Criminal Justice Reviews for the SBA Business Loan Programs, Disaster Loan Programs, and Surety Bond Guaranty Program, 34094-34102 [2024-09009]
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34094
Federal Register / Vol. 89, No. 84 / Tuesday, April 30, 2024 / Rules and Regulations
actions do not include rulemakings,
standard-settings, or proposed DOE
legislation, except for those actions listed in
B5.1(b) of this appendix.
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B5.16 Solar Photovoltaic Systems
(a) The installation, modification,
operation, or decommissioning of
commercially available solar photovoltaic
systems:
(1) Located on a building or other structure
(such as rooftop, parking lot or facility, or
mounted to signage, lighting, gates, or
fences); or
(2) Located within a previously disturbed
or developed area.
(b) Covered actions would be in
accordance with applicable requirements
(such as land use and zoning requirements)
in the proposed project area and the integral
elements listed at the start of appendix B of
this part, and would be consistent with
applicable plans for the management of
wildlife and habitat, including plans to
maintain habitat connectivity, and
incorporate appropriate control technologies
and best management practices.
3. Amend Appendix C of subpart D of
part 1021 by revising C4 and C7 to read
as follows:
Appendix D to Subpart D of Part 1021—
Classes of Actions That Normally
Require EISs
Business Administration, at (202) 205–
6436 or alejandro.contreras@sba.gov.
SUPPLEMENTARY INFORMATION:
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I. Background Information
The mission of SBA is to ‘‘aid,
counsel, assist and protect’’ the interests
of small business concerns to ‘‘preserve
free competitive enterprise’’ and
‘‘maintain and strengthen the overall
economy of our nation.’’ 15 U.S.C.
631(a). SBA accomplishes this mission,
in part, through Capital Access
programs that bridge the financing gap
in the private market and help
businesses of all sizes to recover from
disasters. Further, 15 U.S.C. 636(a)(1)(B)
states that the Administrator may verify
the criminal background of the
applicant, which grants SBA the
flexibility to determine whether and
how to consider criminal history in the
context of issuing loan guarantees, so
long as the loans are of sound value.
Congress provided SBA with authority
to promulgate rules to carry out these
provisions. See 15 U.S.C. 634(b)(6).
SBA has comprehensively reviewed
its capital programs’ current policies on
individuals with criminal history
records to ensure that the policies
promote SBA’s statutory mandates that
recognize the importance of small
business development in general as well
as the responsibility to increase
opportunities for certain groups that
may not historically have had equitable
opportunities for small business
ownership. See 15 U.S.C. 631(a),
636(a)(1)(B), 636(b)(1)(A), 636(l),
636(m), 694(b), and 695. It is SBA’s
position that this final rule supports
these Federal statutory mandates. The
final rule also supports and reflects
changing conditions in how State and
local governments and the private sector
have broadened access to business
capital for qualified people with certain
criminal history records and Federal
laws and policies, including bipartisan
legislation, such as the Second Chance
Act of 2008 and the First Step Act of
2018, that have reduced barriers to
successful reentry in order to reduce the
risk of future criminal justice system
involvement. This final rule helps
facilitate employment opportunities for
individuals with criminal history
records and is supported by data and
empirical research demonstrating the
public safety and economic benefits of
doing so.
Based on its review of SBA capital
programs’ current policies on
individuals with criminal history
records, SBA recognizes the need to
update regulations to reduce barriers to
participation in these programs for
equitable support for qualified small
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D7 Contracts, Policies, and Marketing and
Allocation Plans for Electric Power
(a) Establishment and implementation of
contracts, policies, and marketing and
allocation plans related to electric power
acquisition that involve:
(1) The interconnection of, or acquisition
of power from, new generation resources
greater than 50 average megawatts, unless the
generation resource is eligible for a
categorical exclusion or was evaluated in an
environmental assessment resulting in a
finding of no significant impact;
(2) Changes in the normal operating limits
of generation resources greater than 50
average megawatts; or
(3) Service to discrete new loads of 10
average megawatts or more over a 12-month
period.
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[FR Doc. 2024–09186 Filed 4–29–24; 8:45 am]
BILLING CODE 6450–01–P
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Appendix C to Subpart D of Part 1021—
Classes of Actions That Normally
Require EAs But Not Necessarily EISs
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C4 Upgrading, Rebuilding, or Construction
of Powerlines
(a) Upgrading or rebuilding existing
powerlines when the action does not qualify
for categorical exclusion B4.13; or
construction of powerlines:
(1) More than approximately 10 miles in
length outside previously disturbed or
developed powerline or pipeline rights-ofway; or
(2) more than approximately 20 miles in
length within previously disturbed or
developed powerline or pipeline rights-ofway.
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C7 Contracts, Policies, and Marketing and
Allocation Plans for Electric Power
(a) Establishment and implementation of
contracts, policies, and marketing and
allocation plans related to electric power
acquisition that involve:
(1) The interconnection of, or acquisition
of power from, new generation resources that
are equal to or less than 50 average
megawatts, unless the generation resource is
eligible for a categorical exclusion;
(2) Changes in the normal operating limits
of generation resources equal to or less than
50 average megawatts; or
(3) Service to discrete new loads of less
than 10 average megawatts over a 12-month
period.
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4. Amend Appendix D to subpart D of
part 1021 by revising D7 to read as
follows:
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SMALL BUSINESS ADMINISTRATION
13 CFR Parts 109, 115, 120, and 123
RIN 3245–AI03
Criminal Justice Reviews for the SBA
Business Loan Programs, Disaster
Loan Programs, and Surety Bond
Guaranty Program
U.S. Small Business
Administration.
ACTION: Final rule.
