SBA Opens Doors to Entrepreneurship for Individuals with Criminal Records

The U.S. Small Business Administration (SBA) has called for public input on a groundbreaking proposal designed to enhance access to SBA loan programs for individuals with certain criminal histories. These proposed changes seek to unlock entrepreneurial opportunities for the one in three American adults with prior criminal records. These reforms align with President Biden’s Safer America Plan, addressing root causes of gun violence and crime by expanding access to employment, education, healthcare, housing, and support services that bolster public safety and promote equity.

Easing Access to Capital for Formerly Incarcerated Entrepreneurs

Existing SBA regulations present hurdles for applicants with specific criminal history records, with some individuals entirely excluded from SBA programs. If approved, this proposed rule would widen the gateway to capital for entrepreneurs with prior justice system involvement, eliminating barriers in SBA’s loan and surety bond programs. Notably, the rule would eliminate the practice of inquiring about applicants’ criminal justice system involvement on SBA application forms, as research indicates no increased default risk associated with such individuals. Applicants currently incarcerated or found to have defrauded the government would still remain ineligible for SBA-guaranteed loans.

A Second Chance for Economic Empowerment

Administrator Isabella Casillas Guzman emphasizes the importance of providing opportunities to returning citizens for rebuilding their lives through entrepreneurship. With one in three American adults having a criminal record, the need for employment is paramount, yet it remains a significant challenge. The proposed rule aligns with research showing that employment during reentry reduces recidivism rates and contributes to individuals thriving in society.

Streamlining Eligibility and Enhancing Clarity

The proposed rule aims to standardize eligibility criteria across various SBA capital programs, including the 7(a) Loan Program, 504 Loan Program, Disaster Loan Program, Microloan Program, and Surety Bond Guarantee Program, collectively providing over $40 billion in annual capital to small businesses. It seeks to reduce ambiguity in eligibility determinations, replacing detailed applicant self-reporting with straightforward questions on current incarceration status. Verification would be conducted using Social Security Numbers and third-party databases, alongside internal cross-checks for pandemic-related fraud.

Bipartisan Support for Empowering Returning Citizens

Elected officials, including Senator Cory Booker, Senator Ben Cardin, Congresswoman Nydia M. Velázquez, and Congressman Steven Horsford, express their support for the proposed rule. They emphasize its potential to reduce barriers to entrepreneurship for justice-impacted individuals, offering a pathway to economic stability and success after release. The rule aligns with bipartisan efforts to support justice-impacted entrepreneurs, reduce recidivism, and empower marginalized communities.

Combating Fraud while Expanding Access

While expanding access to capital, the SBA remains vigilant in preventing fraud. Starting from August 1, 2023, SBA initiated pre-screening of all business loan applications for fraud, independently verifying borrower information through third-party databases. Banks and credit unions issuing loans retain the authority to inquire about applicants’ criminal history and make lending decisions, preserving the variation in lending practices that currently exists. It’s important to note that the SBA programs affected by the proposed rule pertain to traditional loans that require repayment.

Fostering Economic Opportunity and Public Safety

Starting a business offers economic opportunities and enhances financial stability not only for individuals with criminal history involvement but also for their families and communities. It strengthens the economy and contributes to public safety. The Biden-Harris Administration has been committed to providing second chances and reducing recidivism while facilitating the reintegration of individuals into society.

A Holistic Approach to Reintegration

The Biden-Harris Administration has embarked on a comprehensive approach to expand opportunities for returning citizens, strengthen communities, and bolster the economy. This includes previous bipartisan reforms, such as eliminating ineligibility based on recent felonies for Paycheck Protection Program loans during the pandemic, removing irrelevant criminal history restrictions for various SBA loan programs, and eliminating criminal record barriers for Community Advantage loans, aimed at supporting low-income and underserved communities.

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