Criminal Records May Be A Barrier For Business Owners Applying for the CARES Act PPP
A client of mine who is six months away from completing a felony probation recently contacted our office regarding her qualifications for a PPP loan through the Small Business Administration amid the COVID-19 pandemic. As most are aware, the government recently enacted a multi-trillion dollar Cares Act which expands SBA business loans by creating a Paycheck Protection Loan Program(PPP). What's unique about the PPP is that the loans are forgivable for businesses impacted by the pandemic if used during the "covered period" to cover:
Payroll—salary, wage, vacation, parental, family, medical, or sick leave, health benefits
Mortgage interest—as long as the mortgage was signed before February 15, 2020
Rent—as long as the lease agreement was in effect before February 15, 2020
Utilities—as long as service began before February 15, 2020
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.
My client, who now owns a restaurant with 20 plus employees is one of them.
If you are completing the SBA loan application you will come to a question that reads as follows:
Her question to me was, "Does my criminal history disqualify me from receiving PPP?"
A Felony on Your Record Could Disqualify Your Business
The SBA states that:
“Businesses are only ineligible if an owner of 20 percent or more of the equity of the applicant is presently incarcerated, on probation, on parole; subject to an indictment, criminal information, arraignment, or other means by which formal criminal charges are brought in any jurisdiction; or, within the last five years, for any felony, has been convicted; pleaded guilty; pleaded nolo contendere; been placed on pretrial diversion; or been placed on any form of parole or probation (including probation before judgment.”
In other words, a COVID-19-related small business loan may not be available to someone with a felony on their record. However, you are encouraged to still apply.
What is the SBA Form 912 and Why Will I Need to Complete It?
Although you may be disqualified for a COVID loan with a felony on your record, YOU SHOULD STILL APPLY. Information and qualifications for the loan are rapidly changing and there is a big push from many agencies and bipartisan groups to reconsider the language included in SBA application. If you still choose to apple there will likely be some additional documentation required before your application can be processed—Including the SBA form 912.
The 912 form is a statement of personal history. An SBA evaluation of you and your business typically includes some questions about the borrower’s personal history—including whether or not they have a criminal record.
According to the SBA:
“SBA is collecting the information on this form to make a character and credit eligibility decision to fund or deny you a loan or other form of assistance. The information is required in order for SBA to have sufficient information to determine whether to provide you with the requested assistance. The information collected may be checked against criminal history indices of the Federal Bureau of Investigation.”
Do Not Falsify Information
The SBA takes falsifying this document seriously stating:
“An arrest or conviction record will not necessarily disqualify you; however, an untruthful answer will cause your application to be denied and subject to other penalties … Knowingly making a false statement … is a violation of Federal law and could result in criminal prosecution, significant civil penalties, and a denial of your loan, surety bond, or other program protection. A false statement is punishable under 18 USC 1001 and 3571 by imprisonment of not more than five years and/or a fine of up to $25,000; under 15 USC 645 by imprisonment of not more than two years and/or a fine of not more than $5,000; and, if submitted to a Federally insured institution, under 18 USC 1014 by imprisonment of not more than 30 years and/or a fine of not more than $1,000,000.”
If you have further questions about whether or not you meet the qualifications to apply for a PPP loan or other COVID-related financing with a felony on your record, please consult your attorney or accountant.