AGENCY:
On September 15, 2023 the
U.S. Small Business Administration
(SBA or Agency) published a notice of
proposed rulemaking (‘‘NPRM’’ or
‘‘proposed rule’’) to amend regulations
governing SBA’s business loan programs
(7(a) Loan Program, 504 Loan Program,
Microloan Program, Intermediary
Lending Pilot Program (ILP), Surety
Bond Guarantee Program, and the
Disaster Loan Program (except for the
COVID–19 Economic Injury Disaster
Loan (EIDL) Program) for criminal
background reviews. The proposed rule
introduced amendments to improve
equitable access based on criminal
background review of applicants
seeking to participate in one or more of
these programs. This final rule
implements proposed regulatory
changes and addresses comments SBA
received.
DATES: This final rule is effective May
30, 2024.
FOR FURTHER INFORMATION CONTACT:
Alejandro C. Contreras, Acting Director,
Office of Financial Assistance, Small
SUMMARY:
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Federal Register / Vol. 89, No. 84 / Tuesday, April 30, 2024 / Rules and Regulations
business owners with certain criminal
history records and issued a proposed
rule for public comment. As the SBA
expands access to capital to more
qualified entrepreneurs, it continues to
implement additional reforms to
mitigate the risk of fraud in its
traditional capital programs, including
front-end detection protocols conducted
by SBA. These safeguards are in
addition to ones set and implemented
by lenders and local, State, and Federal
laws. Currently, the ILP Intermediary
Program considers as ineligible
businesses with an Associate (as defined
by 13 CFR 109.20) that is incarcerated,
on parole or probation, or that has been
indicted but not convicted for a felony
or a crime of moral turpitude; for the
Surety Bond Guaranty Program, SBA
considers an applicant ineligible if any
of the Principals (as defined by 13 CFR
115.10) are under indictment but not
convicted, previously convicted of a
felony or have received civil judgment
regarding business transactions; for the
7(a) and 504 business loan programs,
SBA considers an applicant ineligible if
the business has an Associate who is
incarcerated, on probation, on parole, or
is under indictment for a felony or any
crime involving or relating to financial
misconduct or a false statement, and for
Microloans, in addition to an Associate
who is incarcerated, an Associate who
is on probation or parole for an offense
involving fraud or dishonesty; and for
the Disaster Loan Program in 13 CFR
123.101(i) (adopted by reference in 13
CFR 123.201 and 123.301) and
123.502(c), SBA considers ineligible any
principal owners of the damaged
property that are currently incarcerated,
or on probation or parole following
conviction for a serious criminal
offense, with additional specific
restrictions for Immediate Disaster
Assistance Program (IDAP) loans, that
include presently being under
indictment, on parole or probation;
charged with, arrested for, convicted,
placed on pretrial diversion, and/or
placed on any form of probation
(including adjudication withheld
pending probation) for any criminal
offense other than a minor motor
vehicle violation (including offenses
which have been dismissed, discharged,
or not prosecuted).
Although the original intent of these
restrictions was to protect the
performance of SBA’s capital programs
against a presumed higher likelihood of
default, data and research refute the
concerns that may have animated SBA’s
initial rationale. Importantly, SBA
reviewed the relevant research and
found no evidence of a negative impact
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on repayment for qualified individuals
with criminal history records in any
American business loan program. This
lack of data demonstrates that
continuing to rely on this restriction for
that purpose would contradict the
available evidence and although the
restrictions may have been originally
put in place with the goal of protecting
program performance, the lack of data
suggests continuing to rely on this
restriction would reflect an outdated,
inaccurate regulatory barrier against
individuals with criminal history
records. Specifically, research
demonstrates that employment
increases success during reentry,
decreases the risk of recidivism, and
strengthens both public safety and
economic opportunity. Research also
demonstrates that entrepreneurship
provides an important and distinct
avenue for economic stability given
persistent stigma from employers who
may decline to hire people with
criminal history records. Notably, SBA
found several studies showing the
difficulty of obtaining employment for
formerly incarcerated people (see for
example, Investigating Prisoner Reentry:
The Impact of Conviction Status on the
Employment Prospects of Young Men; 1
from the Department of Justice’s
National Institute of Justice Grant) and
a positive link between employment
and successful reentry, including
preventing recidivism (see for example,
Local Labor Markets and Criminal
Recidivism 2 in the Journal of Public
Economics). Moreover, because
individuals with criminal history
records may face barriers in obtaining
employment, entrepreneurship can be a
productive option, and SBA found
several studies showing the potential for
entrepreneurship among individuals
with criminal records (see for example
From Prison to Entrepreneurship 3 in the
American Academy of Political and
Social Science).
After conducting its review of SBA
capital programs’ current policies on
people with certain criminal history
records, SBA posted a proposed rule for
public comment. Given the lack of data
suggesting program performance issues
and the breadth of research indicating
1 Investigating Prisoner Reentry: The Impact of
Conviction Status on the Employment Prospects of
Young Men. Investigating Prisoner Reentry National
Institute of Justice Grant, Final Report., October
2009.
2 Local Labor Markets and Criminal Recidivism,
ScienceDirect, Journal of Public Economics,
Volume 147, March 2017, Pages 16–29
3 From Prison to Entrepreneurship: Can
Entrepreneurship be a Reentry Strategy for JusticeImpacted Individuals?, https://doi.org/10.1177/
00027162221115378, Sage Journals, Volume 701,
Issue 1, September 14, 2022.
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the benefits, SBA is removing
unnecessary restrictions that limit
access to capital for qualified people
with certain criminal history records.
Furthermore, the proposed rule sought
to provide employment opportunities
for qualified people with certain
criminal history records because
expanding access to entrepreneurship
strengthens individual and community
economic opportunity and growth while
also strengthening public safety by
facilitating successful reentry and
thereby reducing the risk of future
criminal justice system involvement.
The Agency received 19 comments on
all aspects of the revisions in the
proposed rule and on any related issues
affecting the 7(a) Loan, 504 Loan,
Microloan, ILP, Surety Bond Guarantee
Program, and Disaster Loan Programs.
