The Coronavirus Stimulus Discourages Aid to Small Business Owners With a Criminal Record

KB Brown started Wolfpack Promotionals, which creates advertising and promotional materials, in Minneapolis six years ago in part to help others. He saw that smaller businesses needed to advertise their services but couldn’t afford some of the larger firms. “We realized we could do that at a [fairer] price and make it look just as good, if not better,” he said. “It was something that I’m good at that I like, and we realized we could make a business out of it.”

Becoming an entrepreneur was also one of the few avenues open to him. He was convicted of a felony in 1993 and spent 18 years in prison. With that history, “unfortunately, finding a job is not the easiest thing in the world to do,” he said. A criminal background can make it nearly impossible to secure employment: a 2011 study found that many employers simply bar people from applying, part of why men with criminal backgrounds make up a third of all nonworking men in their prime. Instead, Brown was able to build a booming business, at least doubling his sales every year, and hire six employees.

And then the pandemic hit. His sales dropped by over 90 percent in March. “We haven’t even bothered looking lately. It’s probably worse,” he said in May, defeat in his voice. Customers don’t have the money to pay for advertising. He has projects in his shop ready for pickup that no one has come to claim and pay for. “It’s hurt us. It’s hurt us bad.” He’s furloughed all of his employees.

So Brown decided to apply for the Paycheck Protection Program, created by Congress through the CARES Act, which offers small business owners forgivable loans to cover their payroll and other costs. During the first round of funding, he went to his bank and “we were essentially laughed out of the place,” he said. Undeterred, he filled out the application to get money from the second round. But as he made his way to the end of the form, one of the last questions stopped him in his tracks: “Within the last 5 years, for any felony, has the Applicant (if an individual) or any owner of the Applicant 1) been convicted; 2) pleaded guilty; 3) pleaded nolo contendere; 4) been placed on pretrial diversion; or 5) been placed on any form of parole or probation (including probation before judgment)?”

The Small Business Administration, as Brown found out, has outright excluded any business owner who was convicted of a felony within the past five years from getting a PPP loan, as well as those who have simply been charged and put in pretrial diversion, parole, or probation without yet being convicted or spending any time in prison. It has also excluded anyone who is presently incarcerated or on probation or parole.

“I don’t understand why the question is there in the first place,” Brown said. A felony charge, he argued, “should not be an economic death sentence.” And in this case, it could be a sentence placed not just on him, but the employees who rely on him for their paychecks. Technically, Brown shouldn’t be disqualified from the program given that his conviction was nearly three decades ago. But at the end of May, a month since he applied, he still hadn’t gotten any PPP funding. He’s worried that his lender has thought twice about approving him for the money with a felony in his background.

Putting such a question on the application form won’t just exclude those who are banned, but deter others who might otherwise qualify. “Most employers heard them loud and clear,” said Breon Wells, president of the Daniel Initiative, a lobbying firm that advocates on criminal justice issues. Applying and later finding out you’re disqualified, he said, “is tantamount to potentially being put back into the system.”

The treatment of individuals with criminal histories stands in stark contrast with corporations that have had brushes with the law. The New York Times identified at least seven companies that have gotten $45 million in PPP loans total despite recent legal action against them. Biopharmaceutical company MiMedx Group got $10 million after agreeing to pay the Justice Department $6.5 million just weeks before to resolve allegations that it violated federal law. U.S. Auto Parts Network received $4.1 million despite being in a “heated dispute,” the Times reporters write, in recent years with Customers and Border Protection, including the seizure of some of its products under the allegation that they are counterfeit. Aerospace manufacturer CPI Aerostructures got $4.8 million even though its chief financial officer resigned in February after it disclosed major accounting problems.

Meanwhile, the SBA’s other loan programs don’t outright bar people with felonies, but instead subject them to an individual “good character” evaluation, giving the applicant “the ability to explain yourself, explain the circumstances around the felony,” Wells said. When Congress passed the CARES Act, “it was silent on the issue,” said Sarah Crozier, senior communications manager at Main Street Alliance, a small business network. So it was up to the SBA to issue its own guidelines.

