New SBA Rule Will Make it Easier for Returning Citizens to Start and Run a Business, Creating Economic Opportunity and Reducing Recidivism
Today, Administrator Isabel Casillas Guzman, head of the U.S. Small Business Administration (SBA) and the voice for America’s 33 million small businesses in President Biden’s Cabinet, announced that the Biden-Harris Administration has finalized a new rule that will remove restrictions on SBA loan programs that currently prevent many returning citizens, including those on parole and probation, from being eligible for SBA-backed loans to start or grow a business. As part of this rule change, the SBA will also remove questions on criminal history from its applications. Individuals who are currently incarcerated and those who have previously defrauded the government will remain ineligible.
“For too long, small business ownership has been out of reach for returning citizens,” said SBA Administrator 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. Economic opportunity can help reduce recidivism, trauma, and systemic discrimination that hold entire generations and our national economy back. Under the Biden-Harris Administration, more Americans than ever are filing applications to start a new business, and this rule change will build on that historic momentum by providing a second chance to those seeking the American Dream of entrepreneurship.”
“This important change from SBA will break down barriers to financing for millions of aspiring entrepreneurs who are moving forward in their lives despite having a criminal history,” said Consumer Financial Protection Bureau Director Rohit Chopra. “Lifting this blanket ban on loan eligibility will help more Americans build and expand small businesses.”
In addition to removing restrictions on loan programs for the returning citizen population – including the nearly 4 million Americans on parole or probation – the final rule will also standardize most criminal history eligibility rules across SBA loan programs, which collectively provide more than $40 billion in capital annually to small businesses. It will also eliminate unnecessary questions on criminal history from applications, which can deter eligible entrepreneurs from applying. Instead, the SBA will use best-in-class government and private-sector databases to confirm program eligibility.
Studies show that entrepreneurship can reduce recidivism for unemployed formerly incarcerated individuals by as much as 30%. The unemployment rate for formerly incarcerated individuals is typically about 27%, and the estimated median income for formerly incarcerated individuals is approximately $10,000 for the first year after release.
The rule change will have no negative impact on the loan repayment process, and the SBA will continue to diligently perform fraud checks on all loan applications in accordance with its Risk Mitigation Framework. Lenders will also continue to evaluate individual loan applications for approval. In that context, lenders can evaluate criminal history on an individualized basis—as part of the full review of a loan application and consistent with federal, state, and local law. Lenders can deny loans based on evidence of an unacceptable credit risk.
For more information about SBA’s loan programs, financial assistance, and other services, visit www.sba.gov.