(88 FR 63534) There were 17 comments
received from separate individuals or
entities as follows: three Community
Development Companies (CDCs), one
trade association, one government
entity, seven advocacy non-profit
groups, six individuals, and the Federal
Register posting itself which tallies as a
comment. There was one invalid
comment received which was not
posted to regulations.gov. The
comments received are tallied by each
proposal in the section-by-section
analysis below. SBA has reviewed and
considered those comments and is now
issuing a final rule to implement those
changes. Throughout this final rule,
‘‘currently incarcerated’’ means ‘‘a
person who is currently serving a
sentence of imprisonment imposed
upon an adjudication of guilt.’’
Pursuant to its statutory authority to
promulgate rules to carry out its
mandate, and after considering public
comments, SBA is revising several
regulatory provisions. See 15 U.S.C.
634(b)(6). SBA is updating the 7(a), 504,
Microloan, ILP, Surety Bond Guarantee
Program, and Disaster Loan Program
regulations requiring criminal
background reviews. Specifically, SBA
is revising 13 CFR 109.400(b)(15) on
‘‘Eligible Small Business Concerns’’; 13
CFR 115.13(a)(2)(i) on ‘‘Eligibility of
Principal’’; 13 CFR 120.110(n) on ‘‘What
businesses are ineligible for SBA
business loans?’’; 13 CFR 120.707(a) on
‘‘What conditions apply to loans by
Intermediaries to Microloan
borrowers?’’; 13 CFR 123.101(i) on
‘‘When am I not eligible for a home
disaster loan?’’; 13 CFR 123.502(c) on
‘‘Under what circumstances is your
business ineligible to be considered for
a Military Reservist Economic Injury
Disaster Loan?’’; and 13 CFR
123.702(c)(1) and (2) on ‘‘Character
requirements.’’
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Federal Register / Vol. 89, No. 84 / Tuesday, April 30, 2024 / Rules and Regulations
SBA is revising 13 CFR 109.400(b)(15)
for ILP loans to small businesses to
remove the restrictions on Associates of
an applicant who are on probation or
parole; 13 CFR 115.13(a)(2)(i) for surety
bond applicants to remove restrictions
on a Principal bidding for a contract (as
defined in 13 CFR 115.10) who has been
previously convicted of a felony or
received civil judgment regarding
business transactions; 13 CFR
120.110(n) for 7(a) and 504 loans to
remove restrictions on businesses with
an Associate who is on probation or on
parole; 13 CFR 120.707(a) for
Microloans to remove restrictions on
businesses with an Associate who is
currently on probation or parole for an
offense involving fraud or dishonesty;
and 13 CFR 123.101(i) for physical and
economic injury and 13 CFR 123.502(c)
for military reservist economic injury
disaster loans to remove restrictions
regarding principal owners of damaged
property who are on probation or parole
following conviction for a serious
criminal offense.
Further, regarding IDAP loans, in 13
CFR 123.702(c)(1) and (2), SBA will
remove restrictions for businesses with
an Associate who is presently on parole
or probation; that has ever been charged
with, arrested for, convicted, placed on
pretrial diversion, and/or placed on any
form of probation (including
adjudication withheld pending
probation) for any criminal offense other
than a minor motor vehicle violation
(including offenses which have been
dismissed, discharged, or not
prosecuted).
SBA has determined that reducing
barriers to these programs for otherwise
qualified applicants where one or more
of their associates has the criminal
justice system involvement described
above is necessary to ensure equity and
expand economic opportunities. These
changes will further the goals of SBA’s
statutory mandates. SBA believes that
modernizing the character requirements
regarding consideration of the criminal
history records of SBA loan applicants
and Associates of business loan
applicants is timely and appropriate to
reflect changes in the public and private
sector that have reduced unnecessary
barriers to access to capital and
successful reentry. Doing so also
promotes equitable consideration for
applicants who are ineligible for Federal
assistance in SBA’s programs due to
prior convictions that have been
adjudicated and terms of incarceration
that have been served. These changes
create the opportunity for formerly
incarcerated individuals to participate
in SBA’s loan and surety bond programs
and engage in entrepreneurial endeavors
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that research shows statistically
decrease recidivism based on
employment and continued engagement
within their communities, thereby
strengthening public safety.4 These
changes will enable SBA programs to
provide capital in the form of Surety
Bonds, 7(a), 504, Microloan, ILP, and
Disaster loans to more qualified small
businesses and disaster survivors,
which will strengthen our economy.
SBA did not remove or change 13 CFR
120.110(q) regarding ineligibility due to
prior default and loss to the Federal
Government. Finally, SBA will continue
the practices it recently implemented to
access certain public data to perform
fraud checks prior to approval of any
7(a), 504, or Disaster loans.
II. Comments That Apply to Every
Section
SBA received comments requesting
modifications for each section of the
proposed rule. As the same
modifications were repeated for each
section, they are addressed in this
overview rather than in the section-bysection analysis. Each of the requested
modifications or requests and the reason
for accepting or not accepting the
modification or request is provided
below:
(1) SBA should consider retaining the
ability to conduct criminal background
checks of program applicants and allow
additional time to review the
information contained therein for the
expanded categories of individuals. SBA
considered but did not accept the
modification proposed by these
comments. As SBA noted in the
preamble of the final rule Lenders,
CDCs, and Microlender Intermediaries
may continue background checks if it is
in their lending policies to do so. The
final rule makes clear that, as the SBA
expands access to capital to more
qualified entrepreneurs, SBA continues
to implement additional reforms to
mitigate the risk of fraud in its
traditional capital programs, including
front-end detection protocols conducted
by SBA, and these additional SBA frontend safeguards are in addition to ones
set and implemented by lenders and
local, State, and Federal laws.
