Court Rules SBA PPP Loan Application Barring Eligibility from Business Owners with Criminal Records Unlawful

NEW YORK — A federal court determined the Small Business Administration’s April and June 18 rule denying small business owners with criminal records eligibility for its Paycheck Protection Program (PPP) — loans intended help keep businesses and workers financially afloat in the wake of COVID-19’s massive economic impact — was unlawful.

The American Civil Liberties Union (ACLU), the Public Interest Law Center, Washington Lawyers’ Committee for Civil Rights and Urban Affairs, and co-counsel firms Jenner & Block and Weil, Gotshal & Manges filed a lawsuit two weeks ago challenging the SBA’s interim final rule and application form barring individuals with certain criminal histories — such as those with pending charges, those serving parole, probation, or those who have been convicted of a felony within the last five years — from applying for PPP loans, and urging the SBA to extend its PPP loan application deadline. The court declared the restrictions from the SBA were unjustified and illegal because they arbitrarily excluded people with past criminal records from aid. This decision has the potential to impact future small business aid programs and ensure all persons with criminal records are not excluded.

In response to the lawsuit, the SBA issued a new rule on June 24 expanding eligibility for federal PPP loans to include a broader number of small business owners with criminal records, including small business owners with pending misdemeanor charges and those on probation or parole for older crimes were made eligible to apply. Business owners with pending felony charges or those currently on probation or parole for a felony offense committed in the last year, and five years for those with financial crimes, were still barred from eligibility.

The lawsuit was filed on behalf of two individual plaintiffs and one organization: Defy Ventures, a nonprofit organization that works with formerly incarcerated people to provide them entrepreneurial training and support; John Garland, a Black majority owner of graphic design business FastsignsBethpage, Inc. and advocate for the formerly incarcerated; and Sekwan Merritt, a Black small business owner who owns and operates a small electrical contracting business, Lightning Electric. Garland was unable to apply for a PPP loan due to a pending misdemeanor charge for which he has not been convicted and that he denies. Merritt was denied a PPP loan because he is still on parole for a 2012 drug conviction.

With the court’s most recent decision, individual plaintiffs in the case, including Defy Ventures, Garland and Merritt, are now eligible for the PPP loans and will have extended time — through July 21 — to apply for the loans to access the financial relief their businesses and employees need amidst the economic impact of COVID-19.

Below is a comment from ReNika Moore, director of the ACLU’s Racial Justice Program:

“Our clients are now able to apply for and access this much needed financial relief. The ruling rightly calls the SBA’s previously broad exclusions of business owners with criminal records unlawful. The SBA must do away with policies that exclude Black and Brown entrepreneurs.”

The memorandum is here: https://www.aclu.org/memoradum-defy-ventures-v-small-business-administration

More information on the case is available here: https://www.aclu.org/cases/defy-ventures-inc-v-small-business-administration

A video on the case is here: https://www.youtube.com/watch?v=dwnqEv7__mc&feature=youtu.be