How the SBA is Stepping on Small Business Owners
While large companies and well-endowed institutions like Harvard have inexplicably managed to secure billions in COVID-19 relief assistance under the recently passed CARES Act, America’s small businesses are going under in droves. Many of them will never reopen their doors.
Adding insult to injury, small businesses that are partly owned by people with criminal records have been shut out of the assistance process entirely due to the Small Business Administration’s warped interpretation of the new law’s “Paycheck Protection” program. Following the law’s passage, the SBA issued emergency rules that put the $359 billion fund, which has already been depleted, off limits to any business that is 20 percent owned by a person under indictment for a felony, on probation or parole, or who has been convicted of a felony within the past five years.
After learning about a small business owner that was forced to lay off 50 employees due to a nonviolent criminal record that made him ineligible for relief funds, President Trump pledged to investigate the matter. It would make sense for the president to intervene; After all, he officially proclaimed April to be Second Chance Month.
In the spirit of second chances, the administration should drop this ill-considered rule immediately. SBA imposed the rule on its own authority, with no review. In the long, long history of this country’s — let’s just use the words — stupid and self-defeating sanctions for criminal conduct, this might actually be the stupidest.
Let’s put aside the astonishing fact that the government has barred small businesses from receiving loans if an owner has merely been accused of a crime. (Apparently, word of the presumption of innocence has not reached the bureaucrats at the SBA.) The ban on loans to businesses even partly owned by felons and probationers is unsupported by any data, to say nothing of common sense.
Study after study has shown the critical importance of having a job to reducing recidivism and promoting reintegration among the formerly incarcerated. A 2015 study from the Manhattan Institute, an organization that is known for its tough on crime stance, found that quickly moving released non-violent offenders into gainful employment reduced recidivism by nearly 20 percent. In fact, the evidence is fairly clear that with the possible exception of family structure, no factor makes a bigger difference in helping the formerly incarcerated stay out of prison than a job.
Unfortunately, jobs are hard to come by for this group. A study of data from 2005 to 2009 found that the unemployment rate among released prisoners was over six times higher than that of the general population. The same study found that the unemployment rate among ex-prisoners within nine months of release was between 92 to 97 percent. The formerly incarcerated face tens of thousands of state and federal restrictions and impediments to employment, with whole sectors of the job market off-limits to them because of (generally ill-considered) licensing requirements. Social stigma compounds these barriers.
In this context, the SBA’s ban on loans to businesses owned by felons and those facing indictment becomes even more nonsensical — and cruel. For many formerly incarcerated persons, self-employment is their only realistic path to financial independence, since traditional employment is out of bounds. Many have worked hard to build small businesses and gain a measure of dignity, self-confidence, and self-discipline. These are not large or glamorous businesses; many returned prisoners work as barbers, welders, landscapers, mechanics, plumbers, and housekeepers. But to run these successful small businesses, owners have had to learn initiative, prudence, and self-mastery. Aren’t these exactly the kind of attributes we want to encourage among those exiting prison? Why would we want to discourage offenders from developing the habits of thrift, enterprise, and restraint that are essential to running your own business?
The SBA should think carefully about the implications of this short-sighted and ill-considered ban. We are sending offenders a clear message: If you work hard, play by the rules, get your life in order, and become a productive member of society … it’s not going to matter at all. You will always be a second-class citizen, and you will always be first out of the economic lifeboat when the big waves hit. Does anyone think society is made safer by sending this message to those exiting prison?
The Trump Administration has shown a heartening willingness to buck the received orthodoxies on criminal justice. The First Step Act, while not perfect, was the most meaningful reform of draconian federal criminal sentencing laws in decades. While we hope to see even more, the willingness of Attorney General Bill Barr to push for release of federal prisoners at risk from COVID-19 has been encouraging. We hope that this fatally short-sighted provision of the SBA Paycheck Protection program is not a signal that the Administration is backing off its laudable commitment to smart and meaningful criminal justice reform. This ill-considered ban should go.