(2) SBA should consider expanding
access to capital to small business
owners with criminal convictions only
if ten years or more have elapsed since
the last conviction. SBA considered but
4 Providing Another Chance: Resetting
Recidivism Risk in Criminal Background Checks |
RAND Bushway, Shawn D., Brian G. Vegetabile,
Nidhi Kalra, Lee Remi, and Greg Baumann,
Providing Another Chance: Resetting Recidivism
Risk in Criminal Background Checks. Santa Monica,
CA: RAND Corporation, 2022.
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did not accept the modification
suggested by these comments because
(a) the comment did not provide any
empirical support as to why a ten-year
period (as opposed to another period of
time) would strengthen either public
safety or economic opportunity; (b) the
comment did not provide any empirical
support as to why other fact-specific
and individualized indicia of
rehabilitation and success during
reentry in a shorter timespan after
conviction should not be given more
weight by SBA and the lender than an
arbitrary number of years after
conviction; (c) SBA determined that a
categorial ten-year bar would
undermine SBA’s ability, through this
rulemaking, to honor and incorporate
the statutory mandates of 15 U.S.C. 631
that recognize the importance of small
business development in general as well
as the responsibility to increase
opportunities for certain groups that
may not historically have had equitable
opportunities for small business
ownership; and (d) small business
applicants commented, and SBA agrees,
that this ten-year categorical bar would
be overburdensome for compliance.
Requiring an additional waiting period
for loan eligibility delays access to
capital.
(3) SBA should provide additional
guidance to lenders, beyond the
proposed rule, on how exclusions for
criminal convictions may cause a broad
disparate impact for persons of color.
SBA considered but did not accept this
request because the research and
analysis proposed by the commenter
goes beyond the scope of SBA’s
authority in this regulatory rulemaking.
This final rule is limited to improving
equitable access based on criminal
background review of applicants
seeking to participate in one or more of
the programs addressed by this rule.
(4) SBA should develop and issue
guidance on this final rule in order to
provide clarity to lenders to ensure that
they implement its provisions with
fidelity. Although enforcement goes
beyond the scope of this regulatory
rulemaking, SBA will provide future
guidance on compliance in Standard
Operating Procedures and training by
specific programs.
(5) The SBA should work with
lenders to reassess their underwriting
standards to mirror changes to proposed
rule. SBA does not accept this request
because SBA does not have authority to
mandate changes to lenders’ safeguards
and standards, and lenders are not
obligated to adopt the changes SBA
proposed. Lenders’ authority to set and
implement safeguards and standards is
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independent, which SBA recognizes
and respects.
III. Section-by-Section Analysis
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Section 109.400(b)(15) Eligible Small
Business Concerns
The current § 109.400(b)(15) for the
ILP Program states that ineligible
businesses are those with an Associate
who is currently incarcerated, on
probation, on parole, or has been
indicted but not convicted of a felony or
crime of moral turpitude. SBA is
revising this regulation to remove those
barriers while maintaining the
prohibition against only those
businesses with an Associate who is
currently incarcerated or who is
indicted but not convicted of a felony or
crime of moral turpitude. SBA
considered removing the prohibitions
related to Associates under indictment
in the NPRM. However, upon
reconsideration based on its evaluation
of public and interagency comments,
SBA has decided to retain the existing
language related to indictments. This
revision is therefore narrowly tailored to
reduce barriers to access for qualified
formerly incarcerated small business
owners who may be eligible to receive
a loan through the ILP Program from an
existing Intermediary with remaining
funds to lend. The proposed rule
received a total of 17 public comments
of which nine or 53 percent were in
support, 5 or 29 percent were in support
with modifications and 3 or 18 percent
were neutral and did not comment this
on proposed rule specifically. The
summary overview explains why the
modifications were not incorporated
into the final rule. SBA is finalizing the
rule as proposed while retaining current
prohibitions against businesses with an
Associate indicted for certain crimes.
Section 115.13(a)(2)(i) Eligibility of
Principal
The current § 115.13(a)(2)(i) for the
Surety Bond program states that
ineligible businesses are those with a
Principal who is under indictment but
is not convicted, or has been previously
convicted of a felony, or a final civil
judgment has been entered stating that
such Person has committed a breach of
trust or has violated a law or regulation
protecting the integrity of business
transactions or business relationships.
Through this final rule, SBA is
removing those barriers while
maintaining the prohibition against only
those businesses with a Principal who is
currently incarcerated or who is under
indictment for a felony. SBA considered
removing the prohibitions related to
Principals under indictment in the
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NPRM. However, upon reconsideration
based on its evaluation of public and
interagency comments, SBA has
decided to retain the existing language
related to indictments. This revision is
narrowly tailored to reduce barriers to
access for qualified small business
owners with certain criminal history
records to compete for Federal and other
contract opportunities by obtaining
guarantees for surety bid and final
payment and/or performance bonds.
The proposed rule change received a
total of 17 public comments of which 9
or 53 percent were in support, 5 or 29
percent supported with modification
and 3 or 18 percent were neutral or did
not comment on the proposed rule. The
summary overview explains why the
modifications were not incorporated
into the final rule. SBA is finalizing the
rule as proposed while retaining current
prohibitions against businesses with an
Associate indicted for certain crimes.
Section 120.110(n) What businesses are
ineligible for SBA business loans?
The current § 120.110(n) for the 7(a),
504, and Microloan programs states that
ineligible businesses are those with an
Associate who is currently incarcerated,
on probation, on parole, or is under
indictment but not convicted for a
felony or any crime involving or relating
to financial misconduct or a false
statement. Through this final rule, SBA
is revising this regulation to address the
challenges people on probation or on
parole have accessing capital while
maintaining the prohibition against
businesses with an Associate who is
currently incarcerated or who is under
indictment for a felony or any crime
involving or relating to financial
misconduct or a false statement. SBA
considered removing the prohibitions
related to Associates under indictment
in the NPRM. However, upon
reconsideration based on its evaluation
of public and interagency comments,
SBA has decided to retain the existing
language related to indictments. This
revision is narrowly tailored to reduce
barriers to access for qualified small
business owners with certain criminal
history records. Under 15 U.S.C.
