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A Leaked Powerpoint Suggests the SBA Is Denying Disaster Loans to Anyone Arrested in the Last 10 Years Despite broad bipartisan support for stimulus loans reaching small-business owners with criminal records, Steven Mnuchin and the SBA are reportedly excluding more rehabilitated entrepreneurs than they've ever admitted before.

By Frances Dodds Edited by Jessica Thomas

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The PowerPoint appeared on Reddit on April 24, posted by an "SBA Insider." The presentation, which was reportedly circulated inside the Small Business Administration, gives guidelines on how to disperse the Economic Injury Disaster Loans (EIDL) that Congress has funded for small businesses around the country.

One slide, titled "Character Determination," instructs SBA administrators to ask applicants if they had ever been convicted of a crime, and when the arrest occurred. If the applicant was arrested over 10 years ago for a misdemeanor: "Approve." But if the applicant was arrested for any crime in the past 10 years, or was ever arrested for a felony: "Decline."

If these guidelines are accurate, they reveal a shocking overreach on the SBA's part. One in three Americans has a criminal record, and these sweeping restrictions are at odds with broad bipartisan support for loans to reach rehabilitated citizens who have paid their dues and moved on to start businesses that contribute to the economy. These entrepreneurs also often hire other formerly incarcerated individuals who can't find work elsewhere, which makes them vital in the fight to reduce recidivism. The leaked guidelines also run contrary to Treasury Secretary Steven Mnuchin's own recent claims that, while giving out stimulus loans, the SBA has eased up on its typical restrictions for small business owners with criminal records.

When Entrepreneur asked the SBA about the eligibility guidelines laid out in the PowerPoint, a spokesperson from the press office didn't deny or confirm their veracity. We were simply referred to the SBA's policy of obtaining more information from small business owners who have answered "in the affirmative to questions in the application about prior convictions."

Experts in the re-entry space say that the PowerPoint's guidelines line up with everything they've seen happening on the ground. Margaret Love is executive director of Collateral Consequences Resource Center (CCRC), a nonprofit that promotes public engagement on the impacts of arrests and convictions. She says that, "The questions that applicants for disaster loans are being asked are tracking with the questions in these PowerPoint slides, which suggests that they really are agency operating documents."

Kevin Gres, the CEO of Expunge America — which works to secure record-sealing and expungements, early termination of probation, pardons, etc. — agrees. "Certainly that seems like what's going on," he says. "The vast majority of people who've applied have not received anything from the EIDL yet, so it's tough to say... But we are having just an overflow of calls because of all these issues coming up. People are freaking out and saying, "Get me as eligible as you possibly can.'"

Related: Hiring Formerly Incarcerated Employees Helps Your Bottom Line

An opaque discriminatory process becomes more overt

Ever since the first stimulus package allocated funds to two SBA programs — the PPP and the EIDL — there's been a cluster of confusion around eligibility for those with criminal records.

Before the COVID-19 crisis, when entrepreneurs applied for an SBA loan, they were only technically disqualified if they had an open criminal case (were incarcerated, on parole or probation, awaiting conviction, are under community supervision or in a diversionary program). However, there was also an opaque "good character" clause that asked if the applicant had ever been convicted of a crime. If they had, the SBA required them to send in details to be vetted on a case-by-case basis. Once that happened, there was little transparency into the decision-making process.

The SBA gave its most recent rule for the PPP on April 15, which said that applicants were ineligible if they had an open criminal case, per usual, but also broadened the restriction to disqualify anyone convicted of a felony in the last five years. "If somebody has been convicted in the last five years, they may have completely finished their sentence," Love says. "And it's bad enough to exclude somebody on parole or probation, but these rules even exclude people in non-conviction diversion programs. Frequently, the reason people are diverted is so that they will not end up with a disabling conviction and unwarranted collateral consequences – like the ones the SBA is imposing on loan applicants."

