May 10, 2024

The Small Business Administration (SBA) has finalized a rule concerning a ban-the-box policy. This rule would specifically affect the Administration’s small business loan programs. Announced last year, it would significantly expand access to capital for those with prior criminal history.

The final rule is “Criminal Justice Reviews for the SBA Business Loan Programs, Disaster Loan Programs, and Surety Bond Guaranty Program.” This criminal justice review rule follows the proposed rule-making published on September 15, 2023. The SBA intended to amend regulations concerning criminal history reviews for the SBA’s loan programs.

The final rule differs little from the proposed rule, with most key details remaining unchanged. However, one crucial exception concerns how the SBA changed its stance concerning removing specific restrictions. This change affects business owners under indictment and anyone currently incarcerated. For example, the SBA bars childcare businesses if a critical employee receives parole or probation due to crimes against children.

These populations will now remain ineligible for the SBA’s federally guaranteed loans.

The current regulations bar all potential borrowers on parole or probation from applying for SBA loans. As such, SBA loan applications request criminal background information to ensure applicants do not violate this rule. The finalized rule will take effect on May 30, 2024. According to the final rule, the SBA would eliminate these restrictions, which removes potential deterrents to those with criminal records.

These changes to the SBA’s regulations received strong support from crucial sources. For example, the White House claimed the SBA’s changes would reduce incentives for crime that drive up recidivism. A White House representative issued a statement that addressed these changes. 

They claimed, “Expanding access to entrepreneurship facilitates successful reentry of formerly incarcerated individuals while also creating economic growth that benefits the whole nation.”

The SBA also researched loans given to formerly incarcerated individuals. Their data revealed no significant increase in default rates despite the population’s criminal background. However, the agency assured interested parties they will continue carefully screening applicants for potential fraud and credit risks. 

These changes will go into effect on May 30, 2024. Despite removing these criminal record checks on applicants from the SBA, the Administration has warned that lenders may continue to perform their own checks. According to SBA administrator Isabel Guzman, “Today, the SBA is taking a massive step forward to foster equity and remove unnecessary barriers that prevent countless individuals from starting and running a business.”

Information provided here is for educational and informational purposes only and should not constitute as legal advice. We recommend you contact your own legal counsel for any questions regarding your specific practices and compliance with applicable laws.