The SBA went much further than its prior guidance with the PPP. “That was quite shocking,” Crozier said. She pointed out that someone who hasn’t been convicted of anything is still presumed innocent in the justice system, and yet is still disqualified from getting a PPP loan.

Crozier worries that lenders may decide to reject applications from people with criminal backgrounds but who should technically qualify out of an overabundance of caution, as may be happening with Brown. “You get people stuck in this limbo when you have the question” on the application, she said. “Even if they’re technically eligible, it’s up to the lender at the end of the day.” Plus, a leaked SBA PowerPoint reported by Entrepreneur instructs SBA administrators to deny applicants for Economic Injury Disaster Loans from any small business owners who have been arrested for a felony or were arrested for a misdemeanor within the last 10 years.

The SBA didn’t respond to a request for comment from The Intercept.

“It’s frustrating to constantly have something hanging over your head from many, many moons ago,” Brown said.

Many small business owners with criminal backgrounds are likely just opting out of the PPP. At first there was a crush of demand for PPP loans, and in the melee, many larger firms won out while smaller ones got sidelined. “If you’re a small business, you already feel like the deck is stacked against you,” Wells said. “If you’re a small business owner of color, and one with a criminal history, it has the impact of making it seem not only improbable, but even inconceivable and impossible that you could get a loan.”

Courtney Stewart hasn’t applied for a PPP loan, despite the fact that he had to lay off two of the five employees at his nonprofit and reduce hours and pay for the others. “We’re the last on anybody’s agenda, and we are the first to get the funding cut,” he said. “It’s just a state of emergency for organizations like mine.”

Stewart runs the National Reentry Network for Returning Citizens, which offers mentoring, counseling, and other services to help people leaving jails and prisons. His services are in even more demand now that some jails and prisons are releasing people due to coronavirus. He doesn’t have the resources to meet that need.

Yet he doesn’t think he could get a PPP loan. “Everybody that works for the organization has a criminal background,” he noted. He doesn’t understand why that should disqualify him from receiving aid. After all, he pointed out, his donors are able to trust him with their money. The SBA, he argued, should be able to exercise the same oversight. “The Paycheck Protection Program, in principle, it sounds great,” he said. “But there are too many things that are discouraging.”

He’s also worried about the impact it will have on others who are trying to reenter society and become financially stable by running their own businesses. Many like him are likely going to be scared away from the program. They “already see the federal government as a monster,” he said. “This is the reason we don’t get involved with a lot of these processes, because we already feel like we’re excluded and we don’t have a shot at any of it.”

The criminal history question may be playing a role in the PPP’s racial disparities. According to a recent survey, over 40 percent of black and Hispanic business owners didn’t get any of the federal relief they applied for, while another 21 percent are still waiting to hear back. As of 2010, a third of black men had felony convictions on their records, compared to 8 percent of the general population.

There is some appetite to lift the criminal background rule. In the HEROES Act passed in the House, only those who are currently incarcerated or who were previously convicted of a felony for financial fraud or deception would be barred from the PPP. The bill also says that the SBA can’t issue any further restrictions. So far Republicans in the Senate haven’t indicated a willingness to pass the legislation, and the legislation they passed to fix aspects of the PPP didn’t include anything about criminal histories. But there is some bipartisan concern about the problem. On June 4, Republican Sens. Rob Portman and James Lankford teamed up with Democratic Sens. Ben Cardin and Cory Booker to introduce legislation that would remove the ban on applicants with felony convictions.

Wells is confident that there will at least be a “conversation” about changing the rule in the Senate. “Conservatives see this as a right-to-work issue,” he said. “This is about people who have done their time coming out and being able to combat recidivism rates by accessing this money.”

Brown can’t afford to wait much longer. He’s not sure what the future of his business will hold. “Things look bad for us right now,” he said. “We’re not sure how things are going to turn out.” There’s a chance Wolfpack Promotionals will never reopen.