Tag: SBA

Organizations call on Congress to remove record-related barriers to small business relief

A bipartisan group of civil rights, advocacy, and business organizations, including CCRC, are calling on Congress to take immediate action to remove barriers based on arrest or conviction history for small business owners seeking COVID-19 federal relief.  This is an issue we have been covering in depth in recent posts.  This call to action—available in PDF and reprinted below—is issued by the following organizations (with additional sign-ons welcome; contact us here):

American Civil Liberties Union
Chicago Lawyers’ Committee for Civil Rights
Collateral Consequences Resource Center
College & Community Fellowship
Community Legal Services of Philadelphia
#cut50
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
Main Street Alliance
National Association of Criminal Defense Lawyers
National Employment Law Project
Out For Justice
Public Interest Law Center
Reproductive Justice Inside
Root & Rebound
Safer Foundation
Washington Lawyers’ Committee for Civil Rights and Urban Affairs
Women Against Registry

*Note: the letter was originally issued on April 10 and was last updated on April 17.

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The Marshall Project reports on criminal history barriers to small business relief

In the past two weeks we have written at length about the U.S. Small Business Administration (SBA)’s “bumpy guidance on criminal history requirements” for small business financial relief during the COVID-19 pandemic (see also “Applying for an SBA loan with a criminal record“).  Today, Eli Hager of The Marshall Project has picked up the story with a new piece that draws on our research and will bring the story to a wider audience.  We hope this will prompt the SBA to revise its policy, or guide Congress toward clearer and fairer standards if it passes a planned new round of small business assistance.

Before the pandemic, the SBA didn’t automatically disqualify people for small business loans based on a past criminal record, and we can’t understand why it would suddenly decide to do so now, when small businesses across the country are struggling to stay afloat.  (Preexisting policy, described here, disqualifies a business if it has a principal who is incarcerated, is under supervision, is facing charges, or lacks “good character.”)  The new SBA policy—which automatically disqualifies even certain people who have completed a diversionary program and were never convicted—seems entirely at odds with the wave of recent state and federal law reforms aimed at encouraging reintegration.

The Marshall Project piece notes that “never in recent U.S. history have so many conservatives and liberals agreed that people with criminal histories deserve a second chance—especially job-creating small-business owners.”  It is no wonder that the SBA “did not respond Tuesday to multiple requests for clarification,” when its new policy is so indefensible.

An excerpt from The Marshall Project piece, “Trump Administration Tells Some Business Owners ‘Do Not Apply’ for Coronavirus Loans,” is included below:

Michelle E. of Scottsdale, Arizona, was relieved when President Trump last month signed into law the sweeping stimulus package intended to keep the U.S. economy afloat during the coronavirus pandemic.

Michelle and her husband have owned a small hardwood flooring business for 18 years. She hoped the law’s $350 billion for small-business loans would help them avoid laying off any of their five employees, whom she said are like family. So she got a loan application through her bank.

But as she filled it out, Michelle saw the question: Had any of the business owners pleaded guilty to or been on probation for a criminal offense? Michelle immediately thought of her husband, who is on probation because he took a guilty plea on a theft charge after taking home the scope of someone else’s rifle on a hunting trip, something he says he did accidentally. His name and her last name are being withheld because his criminal case, and the couple’s loan application, are pending.

“Because of that, our employees can’t get help from the United States government?” Michelle said.

It’s a little noticed frustration compared to the logistical problems of the Trump administration’s rollout of the CARES Act. A set of new regulations for implementing the law, issued by the Small Business Administration, prohibits small-business owners with criminal records from accessing the desperately needed loans.

“We have never seen such a sweeping mandatory disqualification based on a criminal record, in any area of the law,” wrote the Collateral Consequences Resource Center, a nonprofit, nonpartisan website that tracks how federal, state and local laws affect people with past charges or convictions. The site is run by Margaret Love, who was the U.S. Pardon Attorney during the Clinton administration.

[. . . .]

Critics of the new regulations said the rules waste precious time examining people’s pasts when so many are, with each new day, losing their lives or livelihoods.  One New Jersey pet-supply store owner with a 10-year-old felony conviction put it this way in an email to the Collateral Consequences Resource Center: It is as if, after Hurricane Katrina flooded New Orleans, rescuers flying in helicopters asked families stranded on their roofs if they had ever faced a criminal charge.“

And if anyone answered yes,” he wrote, “they would move along to the next house.”

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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SBA relaxes rule against business loans to probationers, while other federal agencies keep collateral consequences unchanged

The U.S. Small Business Administration (SBA) last week published a final rule for its federal Microloan Program that will for the first time allow microloans to small businesses owned by someone currently on probation or parole. In its announcement, the SBA noted that this will “aid[] individuals with the highest barriers to traditional employment to reenter the workforce.”  The change was evidently prompted by a review of agency regulations requested by the Cabinet-level Federal Reentry Council established in 2010 by former Attorney General Eric Holder.

While the change is welcome, it leaves in place substantial restrictions for people under sentence in other SBA loan programs, discussed at length in a post on this site last December.

It is also striking for being the only relaxation of federal collateral consequences since the Reentry Council was established five years ago.  As reported on this site, federal agencies are said to be “mostly satisfied” with their the way their regulations address the situation of people with a criminal record.

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SBA to relax some rules on loans to people with a record, but most left in place

600px-US-SmallBusinessAdmin-Seal.svgIn December 2014, Amy Solomon, Senior Advisor to the Assistant Attorney General for the Office of Justice Programs in the Justice Department, testified before the U.S. Senate Addiction Forum about the review of collateral consequences federal agencies had been conducting under the auspices of the Federal Reentry Council.  She reported that most of the agencies participating in the review had concluded their collateral consequences were “appropriately tailored for their purposes.”  However, she also reported that Small Business Administration (SBA) had proposed amendments to its regulations to allow people on probation or parole to qualify for loans from its microloan program.  (The change, proposed almost a year ago, has still not become final.)

We decided to take a look at the SBA’s proposed rule change, and at the SBA regulatory scheme more generally, to see how having a criminal record affects small business eligibility for government-backed loans. Read more