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In face of lawsuit, SBA broadens loan program to more recent felons

U.S. Small Business Administration chief Jovita Carranza and

U.S. Small Business Administration chief Jovita Carranza and Treasury Secretary Steven Mnuchin said they had determined that a shorter timeframe for felonies is consistent with the way Congress intended the loans to be used.   Credit: Bloomberg/Al Drago

Small-business owners who’ve been convicted of nonfinancial crimes in the past few years are now eligible for coronavirus relief loans, officials said Monday.

Banks and other private lenders that are making Paycheck Protection Program loans can now accept applications from people who’ve been convicted, pleaded guilty or been placed on parole for felony crimes that occurred more than one year ago, according to new federal regulations.

Previously, business owners that had been convicted of a felony in the past five years couldn’t participate in the PPP, which is the federal government’s flagship loan program for companies struggling to survive the virus outbreak.

U.S. Small Business Administration chief Jovita Carranza and Treasury Secretary Steven Mnuchin said they have “determined that a shorter time frame for felonies that do not involve fraud, bribery, embezzlement or a false statement in a loan application or an application for federal financial assistance is more consistent with congressional intent to provide relief to small businesses” via the PPP, which was created by the CARES Act in March.

The rule change comes 1½ weeks after a bipartisan group of senators introduced legislation lifting the ban on felons receiving PPP loans.

“Because people with records often have trouble finding employment, many of them have gone on to start their own businesses after they have paid for their mistakes,” Sen. Rob Portman (R-Ohio) said in introducing the bill on June 4. “This common-sense legislation ensures the federal government does not deny small businesses impacted by the COVID-19 pandemic the assistance they need simply because they are owned by people with criminal records.”

SBA was sued this month by a Maryland entrepreneur who alleges he was denied $31,500 in PPP loans for a convenience store and automobile parts business because of his 2004 felony conviction in a drugs-and-weapons case.

Since the PPP launched on April 3, small-business owners have criticized the regulations written by SBA and Treasury. On June 5, President Donald Trump signed into law a bill giving borrowers 24 weeks instead of eight weeks to use their PPP loans. The bill, which passed Congress with one "nay" vote, reduces from 75% to 60% the amount of PPP money that must be spent on payroll expenses for the loan to be forgiven completely.

In New York State, 297,775 loans have been made, totaling nearly $37.6 billion, as of June 12, according to SBA. The agency hasn't provided Long Island figures. 

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