The EIDL eligibility requirements have been harder to pin down. The official regulation doesn't seem to have been updated since 2002 (the EIDL was a pre-existing loan and grant program used for other disasters), and it states that applicants are only ineligible under very narrow circumstances: "You have been convicted, during the past year, of a felony during and in connection with a riot or civil disorder or other declared disaster."

And yet, on the current EIDL application, there is a "yes" or "no" question as to whether applicants have an open case, have been arrested in the last six months or have ever been convicted of a crime other than a minor traffic violation.

Stephen Jackson is the CEO of the New York-based Workshop in Business Opportunities, which serves many returning citizens, and he says, "What I've heard from many re-entry individuals is that once they saw that [question about convictions at any point], they didn't even want to apply because in their minds it was an automatic, "No.'"

"It's upsetting," says Lucinda Cross, president of Activate Worldwide, a leadership services and marketing firm. "Because once I read that, I was already like, "Oh, I'm not going to be able to get this." Cross came home from federal prison in 2000 and founded Activate in 2006. As her business, which is based in New Rochelle, N.Y. has grown, Cross has made it a point to hire other women who were formerly incarcerated, and she had five contracted employees when the pandemic hit. Cross has applied for the PPP and EIDL loans, but has yet to hear back about either — not to mention she hasn't received a stimulus check. "There's absolutely nothing coming in," she says. "I have a family that I provide for. It's been a really tough time as a taxpayer, and as a citizen, to still be punished for something that happened so many years ago. A lot of people always reach out to the men [who advocate for returning citizens], but as women, we have the families and we're kind of the backbones for many of our communities."

Lucinda Cross (middle) with two of her contracted employees // Image Credit: Lucinda Cross

Despite bipartisan objections, the SBA maintains its restrictions

As the SBA's eligibility restrictions on stimulus loans become more apparent, many groups on both sides of the aisle are voicing their objections to rehabilitated business owners being cut out of aid opportunities. A bipartisan group including the ACLU and the Justice Action Network wrote to Mnuchin on April 17, and a group of nine conservative organizations wrote to the SBA, Mnuchin and Congress on April 20. The same day, a coalition of evangelical and Catholic organizations wrote to Senator Marco Rubio. The list goes on. These organizations recognize there are two ways to remedy the issue: Convince Mnuchin and the SBA to ease restrictions, or convince Congress to include a bill in the next stimulus package that forces the SBA to ease restrictions. "In this highly partisan atmosphere, it's wonderful to have such incredible bipartisan support for this," says Love. "It's really very gratifying."

President Trump has said that he would look into the SBA eligibility problem, and at a White House press conference on April 21, Secretary Mnuchin received a question about it from a reporter. To the confusion of many following the issue, Mnuchin insisted that the SBA had already loosened restrictions on small business owners with criminal records.

"We worked with the White House on this," he said. "There were actually much more onerous restrictions in the SBA program. There were people who had misdemeanors that weren't allowed to access the program, it was much longer than five years. Because of the criminal reform legislation that was passed and the work that's been done in the White House by Jared [Kushner] and others, we specifically designed the program and the five years was significantly shorter than what had been done before. So we'd already taken that into account…. There were a lot of people who wouldn't have had access previously, and we changed those regulations."

In a blog post the following day credited to its staff, Collateral Consequences wrote that, "The Secretary's explanation is so wildly off the mark that it is hard to believe he was simply misinformed. More likely, he was reporting on how the SBA's 7(a) loan program has been administered in practice, unwittingly revealing an unwritten policy of categorical exclusion in spite of formal policies calling for individual review. That peek at how a risk-averse bureaucracy actually operates out of the public eye would be no surprise to people who have experienced it."

Related: Which Public Companies Have Returned Their SBA PPP Loans ...

Press attention and political pressure can make a difference

Based on the eligibility restrictions in place, it's safe to assume that huge numbers of small business owners with criminal records are not receiving any assistance from the SBA programs.

