world impacts of the SBA’s rules and policies, which may “arbitrarily wipe out” all that entrepreneurs with criminal histories have built: businesses that employ workers, create wealth, and provide goods and services to their communities.  The comment articulates the importance of entrepreneurship for those with criminal histories and describes the stories of individuals who started small businesses. A third comment by Citizens for Juvenile Justice and 37 other organizations emphasizes language in the CARES Act that directs the SBA to prioritize relief for “socially and economically disadvantaged individuals,” which the comment argues includes persons with criminal records.  Excluding a class of persons simply based on involvement in the criminal justice system, or unadjudicated allegations, “is not only contrary to law, it is wrong,” and “perpetuate[s] long-standing forms of racial and ethnic discrimination.” A fourth comment by Americans for Prosperity (filed under a related regulation) argues that the SBA’s criminal history exclusion is “contrary to the text, structure, and purpose of the CARES Act,” raises due process concerns as applied to those only charged with crimes, and “is poor public policy with an overbroad sweep that harms otherwise deserving small businesses and their employees.” Finally, the National Center for Transgender Equality filed a comment asserting that the SBA’s rules are not based in the statute and should be revised to reflect only statutory eligibility requirements. Possible Administrative Change In April, Treasury Secretary Steven Mnuchin defended the SBA restrictions, stating that the Administration would not voluntarily change them.  But on May 13, the New York Times reported that Senator Cory Booker had raised with Mnuchin the issue of regulations barring some people with records from getting PPP loans.  According to a Senate aide, Mnuchin was “receptive to easing the restrictions” on applicants with felony records from the last five years. The HEROES Act Would Constrain the SBA Even if the SBA does not amend its policies, Congress may force its hand. In April, 16 members of Congress issued letters criticizing the SBA’s criminal history exclusions, including a bipartisan letter by Senators Rob Portman and Ben Cardin, a joint letter by Reps. Joyce Beatty and Joe Kennedy III, a letter by Senator Jeffrey Merkley, and a letter by Rep. Cedric Richmond and 10 other members. This past Friday, the House enacted the HEROES Act, which includes language drawing on Reps. Joyce Beatty and Joe Kennedy III’s Fair Chance for Small Business Relief Act, which would explicitly curtail the SBA’s authority to deny PPP and EIDL relief based on criminal history. As to PPP relief, the bill would allow the SBA to deny a loan if an owner of 20 percent or more equity was convicted of felony financial fraud or deception in the previous 5 years.  However, other criminal history would not disqualify an applicant unless such an owner is currently incarcerated.  See H.R 6800, Sec. 90001(j).  This provision would significantly roll back the PPP exclusions discussed above, and analyzed in greater detail in previous postings collected on our small business relief resource page. As to EIDL relief, the HEROES Act would require that the SBA’s application forms include a statement making clear that an applicant for these disaster advances and loans is not ineligible “solely because of the applicant’s involvement in the criminal justice system.”  See H.R 6800, Sec. 90009.  Currently, it appears that the SBA is denying COVID-19-related EIDL relief to applicants who have ever been arrested for a felony or who have been arrested for a misdemeanor in the last 10 years.  We read the HEROES Act provision to prohibit the SBA from denying disaster relief to any otherwise eligible person based upon their criminal record, an even broader restriction than would apply to the PPP program. While the HEROES Act in its entirety is unlikely to become law in its current form, if these two provisions make it through the next round of negotiations in the Senate, they would dramatically expand access to critical relief for many small business owners, nonprofits, and independent contractors that the SBA has unfairly been excluding in the past.  They would mark a breakthrough in the federal government’s approach to securing fair treatment for people with a record.  While last year’s Fair Chance Act was an important step in opening doors to federal agency and contractor employment by limiting background inquiries in the early stages of hiring, this would be the first time in decades that Congress has directly prohibited record-based discrimination in a major government benefit program.  We will have more to say on that subject if and when the law is enacted with these provisions in it. Read more

Bipartisan coalition calls on SBA to roll back record-related restrictions in COVID-19 small business loan programs