636(a)(1)(B), the SBA may verify an
applicant’s criminal history background,
but it does not require such verification,
nor does it prohibit loans for people
with criminal history records. Lenders,
CDCs, and Microloan Intermediaries
make risk-based lending decisions.
SBA’s final rule revision does not
impact a Lender’s, a CDC’s or a
Microloan Intermediary’s ability to
conduct a criminal history background
check, in accordance with their own
policies, provided they do so in a
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manner that complies with the Equal
Credit Opportunity Act and other
relevant laws and does not result in an
unjustified discriminatory effect on a
protected class group. Lenders can
continue to deny loans, for example,
where criminal history, when
considered along with other
information, presents an unacceptable
credit risk. The proposed rule received
a total of 17 public comments, of which
12 or 71 percent were in support, and
5 or 29 percent support with
modifications. No commenters opposed.
The summary overview explains why
the modifications were not incorporated
into the final rule SBA is finalizing the
rule as proposed.
Section 120.707(a) What conditions
apply to loans by Intermediaries to
Microloan borrowers?
SBA proposed to revise § 120.707(a)
to increase access to capital to
businesses with an Associate who is on
probation or parole for an offense
involving fraud or dishonesty while
maintaining the prohibition against a
business with an Associate who is
incarcerated. For public safety reasons,
however, SBA will retain the
prohibition against making a loan to a
childcare business, where an Associate
is on probation or parole for an offense
against children. This change will
closely align with the revised
requirements for all business loan
programs regarding the determination
that an applicant with a Principal or
Associate that is currently incarcerated
is ineligible for assistance and support
the flexibility and access to capital for
qualified business owners with criminal
history records. The proposed rule
received a total of 17 public comments,
of which 9 or 53 percent were in
support, 5 or 29 percent were in support
with modifications, 3 or 18 percent were
neutral/did not comment and none were
opposed. The summary overview
explains why the modifications were
not incorporated into the final rule. SBA
is finalizing the rule as proposed.
Section 123.101(i) When am I not
eligible for a home disaster loan?
The current § 123.101(i) for the
Disaster Loan Program states that SBA
considers ineligible any principal
owners of the damaged property that are
presently incarcerated, or on probation
or parole following conviction for a
serious criminal offense. In this final
rule, SBA revises § 123.101(i) to state
that the applicant is ineligible to receive
a disaster loan when any principal
owner of a home that sustained damage
is currently incarcerated. The eligibility
requirements in § 123.101 are cross
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referenced in §§ 123.201 and 123.301;
therefore, this final rule change will also
apply to business property loans as well
as economic injury loans.
Notwithstanding SBA’s final rule
change, in accordance with statutory
provisions that bar loans to those with
certain convictions, SBA will maintain
its existing prohibition where such
prohibition is required by law. This
final rule will align the requirements for
all SBA loan programs regarding
currently incarcerated applicants and
support the flexibility and access to
capital for qualified disaster survivors
with criminal history records. The
proposed rule received a total of 17
public comments, of which 9 or 53
percent were in support, 5 or 29 percent
were in support with modifications, and
3 or 18 percent were neutral/did not
comment. The summary overview
explains why the modifications were
not incorporated into the final rule. SBA
is finalizing the rule as proposed.
Section 123.502(c) Under what
circumstances is your business
ineligible to be considered for a Military
Reservist Economic Injury Disaster
Loan?
The current § 123.502(c) for the
Disaster Loan Program states that SBA
considers ineligible any principal
owners of the damaged property who
are presently incarcerated, or on
probation or parole following conviction
for a serious criminal offense. In this
final rule, SBA revises § 123.502(c) to
state that for Military Reservist
Economic Injury Disaster loans
(MREIDL), the applicant is ineligible to
receive a disaster loan when an
Associate of a business that sustained
damage is currently incarcerated.
Notwithstanding SBA’s final rule
changes for disaster loans, in
accordance with statutory provisions
that bar loans to those with certain
convictions, SBA will continue to
consider as ineligible applicants whose
eligibility is prohibited by law. This
final rule change will align the
requirements proposed for all SBA loan
programs regarding individuals
currently incarcerated and support the
flexibility and access to capital for
qualified small business owners with
criminal history records. The proposed
rule received a total of 17 public
comments, of which 9 or 53 percent
were in support, 5 or 29 percent were
in support with modifications, 3 or 18
percent were neutral/did not comment
and none were opposed. The summary
overview explains why the
modifications were not incorporated
into the final rule. SBA is finalizing the
rule as proposed.
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Section 123.702(c)(1) and (2) What are
the eligibility requirements for any IDAP
loan?
The current § 123.702(c)(1) and (2) for
IDAP loans state that SBA considers
ineligible any applicant business that
has an Associate that who is presently
under indictment but not convicted, on
parole or probation; charged with,
arrested for, convicted, placed on
pretrial diversion, and/or placed on any
form of probation (including
adjudication withheld pending
probation) for any criminal offense other
than a minor motor vehicle violation
(including offenses which have been
dismissed, discharged, or not
prosecuted). In the final rule, SBA
revises § 123.702(c)(1) and (2) to state
that the applicant is ineligible to receive
an IDAP loan when any principal owner
of a home or business that sustained
damage is currently incarcerated. SBA
will continue to consider as ineligible
applicants who are presently under
indictment or whose eligibility is
prohibited by law. SBA considered
removing the prohibitions related to
applicants under indictment in the
NPRM. However, upon reconsideration
based on its evaluation of public and
interagency comments, SBA has
decided to retain the existing language
related to indictments.