But I did speak to two formerly incarcerated business owners who have received different types of stimulus funds within the past week, much to their surprise. Both have also received press attention and advocacy from powerful legislators.

Robert Sherrill is based in Nashville, Tenn., and he started his business, Imperial Cleaning Systems, after serving five years in federal prison for a non-violent drug-related charge. Sherrill hires other people with criminal records and founded a nonprofit for at-risk inner city kids called Impact Youth Outreach. In 2018 the Nashville Business Journal named him a "Most Admired CEO" of the year, and in January 2019, the governor of Tennessee gave Sherrill a pardon.

When COVID-19 happened, Sherrill had to lay off most of his 21-person staff, and in a matter of weeks he was staring down bankruptcy. He applied for the EIDL through the SBA, and the PPP through his bank, and didn't hear anything for weeks. Then, finally, on April 28, his PPP request came through.

Because Sherrill's case isn't active and his felony charge was over five years ago, he qualifies for the PPP under the SBA's rules — but he points out that the SBA's guidelines for banks aren't laws. Lenders can still make their own policies and refuse, for example, to lend to anyone with a felony charge. Many do.

"And at the end of the day, I got PPP because I have a relationship with my lender," he says. "I went through my bank that my business account is at, that I've been with for four or five years now. They gave me the PPP, because ultimately it's up to them."

Three hundred miles away in Cincinnati, Ohio, Troy Parker has been scrambling to make sure that his 60 employees are getting enough to eat. After Parker was released from prison in 2015, he founded Innovative Labor and Cleaning Services with the intention of hiring people who need the work most. "My goal was to remove the issues that keep people out of the workforce," he says. "In the lower income community, there's people who have mental health issues, but they can still work. People have convictions and struggle with addiction, but they can still work. So my thing was to map out how to take these obstacles away. If you don't have transportation, we provided it. If you don't have boots to start working, we'd give you the boots and take it out of your first check. Most people who return from prison or come out of rehab have mental health appointments, substance abuse appointments, probation appointments. So we make the schedule flexible."

Troy Parker (middle) with some of his staff // Image Credit: Troy Parker

In the fourth quarter of last year Parker had 120 employees on staff, but now he's down to half that and has been doing everything in his power to take care of the people still on his payroll. His felony conviction is over seven years old, but because he has six months of probation left (of five years total), he was disqualified from the PPP program. He applied for a $235,000 EIDL loan, but when he saw the question about past criminal convictions, he figured there was no way he'd be approved.

After his story made it into the Cincinnati Enquirer on April 19, he received some donations from locals, which he gave to employees who needed food or internet to homeschool their kids. Then, through the Cincinnati African American Chamber of Commerce, he was connected to Ohio senator Rob Portman, who said he would write a letter on Parker's behalf to President Trump's staff and the SBA.

On the morning of May 1, Parker woke up to find $10,000 in his account: the EIDL grant, which you can request while filling out the EIDL loan application. The grant is a fraction of the full EIDL loan Parker needs to make it out of the red, but he's grateful he can pay his employees' health insurance a little longer.

Of course, there's no way of knowing if Parker received the grant because of the press exposure, or because his senator wrote to the president and the SBA on his behalf. But certainly, the more attention and advocacy this issue receives, the more difficult it will be for the SBA to continue with its pattern of discriminatory lending.

"I take responsibility for my crimes," Parker says. "It all happened for a reason. But when you're trying to raise people up — especially African American people — it's like, don't you guys want us to help in the community and pull the load with you? When you say, well, he's on probation so we won't help him, you're just paying for people to become part of the load that everyone else has to carry."

Related: Minority-Owned Small Businesses Aren't Getting Stimulus Loans ...

Frances Dodds

Entrepreneur Staff

Deputy Editor of Entrepreneur

Frances Dodds is Entrepreneur magazine's deputy editor. Before that she was features director for Entrepreneur.com, and a senior editor at DuJour magazine. She's written for Longreads, New York Magazine, Architectural Digest, Us Weekly, Coveteur and more.

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