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Small Business Administration (SBA) (2)
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Background checks (71)

In September 2023, the Small Business Administration issued a proposed rule to “amend regulations governing SBA’s business loan programs (7(a) Loan Program, 504 Loan Program, Microloan Program, Intermediary Lending Pilot Program (ILP), Surety Bond Guarantee Program (SBG), and the Disaster Loan Program…for criminal background reviews. The amendments are designed to improve equitable access based on criminal background review of applicants seeking to participate in one or more of these programs.” This proposal excludes the COVID Economic Injury Disaster Loan (EIDL) Disaster Loan Program. Under the proposal, among other things, application forms and procedures will no longer inquire about a business owner’s criminal history, except for owners “currently serving a term of imprisonment” following adjudication.

The SBA said it relied on empirical research to emphasize that criminal history has not been shown to have any negative impact on creditworthiness. Specifically, without citation, the

SBA reviewed the relevant research and found no evidence of a negative impact on repayment for qualified individuals with criminal history records in any American business loan program. This lack of data demonstrates that continuing to rely on this restriction for that purpose would contradict the available evidence and although the restrictions may have been originally put in place with the goal of protecting program performance, the lack of data suggests continuing to rely on this restriction would reflect an outdated, inaccurate structural bias against individuals with criminal history records. Specifically, research demonstrates that employment increases success during reentry and decreases the risk of recidivism, with entrepreneurship providing an important and distinct avenue for economic stability given persistent stigma from employers who may decline to hire people with criminal history records.

88 Fed. Reg. at 63535 (Sept. 15, 2023). The SBA did find and cite to “several studies showing the difficulty of obtaining employment for formerly incarcerated people…”

Programs subject to update:

  • 7(a), 504, Microloan, ILP, SBG and Disaster Loan Program regulations requiring criminal background reviews. Specifically, SBA is revising 13 CFR 109.400(b)(15) on ‘‘Eligible Small Business Concerns’’;
  • 13 CFR 115.13(a)(2)(i) on ‘‘Eligibility of Principal’’;
  • 13 CFR 120.110(n) on ‘‘What businesses are ineligible for SBA business loans?’’;
  • 13 CFR 120.707(a) on ‘‘What conditions apply to loans by Intermediaries to Microloan borrowers?’’;
  • 13 CFR 123.101(i) on ‘‘When am I not eligible for a home disaster loan?’’;
  • 13 CFR 123.502(c) on ‘‘Under what circumstances is your business ineligible to be considered for a Military Reservist Economic Injury Disaster Loan?’’; and
  • 13 CFR 123.702(c)(1) and (2) on ‘‘Character requirements’’

Additional Resources: