*UPDATE (7/7/20): “SBA throws in the towel and Congress extends the PPP deadline”
In response to COVID-19, Congress created the Paycheck Protection Program (PPP) and expanded the Economic Injury Disaster Loan (EIDL) program, appropriating hundreds of billions of dollars across these programs to assist small businesses affected by the pandemic and economic crisis. As we have been pointing out in this space over the past five weeks, the Small Business Administration (SBA), which administers both programs, has imposed broad restrictions on access to relief based on arrest or conviction history, restrictions that were neither required nor contemplated by Congress.
Until now, attention has been focused on small business owners unfairly denied PPP relief based on their record. Members of Congress and major organizations have written in opposition to PPP regulations and policies that impose barriers based on a record, and dozens of media outlets have covered the issue. But the EIDL disaster relief program has largely gone under the radar, in part because the SBA has not published guidance about how it is treating EIDL applicants with a record.
In a new development, documents posted anonymously on Reddit last week, and published by Law360 on May 3, purport to be internal SBA guidance for reviewing EIDL applications. The documents instruct agency staff to deny relief to applicants if they have ever been arrested, unless the arrest was for a misdemeanor and occurred more than 10 years ago. These leaked documents, also covered in detail by Entrepreneur this morning, would suggest that behind the scenes the SBA is imposing even greater record-related restrictions on COVID-19-related disaster relief than on PPP loans.
Upon review, we believe that this new information about the record-related standards being applied by the SBA to EIDL loans is likely correct. We have heard from readers who were denied EIDL relief after SBA staff asked them questions over email about their arrest history, questions that correspond exactly to those in the leaked documents. An SBA spokesperson, given an opportunity to correct the record if it needed correcting, declined to confirm or deny the information.
We have never see a government program in the United States with such broad and arbitrary restrictions based on criminal history. The purported EIDL guidance is devoid of nuance: it instructs staff to deny relief based on arrest history regardless of offense and regardless of whether the arrest resulted in prosecution, much less conviction. The look-back period is limitless for felony arrests and a full decade for misdemeanor arrests. The guidance inevitably produces unwarranted disparities: a person with a decades-old felony arrest that was never charged, or whose arrest resulted in an acquittal, is treated more severely than someone with a more recent misdemeanor conviction. Finally, the guidance cannot be squared with existing published SBA policies, as discussed below.
In normal times, a sweeping and secretive restriction on disaster relief would be problematic. In this global public health and economic crisis, it is inexcusable.