Small Business Owners With Criminal Records Could Be Banned from Coronavirus Aid

Small businesses in New York are shuttered during the coronavirus pandemic. Small business owners with certain types of criminal records are barred from loans intended to help them survive during closures.

Small businesses in New York are shuttered during the coronavirus pandemic. Small business owners with certain types of criminal records are barred from loans intended to help them survive during closures. AP Photo/Mark Lennihan

 

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Criminal justice advocates say the policy is arbitrary and will hurt economic recovery.

Almost one in three Americans has a criminal record, a mark that carries a host of hurdles in the worlds of housing, employment, and education. Now, small business owners who were previously convicted of crimes face a new challenge in the age of coronavirus. Forgivable loans administered by the Small Business Association meant to help companies weather the economic downturn are not available to people with certain types of criminal records.

The Paycheck Protection Program, which launched on April 3, is a $349 billion emergency loan program created through the CARES Act. The loans are designed to help small businesses that are struggling to pay workers, cover rent, and swallow operating costs that have continued while their businesses adjust to widespread closures. Jovita Carranza, the SBA Administrator, said that loans will be a critical boost to small businesses, certain non-profits, and some independent contractors. “These loans will bring immediate economic relief … to millions of small businesses and their employees,” she said. “We urge every struggling small business to take advantage of this unprecedented federal resource—their viability is critically important to their employees, their community, and the country.”

The guidance around whether or not an individual with a criminal record is eligible for the Paycheck Protection Program or other coronavirus-related loan programs administered by the SBA has been a source of confusion for small business owners, in part because the policies keep changing. Originally, the SBA said they would ban business owners currently facing criminal charges or those with a felony conviction in the past seven years. But updated application guidance released a few days later proved more restrictive. The current application asks business owners to detail more comprehensive criminal histories, like instances where they pleaded “no contest” in order to enter diversion programs like drug and alcohol rehabilitation or any time spent on probation prior to a verdict for a felony charge, even if they weren’t convicted. 

Jamie Gullen, a supervising attorney at Community Legal Services, an advice and advocacy organization for low-income individuals in Philadelphia, said that they have been contacted by dozens of small business owners who are confused by the rules, including some who last had convictions in the 1990s or who only have low level marijuana offenses on their records. “The vague way the questions on the application are worded can lead you to think that any record could be held against you,” she said. “It will have a huge impact not just on business owners themselves, but also on the employees.”

The rules are unprecedented, according to Margaret Love, executive director of the Collateral Consequences Resource Center, an organization that tracks restrictions on people with criminal records. “This is much more restrictive than any government employment, grants, or loan program I’ve ever seen, and it’s a striking turnaround from the impulse we’ve seen recently from Congress and state legislatures that are encouraging people with criminal records to reintegrate,” she said, pointing to the 153 laws passed by states and the federal government in  2019 that eliminated previous restrictions on people with records. “If we as a country have determined that people who have once had a bad brush with the law deserve a second chance, then what the SBA is doing is pulling in the exactly the opposite direction.”

The Small Business Administration did not respond to multiple requests for comment about the complaints from criminal justice advocates. 

Ordinarily, the SBA approves loan applicants with criminal records who have documentation proving they have satisfied all sentencing conditions and do not have a felony conviction, currently pending charges, or recent arrests. It isn’t known exactly how many of the 30 million small businesses in the country are owned by people with criminal records who would be affected by the new rules, but it’s possible that the number is quite high given that between 70 and 100 million Americans have some sort of record. 

Claudia De Palma, a staff attorney for the Public Interest Law Center, said that given the difficulties of finding a job with a record, many formerly incarcerated people resort to opening their own business, a path further encouraged by hundreds of reentry to entrepreneurship programs that have sprung up in prisons in the past few years. “Often folks who have records have a hard time getting into the workforce, even in a good economy,” De Palma said. “A fair number of them turn to starting their own business. Those businesses then tend to be more inclusive in their hiring, and provide a lifeline for other people with records in their community.”

Last week, De Palma helped draft a letter from a bipartisan coalition of 19 civil rights groups calling for the SBA and Congress to clear up the confusion by eliminating any new restrictions on people with criminal records and relaxing restrictions ordinarily in place to ensure that any small business in need of financial support can get it. The organizations say that the restrictions “will have a significant and detrimental impact” on communities around the country. 

“As the COVID-19 crisis continues to devastate communities across this country, federal relief must be made equitably accessible to all who need it,” the letter reads. “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.”

The groups assert that the CARES Act does not instruct the SBA to create barriers based on arrest or conviction for loans, and that the measures put in place by the SBA “constitute unnecessary overreach that interferes with the ability of small businesses to operate and pay their employees” and go against the intention of the CARES Act “to sustain small businesses that are trying to save the economy by keeping people employed.” 

De Palma said the coalition of organizations is putting their hope in Congress, rather than expecting the SBA to make changes to the policies on its own. “This should be a bipartisan issue,” she said. “There are folks who care about this population and folks who care about business not being over-regulated, and their concerns overlap in this instance.”

The civil rights organizations’ hope is that Congress will act quickly and instruct the SBA to relax restrictions on criminal convictions in the next stimulus package, which could be introduced at the end of April, or in a separate smaller bill that would replenish funds in the Paycheck Protection Program. Media reports on Wednesday said the current pot of money for the program could run out by the end of the day.

“The whole point of this relief is to try to keep the economy going and support employers paying people,” said De Palma, “If a small business owned by someone with a record is a lifeline for their community and all of sudden they’re disqualified, it's going to have a ripple effect.”

Emma Coleman is the assistant editor for Route Fifty.

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