Policy Discussion
In addition to applicants in all
programs certifying to having no owners
or Associates that are currently
incarcerated, SBA will access certain
external and widely acceptable and
reliable databases to verify eligibility
regarding incarceration and criminal
history status. While the
implementation of the final rule will
expand access and thereby increase loan
volume, SBA believes that these
changes do not compromise the credit
quality and performance of the loan
portfolios. For example, the Microloan
and Surety Bond Guaranty programs
have permitted loans to businesses with
individuals on parole or probation at no
negative impact to overall program
performance.
As published in June 2021, The
RAND Research Brief 5 estimated that
over 200,000 small businesses were
affected or disqualified from
participating in the Paycheck Protection
Program (PPP) due to SBA’s rules
regarding current indictments and
incarceration, and prior criminal
convictions and criminal justice system
5 The Prevalence of Criminal Records Among
Small Business Owners | RAND How Many
Business Owners, Businesses, and Employees Are
Affected by PPP Restrictions?
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involvement. Predictably, the survival
rate of legitimate small businesses that
did not receive assistance during the
pandemic is lower than those that did
receive support. There are several key
distinctions between the PPP program
and the SBA loan and surety programs
at issue here. For example, PPP loans
were forgivable while loans in the other
SBA loan programs are not, and SBA
has developed and implemented
additional front-end detection protocols
to strengthen program integrity since
PPP. This RAND study is useful to
highlight the number of otherwise
qualified applicants who were ineligible
to apply but required SBA assistance in
order to survive.
Due to significant barriers to
employment for individuals with
criminal history records, selfemployment and entrepreneurship are
often vital avenues to successful reentry
and employment. In fact, 28 percent of
individuals with criminal history
records are self-employed.6 SBA’s
general and targeted loan programs
should be a resource that provides
options that support economic success
and growth for individuals and
communities, from basic selfemployment to becoming employers
within communities, and that support
successful reentry outcomes, thereby
strengthening public safety. Research is
clear that reducing barriers to
employment reduces recidivism and
supports successful reentry, leading to
better outcomes for individuals and
communities 7—all of which underscore
the necessity for SBA to revisit and
update these regulations to remove
barriers to small-business employment
and business ownership.
Under the final rule, for each
program, SBA, Lenders, CDCs,
Microloan Intermediaries, Sureties, and
ILP Intermediaries, must consider the
applicant business ineligible based on
criminal history record when there is an
Associate or Principal who is currently
incarcerated or, depending on the
program, under indictment.
SBA’s final rule also streamlines
SBA’s lending criteria by reducing the
number of factors that are required to be
applied in determining eligibility based
on criminal history records of small
business owners. Lenders, CDCs, and
Microloan Intermediaries make riskbased lending decisions as part of their
6 https://onlinelibrary.wiley.com/doi/10.1002/
pam.22438. Criminal Justice Involvement, Selfemployment, and Barriers in Recent Public Policy.
Journal of Policy Analysis and Management,
42(1),11–4.
7 Providing Another Chance: Resetting
Recidivism Risk in Criminal Background Checks |
RAND.
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existing and continuing protocols. Some
lenders include conducting criminal
history background checks and others
do not. SBA’s final rule revision does
not impact a Lender’s, CDC’s or
Microloan Intermediary’s authority or
ability to continue to do so, in
accordance with their own policies,
provided that they do so in a manner
that complies with the Equal Credit
Opportunity Act and other relevant
laws. This proposed rule received a total
of 17 public comments, of which 9 or
53 percent were in support, 5 or 29
percent were in support with
modifications, 3 or 18 percent were
neutral or did not comment on this
section and none were opposed. The
summary overview explains why the
modifications were not incorporated
into the final rule. SBA is finalizing the
rule as proposed.
IV. Severability
One comment recommended that SBA
include in this rule an express provision
addressing the effect of a judicial
declaration of invalidity as to any
section or portion of this rule or to parts
109, 115, 120 and 123. The question of
severability addresses whether a judicial
finding of a provision’s invalidity
should extend to other provisions or
applications or whether it should be
limited to the invalid provision or
application, leaving in effect the
remainder of the rule.
Like the entirety of parts 109, 115, 120
and 123, this rule seeks to implement,
to the maximum extent possible, the
stated congressional purposes of the
Small Business Act and the Small
Business Investment Act—i.e., ‘‘to . . .
aid, counsel, assist, and protect, insofar
as is possible, the interests of the smallbusiness concerns in order to preserve
free competitive enterprise’’ and ‘‘to
foster economic development and to
create or preserve job opportunities in
both urban and rural areas by providing
long-term financing for small business
concerns.’’ See 15 U.S.C. 631 and 695.
This rule includes numerous
enhancements to the ILP Program, the
Surety Bond Guaranty Program the
Business Loan Programs, and the
Disaster Loan Programs. The individual
sections added or modified in this rule,
and those which remain in parts 109,
115, 120 and 123 from prior
rulemakings, shall operate
independently in service of the stated
congressional purposes and the
objectives set forth above for this rule.
Accordingly, in the event that any
portion or application of the rule is
declared invalid or unenforceable as
applied to any person or circumstance,
SBA intends for the provision to be
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construed so as to continue to give the
maximum effect to the provision
permitted by law, including as applied
to persons not similarly situated or to
dissimilar circumstances, unless such
holding is that the provision of these
paragraph is invalid and unenforceable
in all circumstances. Further, SBA
intends that the various other provisions
and applications of parts 109, 115, 120
and 123, including those added or
modified in this rule, be severable from
the unlawful portion, unless such
declaration of invalidity renders another
section or provision meaningless or
deprives that other section or provision
of its functionality though only in such
circumstances. Moreover, such
collateral invalidity is intended only to
the extent required by logic or loss of
functionality.