On April 17 a diverse bipartisan group of civil rights, advocacy, and business organizations, including CCRC, sent a letter to Treasury Secretary Mnuchin and SBA Administrator Carranza expressing concern over the restrictions imposed by the SBA on people with a record of arrest or conviction under two programs recently authorized by Congress in response to the COVID-19 crisis.  The letter points out that these unwarranted restrictions on loan programs intended to aid small businesses and non-profits will have a significant and detrimental impact in communities across the country, and a particularly harsh effect on minority business owners and employees who are disproportionately affected by the criminal legal system as a result of institutional discrimination.  It urges that federal relief be made equitably accessible to all who need it. The letter describes how the SBA’s program restrictions based on record are unnecessary and confusing inconsistent with Congress’ intent in enacting the CARES Act overbroad and unfair racially discriminatory In conclusion, the letter urges the SBA to take the following steps: At a minimum, bring the record restrictions for PPP and EIDL programs in line with those that applied to Section 7(a) and 7(b) loans under regulations adopted prior to enactment of the CARES Act. Relax existing rules and policies that restrict access to PPP or EIDL financial assistance for people with a record in the urgent circumstances presented by the pandemic, in line with the purposes of the CARES Act. Ensure that the application forms for SBA financial assistance accurately reflect the eligibility requirements and are written in a clear manner. An Appendix to the letter describes how the new rules and policies governing the Payroll Protection Program are more restrictive than those governing the 7(a) program generally, and how barriers based on arrest or conviction may also disqualify people with any sort of a record from loans under the EIDL program authorized under the SBA’s existing 7(b) disaster loan program. The letter —available in PDF and reprinted below – was sent by the following organizations: American Civil Liberties Union Chicago Lawyers’ Committee for Civil Rights Collateral Consequences Resource Center Community Legal Services of Philadelphia Drug Policy Alliance FreedomWorks Georgia Justice Project Interfaith Action for Human Rights Jewish Council for Public Affairs Justice & Accountability Center of Louisiana Justice Action Network Leadership Conference on Civil and Human Rights National Association of Criminal Defense Lawyers National Employment Law Project Public Interest Law Center Reproductive Justice Inside Safer Foundation Washington Lawyers’ Committee for Civil Rights and Urban Affairs Women Against Registry April 17, 2020  The Honorable Steven Mnuchin                                 The Honorable Jovita Carranza Secretary                                                                Administrator U.S. Department of Treasury                                     U.S. Small Business Administration Washington, D.C. 20220                                           Washington, D.C. 20416 Dear Secretary Mnuchin and Administrator Carranza, As a bipartisan and diverse group of organizations working to ensure fair treatment of people with a record of arrest or conviction, we write to express our deep concern over the restrictions imposed by the Small Business Administration on this population’s eligibility for benefits under the two programs authorized and funded by the CARES Act (see Appendix).  With one in three Americans having a record, and people with records experiencing an unemployment rate five times higher than the average, these restrictions will have a significant and detrimental impact on individuals, families, and communities across the United States. The restrictions will have a particularly harsh effect on minority business owners and employees who are disproportionately affected by the criminal legal system as a result of institutional discrimination. Specifically, these restrictions are: Unnecessary and confusing: There are no statutes requiring the SBA to categorically disqualify individuals from its loan programs based on an arrest or conviction record; the authority to perform a background check does not translate into authority to exclude. SBA’s Paycheck Protection Program (PPP) Interim Final Rule, and the PPP’s even more restrictive application form, are far more exclusionary than the preexisting rule on record restrictions for small business loans under the 7(a) program, which only excludes those with active criminal cases. SBA’s new rule excludes anyone convicted of any felony within the last 5 years, and its application form additionally disqualifies anyone who pleaded guilty or no contest, or was placed on pretrial diversion, probation, or parole during that period (see Appendix). The lack of new policy guidance for Economic Injury Disaster Loans (EIDL) for people with a record, especially regarding the new advances, also leads to additional exclusion. The new restrictions constitute unnecessary overreach that interferes with the ability of small businesses to operate and pay their employees. The PPP Interim Final Rule, policy guidance, and application form are confusing and likely to have a chilling effect that will discourage many eligible business owners from applying; and, they may lead to applicants inadvertently answering the records questions incorrectly. The policy guidance and application form for Economic Injury Disaster Loans (EIDL) advances are similarly confusing and are likely to have the same chilling effect. Inconsistent with Congress’ intent:  The intention of the emergency relief programs authorized by the CARES Act is to sustain small businesses that are trying to save the economy by keeping people employed. Eligibility requirements should be relaxed in these circumstances, not heightened. SBA’s new restrictions on eligibility for its loan programs, which already operate to exclude many people with a record, contravene the intent of the CARES Act, and are inconsistent with SBA’s more general mandate of encouraging entrepreneurship and expanding access to employment, including for people with a record of arrest or conviction. A significant number of people with an arrest or conviction history have established their own small