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Small-business owners with criminal records are prohibited from accessing loans from the $2 trillion rescue package signed by President Trump.
Coronavirus

Trump Administration Tells Some Business Owners “Do Not Apply” for Coronavirus Loans

SBA says people with criminal records aren't eligible for some emergency loans, even though experts say the law doesn't exclude them.

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.

It is unclear how many small-business owners nationally have a criminal history. But The Sentencing Project, a research and advocacy group, has estimated that as many as 100 million Americans have an arrest or conviction in their past, and there are more than 30 million small businesses around the country, according to the Small Business Administration. Because people with felony records in particular often can’t get jobs, many start their own businesses, from plumbing to food-services to fitness, experts say.

Add to that the people working for each small-business owner, and you see how the new regulations can have a cascading negative effect on employment, Love said in an interview.

The Small Business Administration has yet to respond to questions from The Marshall Project about its new loan guidelines.

To be sure, under previous presidencies the Small Business Administration has considered many aspects of loan applicants’ criminal records, and more broadly whether they are of “good character.” This is in part because banks, which the agency uses to distribute loans, typically do background checks in their regular loan process.

And in the wake of any disaster, some criminal enterprises and grifters come out of the woodwork seeking relief money. In the past, negotiations between the Small Business Administration and banks about steps required to make sure this doesn’t happen have often been extensive.

But seldom has there been such a dire need to dole out cash to businesses quickly, broadly and without additional red tape, economists say.

What’s more, 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.

The CARES Act as passed by Congress included specifics about who was and was not eligible for the loans, but experts noted it mandated nothing about criminal records.

Entrepreneurs with criminal records across the country said in interviews that they are confused about the details of the new regulations, which changed three times last week. A man in Austin, Texas, who owns a website-design business said he could not figure out whether his misdemeanor, a charge last year for first-time DUI, would bar him from getting a loan.

The CARES Act includes two types of loans for businesses employing 500 or fewer people: the Paycheck Protection Program, meant to help companies keep paying employees while the coronavirus crisis lasts, as well as an expansion of loans to companies impacted by disasters.

For the paycheck program, the new policy from the Small Business Administration says business owners can’t get a loan if they are facing criminal charges or have had a felony conviction in the past five years. But the actual application form seems to exclude more people: It also asks whether you have, during the same time period, pleaded “no contest,” were placed in a diversion program—which often takes place outside of court and does not mean that you admitted guilt—or spent any time on probation or parole in a felony case.

The second loan program is also bewildering many applicants with criminal records. The online portal to request federal aid asks a three-part question about your criminal history, but the available answers are only “yes” or “no.” Seemingly, a small business owner convicted now of murder and another one charged but not convicted 20 years ago for a DUI would both have to check “yes.”

The Small Business Administration did not respond Tuesday to multiple requests for clarification.

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.”

After this article was published, The Marshall Project received a loan from this program. The loan has no requirements that would compromise The Marshall Project's editorial independence.