As an illustration, if a court were to
find unlawful this rule’s revisions to the
criminal background provisions in the
Business Loan Programs (§ 120.110),
such finding would have no effect upon
this rule’s revisions to the criminal
background provisions in the
Intermediary Lending Pilot (§ 109.400),
the Surety Bond Guarantee (§ 115.3) and
the Disaster Loan (§§ 123.101, 123.502
and 123.702) Programs, or various other
provisions which in no way are
dependent upon the criminal
background provisions. To further this
illustration, if a court were to find
unlawful this rule’s revisions to the
criminal background provisions in the
Business Loan Programs (§ 120.110),
such finding would have no effect upon
any of the other provisions and
applications of parts 109, 115, 120 and
123 (e.g., Eligible uses of proceeds as set
forth in 13 CFR 120.120). The foregoing
are merely examples and do not express
an intent that any other provision be
considered non-severable. SBA
reiterates that where any provision of
this part is declared invalid, any
collateral invalidity is intended to the
least extent necessary, in order to
advance program objectives to the
maximum extent possible. Such
provisions would help mitigate
uncertainty that may result from future
court decisions if a lawsuit occurs.
Compliance With Executive Orders
12866, 12988, 13132, and 13563, the
Congressional Review Act (5 U.S.C.
§§ 801–808), the Paperwork Reduction
Act (44 U.S.C., Ch. 35), and the
Regulatory Flexibility Act (5 U.S.C.
§§ 601–612)
Executive Order 12866
The Office of Management and Budget
has determined that this rule is a
‘‘significant regulatory action’’ under
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34099
Executive Order 12866, as amended by
Executive Order 14094. SBA included
in the proposed rule and presents in the
final rule a Regulatory Impact Analysis
for the public’s information in the next
section. Each section begins with a core
question.
A. Regulatory Objective of the Proposal
Is there a need for this regulatory
action?
In accordance with statutory
mandates of 15 U.S.C. 631(a),
636(a)(1)(B), 636(b)(1)(A), 636(l),
636(m), 694(b), and 695, the Agency
believes it needs to reduce regulatory
restrictions for applicants with
Associates or Principals based on
criminal histories for the SBA Disaster,
7(a), 504, Microloan, ILP and Surety
Bond Guaranty programs by reducing
the requirement for criminal history
records consideration to only applicants
with a Principal or Associate currently
incarcerated or, depending on the
program, under indictment, in the
manner proposed above. Many formerly
incarcerated persons experience
significant barriers in accessing
employment and capital and credit
often necessary to start a business. The
revisions in SBA’s final rule will
remove barriers to access capital and
employment for qualified applicants.
SBA will reduce the administrative
burden on applicants as well as the
need for fingerprints by providing a
single succinct directive that SBA
determines any applicant with a
Principal or Associate that is currently
incarcerated or, depending on the
program, under indictment, to be
ineligible with no further requirements
for disclosure of prior criminal history
records.
B. Benefits and Costs of the Rule
What are the potential benefits and
costs of this regulatory action?
SBA does not anticipate significant
additional costs or impact on the
subsidy to operate the 7(a), 504,
Microloan, ILP, Surety Bond Guaranty
and Disaster Loan Programs under these
proposed regulations because all loans
submitted must always meet Loan
Program Requirements. In general, the
final rule benefits otherwise qualified
entrepreneurs who would not otherwise
be eligible to apply for these programs
due to outdated restrictions that were
not evidence-informed, and therefore it
strengthens our economy and our public
safety.
SBA does not receive information
from lenders on how many applicants
they decline for 7(a), 504, and
Microloans. SBA has received
substantial feedback and research from
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stakeholders that its current rules have
presented broad barriers to otherwise
qualified individuals with criminal
history records that seek financing to
start, run, or expand small businesses.
This final rule aligns with the statutory
mandates in 15 U.S.C. 631 and supports
the inference that reducing or removing
barriers will result in additional
applications from those otherwise
qualified small business owners with
criminal history records who may have
been deterred from applying due to the
current prohibitions related to criminal
history records.
In the 7(a) and 504 programs, for
formerly incarcerated individuals and
people not on parole or probation, out
of more than 50,000 loans made
annually, SBA lenders have submitted
to SBA for review approximately 586
Character determination requests
containing information on criminal
history records involving felonies. SBA
declines on average only 17–23 of the
requests per year due to the nature of
the offense or incomplete judicial
records. SBA’s Disaster Loan Program
has declined 93 individuals for criminal
history record background checks
between 2018 and 2022, with an
additional 1,026 files withdrawn by
applicants prior to review during the
same period. Microloan Intermediaries
do not submit loans to SBA for
approval, so SBA does not have data for
criminal history records of Microloan
applicants. SBA’s final rule provides
clarity for borrowers who might have
otherwise withdrawn their application
based on eligibility concerns. Finally,
Lenders, CDCs, and Microloan
Intermediaries make risk-based lending
decisions. The statistics above do not
account for any checks conducted by
lenders or any resultant applications
being withdrawn. Some lenders include
conducting criminal history background
checks and others do not. SBA’s
proposed revision does not impact a
lender’s ability to continue to do so, in
accordance with their own policies,
provided that they do so in a manner
that complies with the Equal Credit
Opportunity Act and other relevant
laws.
C. Alternatives
What alternatives have been
considered?
SBA considered the impact of
maintaining the current rules that deem
as ineligible businesses with Principals
or Associates currently incarcerated, on
parole or probation or convicted of
certain financial and other crimes. This
would result in continuing barriers for
small businesses owned by individuals
with criminal history records. Instead,
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SBA’s final rule balances that concern
against the risk to SBA of making
guarantees and loans to businesses
whose Principals or Associates lack the
ability to manage and execute day-today business operations due to their
current incarceration. SBA’s final rule
also supports disaster survivors during
recovery with increased equal access to
capital.
Congressional Review Act
The Office of Management and
Budget’s (OMB) Office of Information
and Regulatory Affairs has determined
that this rule is not a major rule under
Subtitle E of the Small Business
Regulatory Enforcement Fairness Act of
1996 (also known as the Congressional
Review Act), 5 U.S.C. 804(2). The
annual effect on the economy is less
than $100 million.
