A criminal record can make you ineligible for a PPP loan. That should change.
Formerly incarcerated people often become entrepreneurs when their criminal record prevents them from having regular employment. They create businesses. Some, like Prison for professionals, are non-profit. Some, like FlikShop, Prison bars, and 70 million jobs are full-fledged, for-profit businesses with full-time employees. Others, like the companies we both started, are smaller. Many ex-prisoners are simply self-employed, using the professional skills they have acquired or the talents they have developed during his incarceration.
As small business owners, we should be eligible for help during the pandemic. But we are not. Anyone who has been convicted of a felony, sentenced to probation, or even entered pre-trial diversion in the past five years is not eligible for the much-discussed Paycheck Protection Program. There is no mention of felony convictions in the text the law on care; this restriction has happened in the meantime to reign of the Small Business Administration. A document allegedly leak SBA Says Anyone Arrested Within 10 Years Is Not Eligible For Separate Economic Disaster Lending Program; the SBA has refused to confirm or deny its authenticity.
Most complaints about restrictions on PPP loans reverberate in “second chance” rhetoric; calls for rule changes have focused on the program’s lack of leniency.
None of them pleas convinced Treasury Secretary Steven Mnuchin to give in to the rules when he was hurry. Mnuchin would have Recount a senator last week, he was “receptive to easing restrictions” on crimes of the past five years. But no plans for change have been announced.
This particular second chance argument was never going to work. PPP loans are ultimately given by banks, and banks are not social justice enterprises. They don’t trade fairness and progress. They maximize profits and minimize risks.
But the profit structure of banks is exactly why the small business bailout should include this population in its pandemic relief: formerly incarcerated people have lower risk and a higher return.
At least that’s what a study conducted at the Haas School of Business at the University of California, Berkeley. Once credit history and income are factored in, former inmates are less likely to default on their loans than people who have never been inside. This makes sense, even given the downward impact of incarceration on income. The lines of credit for this population are lower and they are more nervous about not meeting expectations.
The study also found that access to credit markets reduces recidivism by 15-20%. This too makes sense, given how credit can be used to purchase durable goods. It’s easier to get a car if you can get a car loan, and having a car makes it much easier to keep a job. Better appliances also make homes more stable.
The study appears to be the first of its kind. Much of the analysis of the financial lives of former incarcerated people focuses on employment and unemployment, not entrepreneurship. There is no exact count of small business owners. But we know that thousands of us can be intentionally excluded from the economic recovery.
Removing people with a criminal history from the small business plan does not match recent trends in banks trying to work with returning citizens. In October, JP Morgan Chase CEO Jamie Dimon said in a Press release“Giving more people a second chance allows businesses to take action and do their part to reduce recidivism, hire talented workers and strengthen the economy. “
The nod to inclusion is laudable but not that revolutionary; financial institutions were interested in hiring people with criminal records long before Chase’s announcement. Between 2008 and 2018, 1,200 future bank employees petitioned the Federal Deposit Insurance Corp. make an exception to the rule which prohibits anyone convicted of a crime involving dishonesty, breach of trust or money laundering from working in a bank; about 57% of them received the exemption. Often, banks would sponsor the applicant and improve their chances of approval.
The rejection rate is apparently still too high. Banks lobbied the FDIC last year to change regulations. It is not clear how the company will decide the issue; comment period ended shortly before our economic and medical free fall, but even some FDIC Directors support the repeal.
It is wise to prevent those convicted of crimes such as embezzlement and fraud from handling large sums of other people’s money. Even a person’s relapse into an illegal activity would delay the growing employment support of returning citizens to positions requiring more confidence.
This is why it doesn’t make sense for one federal agency, the FDIC, to allow one person to work behind the cashier’s window and another, the SBA, to prohibit that same person from becoming a certain type of customer. banking, where the possibility of doing institutional damage is much lower. But with the way the FDIC and SBA are teaming up with people with criminal records, this is exactly the insane situation that is developing.
The SBA is unlikely to listen to ex-incarcerated people, but the banks have the power. There is over $ 100 billion still available for borrowers that the SBA appears unable to disburse due to changing lending conditions and the specter of lawsuits for people who have accepted a loan in bad faith.
Financial institutions can effectively influence regulators, as illustrated by the ongoing FDIC reform; the law banning employees has been ingrained in financial culture for about 70 years and may soon be phased out. A call from bank managers at the SBA could cause them to revise the P3 rules so they can lend to deserving applicants.
There’s nothing stopping the SBA from simply removing this backward restriction if the right people make the right argument – that formerly incarcerated business owners don’t beg for forgiveness. In fact, they will need less forgiveness in the long run if they have access to the capital they need to stay in business.
Chandra Bozelko is a columnist and founder of Nation Enfranchised, a political consulting firm. Ryan Lo is a filmmaker and the founder of Unlabeled Digital Media, a North Hollywood, California production company. Both are previously incarcerated.