212,000 Business Owners Barred From COVID Aid Because of Criminal Record

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Illustration by calendar news via Flickr.

The refusal of Paycheck Payment Protection loans to small business owners with criminal histories under the Trump administration left at least 212,000 small businesses without federal aid during the pandemic, according to the RAND Corporation.

In a study linking business ownership information with information from a background check and consumer data company, RAND also analyzed data from the states of Minnesota and North Carolina for a deeper analysis of the  Paycheck Payment Protection Program created last March to aid small businesses affected by the pandemic.

The program, administered by the Small Business Administration, operated under existing policy which barred loans to small business owners who had a criminal history.

According to the study, 4 percent of small business owners have a criminal history, 1.5 percent with a felony record. Under those businesses, approximately 343,198 employees were affected under the original loan restrictions.

Some 24 percent of affected business owners were African American.

The previous restrictions applied to those who were on parole, probation or convicted of a felony within the past five years. The five-year restriction was narrowed after a lawsuit to only include certain crimes associated with fraud or bribery, all other felonies reduced to a one-year window since an offender’s last felony.

The number of small business owners barred from the loans dropped 95 percent when President Joe Biden ended the one-year restriction on felony history, allowing those with a felony conviction who weren’t still incarcerated to qualify.

Data from the report was skewed based on differing criminal justice laws in each state. A felony in some states was classified a misdemeanor in another, making federal access to loans that much more difficult to analyze.

Data also varied state to state based on that state’s corrections process, and if certain offenders could have their records expunged based on different treatment, rehabilitative programs or state laws.

According to the report, starting a small business while having a criminal history might be less likely primarily due to the restrictions that people with criminal backgrounds have in requesting loans and federal aid, said the report.

“Although there are many reasons why those with felonies might not own a business, aggressive enforcement of criminal history record restrictions might further alienate an already marginalized subpopulation that needs access to the formal labor market to complete integration into society.”

Eliminating certain felony restrictions for the PPP loans in 2021 gave not only small business owners but also their employees more opportunity during the pandemic.

“One unique (if accidental) feature of this work is that it highlights the potential benefits of a policy intervention (the elimination of the original PPP felony restriction) designed to reduce the obstacles faced by those with criminal history records rather than another policy designed to limit their opportunities,” said the report.

“It is our hope that, as more policies are implemented that aim to expand opportunities for those with criminal history records, researchers can more directly and purposefully estimate the harms and benefits of these policies for the people and communities most directly affected by them,” said the report.

See also: Does an Arrest Record Disqualify Business Owners from COVID-19 Disaster Relief? By Margaret Love and David Schlussel, The Crime Report, May 8, 2020.

Access the RAND report here.

Emily Riley is a TCR Justice Reporting intern

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