businesses, since it is frequently difficult for them to secure employment with others. Moreover, these businesses also tend to be more willing to hire employees with a record. Driving them out of business will result in a severe impact on employment of a population that already is disadvantaged in the workplace. A large percentage of small businesses are owned by single owners or a limited number of co-owners, so that any disqualification affecting 20%+ equity owners will have a significant impact on small business owners generally. A policy that excludes from loan eligibility small businesses that are owned in whole or in part by people with arrest or conviction history is not only inconsistent with the CARES Act and the mandate of SBA’s own authorizing statutes, it also frustrates federal and state efforts to encourage the reintegration of individuals involved in the criminal legal system. Overbroad and unfair: The PPP’s categorical bars based on certain arrest or conviction records mean that there is no opportunity for an individual determination that considers factors such as rehabilitation, the circumstances of the conviction/disposition, or whether the nature of the underlying crime might adversely affect the ability to properly utilize the loan. The EIDL program restrictions go even further by asking about any involvement with the criminal legal system at any time, which could potentially exclude applicants with any arrest or conviction record. The PPP and EIDL restrictions extend to individuals that the criminal legal system has specifically determined should not be convicted of a crime, including those that participate in diversionary programs or obtain deferred adjudications – the very kinds of dispositions that are supposed to help protect people involved in the criminal legal system from harsh economic collateral consequences. The SBA’s requirement that people disclose sealed and expunged records circumvents protections in state law for these cleared records and is contrary to the intent and purpose of those laws. Racially discriminatory: The SBA’s restrictions will have a disparate impact on minority business owners and employees, who are disproportionately affected by the criminal legal system as a result of institutional discrimination. People with a record are already subject to myriad disadvantages in seeking to reintegrate into society, notably in bank lending, but also in housing, employment, licensing, education, voting, and other areas. The SBA must act now to: At a minimum, bring the record restrictions for PPP and EIDL programs in line with those that applied to Section 7(a) and 7(b) loans under regulations adopted prior to enactment of the CARES Act. Relax existing rules and policies that restrict access to PPP or EIDL financial assistance for people with a record in the urgent circumstances presented by the pandemic, in line with the purposes of the CARES Act. Ensure that the application forms for SBA financial assistance accurately reflect the eligibility requirements and are written in a clear manner. As the COVID-19 crisis continues to devastate communities across this country, federal relief must be made equitably accessible to all who need it. Sincerely,   American Civil Liberties Union Chicago Lawyers’ Committee for Civil Rights Collateral Consequences Resource Center Community Legal Services of Philadelphia Drug Policy Alliance FreedomWorks Georgia Justice Project Interfaith Action for Human Rights Jewish Council for Public Affairs Justice & Accountability Center of Louisiana Justice Action Network Leadership Conference on Civil and Human Rights National Association of Criminal Defense Lawyers National Employment Law Project Public Interest Law Center Reproductive Justice Inside Safer Foundation Washington Lawyers’ Committee for Civil Rights and Urban Affairs Women Against Registry     APPENDIX: PROGRAM REQUIREMENTS (Prepared by CCRC, last revised 4/17/20) Paycheck Protection Program (PPP) The CARES Act authorizes the PPP, which provides small business loans under the SBA’s 7(a) loan program, with provisions for expanded eligibility, allowable uses, and forgiveness.[1] Barriers based on arrest or conviction for 7(a) loans in general: By statute: The SBA “may verify the applicant’s criminal background, or lack thereof,” prior to approval, including through an FBI background check.[2] By regulation: “Businesses with an Associate who is incarcerated, on probation, on parole, or has been indicted for a felony or a crime of moral turpitude” are ineligible.[3] By policy statement: SBA interprets its regulation to also make ineligible an Associate under deferred prosecution, conditional discharge, order of protection, or a sex offender registry, or currently facing any charges in any jurisdiction.[4] SBA also states that various principals of a business “must be of good character,” which is determined through a character evaluation, requiring disclosure of any: 1) current charges; 2) arrests in the past 6 months; and 3) time the person has been convicted, pled guilty or no contest, or been placed on pretrial diversion or any form of parole or probation—other than for a minor vehicle violation. Expunged and sealed records must be disclosed, with no exceptions. A person will generally be approved if they provide documentation that they have satisfied all sentencing conditions (presumably including payment of costs and restitution) and do not have a felony conviction, misdemeanor conviction for a crime against a minor, recent misdemeanor conviction, or recent charges. Otherwise, they are subject to a fingerprint-based FBI background check and an opaque individual determination by the SBA.