The U.S. Small Business Administration (“SBA”) posted two new interim final rules in June, modifying certain Paycheck Protection Program (“PPP”) eligibility requirements related to applicants with criminal histories. These revisions specifically loosen restrictions on PPP loan eligibility requirements for owners with 20% or more ownership equity, who had previously been convicted of a felony within the last five years. These new interim final rules are effective without advance notice and public comment because section 1114 of the CARES Act authorizes SBA to issue regulations to implement Title I of the Act without regard to notice requirements.
On June 12, 2020, SBA posted an eighteenth Interim Final Rule on Additional Revisions to the First Interim Final Rule. This Interim Final Rule revises SBA’s interim final rule published in the Federal Register on April 15, 2020 by changing the PPP loan eligibility requirement related to felony convictions of applicants or owners of the applicant.
Interim Final Rule 1 provided, among other things, that a PPP loan will not be approved if an owner of 20% or more of the equity of the applicant has been convicted of a felony within the last five years. After further consideration, the Administrator, in consultation with the Secretary of the Treasury, has 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.
On June 24, 2020, SBA posted a twenty-first Interim Final Rule on Additional Eligibility Revisions to First Interim Final Rule. Upon further consideration, and in consultation with the Secretary, the Administrator has determined that two additional modifications to the Interim Final Rule 1 (published in the Federal Register on April 15, 2020) are appropriate to ensure a consistent approach to applicants with criminal histories.
First, Interim Final Rule 1 provided that an applicant is ineligible for a PPP loan if an owner of 20% or more of the equity of the applicant is presently subject to an indictment, criminal information, arraignment, or other means by which formal criminal charges are brought in any jurisdiction. The Administrator has determined that this restriction should be limited to pending criminal charges for felony offenses, which aligns with the Administrator’s prior determination that only felony convictions (but not convictions for other types of offenses) will limit an applicant’s eligibility for the PPP, subject to the time periods specified above.
Second, Interim Final Rule 1 provided that an applicant was ineligible for a PPP loan if an owner of 20% or more of the equity of the applicant is on probation or on parole. The Administrator has determined that this restriction should be limited to individuals whose probation or parole commenced within the time periods specified above—i.e., within the last five years for any felony involving fraud, bribery, embezzlement, or a false statement in a loan application or an application for federal financial assistance, and within the last one year for other felonies. Applying these time limitations to the probation and parole restriction aligns with the Administrator’s prior determination to apply the identical time limitations to felony convictions. Moreover, aligning the time limitations applicable to these restrictions is consistent with Congressional intent to provide relief to small businesses and also promotes the important policies underlying the First Step Act of 2018 (Pub. L. 115-391).
Therefore, Part III.2.b.iii. of the First Interim Final Rule (85 FR 20811, 20812) is revised to read as follows:
iii. An owner of 20% or more of the equity of the applicant is presently incarcerated or for any felony, presently subject to an indictment, criminal information, arraignment, or other means by which formal criminal charges are brought in any jurisdiction; or has been convicted of, pleaded guilty or nolo contendere to, or commenced any form of parole or probation (including probation before judgment) for, a felony involving fraud, bribery, embezzlement, or a false statement in a loan application or an application for federal financial assistance within the last five years or any other felony within the last year; or…
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