SBA proposes rule to increase returning citizens’ opportunities

The Small Business Administration (SBA) is proposing a rule that would aid in expansion of access to loan programs for people with criminal history records. 

American adults with a criminal history record would gain entrepreneurship opportunities under the proposed reforms. 

“America is about possibilities and second chances – and that includes justice-involved individuals who are working hard to rebuild their lives through entrepreneurship,” Administrator Isabella Casillas Guzman said in a statement. “SBA’s proposed rule would help returning citizens have better access to capital to start and grow their businesses and ensure our economy and society can benefit from their pursuit of the American dream of business ownership.” 

Current SBA regulations contain barriers for loan applicants with certain criminal history records. Some applicants are completely barred from SBA programs.  The proposed rule would expand access to capital for entrepreneurs by expanding eligibility and removing barriers to SBA’s loan and bond programs. It would also eliminate SBA application forms from asking applicants about their involvement with the criminal justice system. 

Individuals with a criminal history involvement identify employment as their most urgent need. A 2018 study reveals that formerly incarcerated people have a 27% unemployment rate, dramatically higher than the United States unemployment rate.  Substantial evidence exists of labor force discrimination against formerly incarcerated individuals, due to concerns about recidivism and gaps in work experience.

Entrepreneurship offers individuals with connections to the criminal justice system an alternative. The proposed regulations would clarify requirements across SBA capital programs and expand access to the capital necessary to start a business.

The rule change would do the following:

• Standardize eligibility rules across SBA capital programs, including the 7(a) Loan Program, 504 Loan Program, Disaster Loan Program, Microloan Program, and Surety Bond Guarantee Program—which collectively provide over $40 billion in capital annually to small businesses. 
• Reduce confusion and subjectivity (e.g., what is considered a “crime of moral turpitude”). 
• Rather than rely on self-reporting from the applicant, SBA will eliminate detailed questions on the application and, instead ask a straightforward question on current incarceration status and then verify that status using the applicant’s SSN and a third-party database. SBA will also check against SBA internal data for those connected to pandemic fraud and other resources related fraud against the federal government. 

• Continue to allow SBA lenders to follow their own policies on criminal background checks. 
• Continue to deem businesses with owners who are currently incarcerated and all those who have previously committed fraud against the government as ineligible for all capital programs.

Guzman said the proposed rule “is not only the right thing to do to strengthen our economy and communities, but it is also the smart thing to do because research shows that employment helps people thrive during reentry and reduces the risk of recidivism.”