[5] Barriers based on arrest or conviction specific to PPP loans: By statute: The CARES Act does not specifically authorize much less require barriers based on arrest or conviction for PPP loans. To be consistent with its purposes, the CARES Act should be read to say at the least that new barriers based on arrest or conviction should not be applied to PPP assistance.[6] By regulation: SBA Interim Final Rule (Apr. 15): “You are ineligible for a PPP loan if….iii. An owner of 20 percent or more of the equity of the applicant is incarcerated, on probation, on parole; presently subject to an indictment, criminal information, arraignment, or other means by which formal criminal charges are brought in any jurisdiction; or has been convicted of a felony within the last five years.” By application form: Borrower Application (Apr. 3): asks two questions; a “yes” to either is disqualifying: 1) “Is the Applicant (if an individual) or any individual owning 20% or more of the equity of the Applicant subject to an indictment, criminal information, arraignment, or other means by which formal criminal charges are brought in any jurisdiction, or presently incarcerated, or on probation or parole?” 2) “Within the last 5 years, for any felony, has the Applicant (if an individual) or any owner of the Applicant 1) been convicted; 2) pleaded guilty; 3) pleaded nolo contendere; 4) been placed on pretrial diversion; or 5) been placed on any form of parole or probation (including probation before judgment)?” (Note: this is far broader than the Interim Final Rule: the second question includes “any owner” and covers dispositions other than conviction.) Economic Injury Disaster Loans (EIDL) EIDL loans are authorized under the SBA’s existing 7(b) disaster loan program. The Coronavirus Preparedness and Response Supplemental Appropriations Act (Phase 1) appropriated additional funds and deemed coronavirus a disaster.[7] Pursuant to the CARES Act, SBA is also allowing business owners in all states, D.C., and territories to apply for an EIDL advance of up to $10,000, which “will be made available within days of a successful application, and this loan advance will not have to be repaid.”[8] Barriers based on arrest or conviction for EIDL: By statute: Individuals convicted during the past year of a felony during and in connection with a riot or civil disorder or other declared disaster are ineligible.[9] By regulation: “Businesses with an Associate who is incarcerated, on probation, on parole, or has been indicted for a felony or a crime of moral turpitude” are ineligible.[10] By policy statement: The SBA policy statement provides: “It is not in the public interest…to extend financial assistance to persons who are not of good character. If any adverse information develops concerning the character or background of a disaster loan applicant or principal owner [on forms], SBA must make a determination as to the applicant’s character before a loan can be approved.”[11] Thus, the SBA will not approve a loan “if the applicant or principal owner is presently on parole or probation following conviction of a serious criminal offense. However, [it] will consider approving an application submitted by partnerships, corporations, and LLEs, where the apparent bar to eligibility was committed independently of any official act for the business and the individual will divest all direct and indirect interest in the business.” By application form: Forms, including the COVID-19 EIDL portal, include the usual EIDL three-part question, which requires a “yes” or “no” to the entire question: “a. Are you presently subject to an indictment, criminal information, arraignment, or other means by which formal criminal charges are brought in any jurisdiction? b. Have you been arrested in the past six months for any criminal offense? c. For any criminal offense – other than a minor vehicle violation – have you ever been convicted, plead guilty, plead nolo contendere, been placed on pretrial diversion, or been placed on any form of parole or probation (including probation before judgment)?” The SBA has not provided guidance on whether applicants who answer “yes” to this question can obtain an EIDL advance. Under pre-existing policy, if this question is answered “yes,” the SBA requires the applicant to provide a Form 912 with an explanation of the offense(s), and in some cases a fingerprint sample, before the SBA will make a character determination.[12]   [1] CARES Act (H.R. 748), secs. 1102-1105; 15 U.S.C. 636(a). [2] 15 U.S.C. 636(a)(1)(B). [3] 13 C.F.R. § 120.110(n). An “Associate” includes officers, directors, owners of 20% or more of the equity, key employees, and other specified entities. See 13 C.F.R. § 120.10. [4] See SBA Standard Operating Procedure (SOP) 50 10 5(K)(B)(2)(III)(A)(13) (eff. April 1, 2019). [5] The good character requirement applies to every proprietor, general partner, officer, director, managing member of an LLC, owner of 20% or more of the equity, trustor, or person who runs day-to-day operations.” See id. [6] See CARES Act (H.R. 748), sec. 1102. [7] Coronavirus Preparedness and Response Supplemental Appropriations Act (H.R. 6074), tit. 2. [8] CARES Act (H.R. 748), sec. 1110; https://www.sba.gov/funding-programs/loans/coronavirus-relief-options/economic-injury-disaster-loan-emergency-advance. [9] See P. L. 90 448, 1106(e), HUD Act of l968, and 13 CFR §123.101(a). [10] 13 C.F.R. § 120.110(n). An “Associate” includes officers, directors, owners of 20% or more of the equity, key employees, and other specified entities. See 13 C.F.R. § 120.10. [11] SBA SOP 50 30 9(3.6) (effective May 31, 2018) at p. 32. [12] Id. Read more