Executive Order 12988
This action meets applicable
standards set forth in sections 3(a) and
3(b)(2) of Executive Order 12988, Civil
Justice Reform, to minimize litigation,
eliminate ambiguity, and reduce
burden. The action does not have
preemptive effect or retroactive effect.
Executive Order 13132
This final rule does not have
federalism implications as defined in
Executive Order 13132. It will not have
substantial direct effects on the States,
on the relationship between the
National Government and the States, or
on the distribution of power and
responsibilities among the various
levels of government, as specified in the
Executive order. As such it does not
warrant the preparation of a Federalism
Assessment.
Executive Order 13563
A description of the need for this
regulatory action and benefits and costs
associated with this action, including
possible distributional impacts that
relate to Executive Order 13563, are
included above in the Regulatory Impact
Analysis under Executive Order 12866.
Paperwork Reduction Act, 44 U.S.C. Ch.
35
SBA has determined that this final
rule would require that the following
forms be revised: SBA Form 1919,
‘‘Borrower Information Form,’’ SBA
Form 1244, ‘‘Application for Section
504 Loans,’’ SBA Form 5, ‘‘Disaster
Business Loan Application,’’ SBA Form
5C, ‘‘Disaster Home/Sole Proprietor
Loan Application,’’ and SBA Form 994,
‘‘Application for Surety Bond Guarantee
Assistance’’.
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SBA Form 1919 is approved under
OMB Control number 3245–0348. SBA
Form 1244 is approved under OMB
Control number 3245–0071. SBA Form
5 is approved under OMB Control
number 3245–0017 and SBA Form 5C is
approved under OMB Control number
3245–0018. SBA Form 994 is approved
under OMB Control number 3245–0007.
SBA will revise SBA Form 1919, and
SBA Form 1244 to conform to the
eligibility change at 13 CFR 120.110(n).
When small businesses apply for 7(a) or
504 loans, the estimated hour burden for
applicants and lenders will decrease
because the criminal history analysis
and collection of data will no longer be
required.
SBA will revise SBA Form 5 and 5C
to conform to the eligibility change at 13
CFR 123.101(i). When disaster survivors
apply for disaster loans, the estimated
hour burden for applicants will decrease
because the criminal history record
analysis and collection of data will be
reduced.
SBA will revise SBA Form 994 to
conform to the eligibility change at 13
CFR 115. 13(a)(2)(i). When small
businesses apply for surety bond
guarantees, the estimated hour burden
for applicants will decrease because the
criminal history record analysis and
collection of data will no longer be
required.
Regulatory Flexibility Act, 5 U.S.C. 601–
612
When an agency issues a rulemaking,
the Regulatory Flexibility Act (RFA), 5
U.S.C. 601–612, requires the agency to
‘‘prepare and make available for public
comment an initial regulatory analysis’’
which will ‘‘describe the impact of the
proposed rule on small entities.’’
Although the rulemaking may
potentially impact a small percentage of
loans reviewed by 7(a) Lenders, CDCs,
Microloan Intermediaries, ILP
Intermediaries, the 44 Sureties that
participate in the Surety Bond Guaranty
Program, and SBA regarding the disaster
loans, SBA does not believe the impact
will be significant because this rule
streamlines regulatory burdens.
However, there may be impacts due to
increased loans for businesses with
Principals or Associates that have a
criminal history record but are not
currently incarcerated or under
indictment.
SBA reviews approximately 586
Character determination requests
annually and declines 3 or 4 percent, or
17 to 23 requests, due to the nature of
the offense or incomplete judicial
records. The revisions to § 120.110(n)
will eliminate the need for 100 percent
of these character determination
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reviews. SBA Form 1919, ‘‘SBA 7a
Borrower Information Form,’’ is the
application form for the 7(a) Loan
Program. SBA Form 1244, ‘‘Application
for Section 504 Loans,’’ is the
application form for the 504 Loan
Program. Each application includes 3
questions that Associates of the
applicant must answer regarding their
criminal history records. Under the final
rule revisions, SBA will eliminate the
three current questions and replace
them with one new question regarding
incarceration or being under indictment.
SBA estimates that all applicants for the
7(a) Loan Program and 504 Loan
Program will save 5 minutes completing
the applications due to these revisions.
Intermediaries for the Microloan
Program use their own applications for
Microloan borrowers, but it is
reasonable to assume similar time
savings. The 7(a) Loan Program, 504
Loan Program, and Microloan Program
make approximately 68,677 loans per
year. Saving 5 minutes for each
application will result in total time
savings of 5,723 hours annually.
List of Subjects
Community development, Loan
programs-business, Reporting and
recordkeeping requirements, Small
businesses.
13 CFR Part 123
Disaster assistance, Loan programsbusiness, Reporting and recordkeeping
requirements, Small businesses.
For the reasons stated in the
preamble, SBA amends 13 CFR parts
109, 115, 120 and 123 as follows:
PART 109—INTERMEDIARY LENDING
PILOT PROGRAM
1. The authority citation for 13 CFR
part 109 continues to read as follows:
■
Authority: 15 U.S.C. 634(b)(6), (b)(7), and
636(l).
2. Add § 109.15 to read as follows:
Severability.
Any provision of this part held to be
invalid or unenforceable as applied to
any person, entity, or circumstance shall
Jkt 262001
Severability.
Any provision of this part held to be
invalid or unenforceable as applied to
any person, entity, or circumstance shall
be construed so as to continue to give
the maximum effect to such provision as
permitted by law, including as applied
to persons or entities not similarly
situated or to dissimilar circumstances,
unless such holding is that the
provision of this part is invalid and
unenforceable in all circumstances, in
which event the provision shall be
severable from the remainder of this
part and shall not affect the remainder
thereof.
■ 6. Amend § 115.13 by revising
paragraph (a)(2)(i) to read as follows:
§ 115.13
Eligibility of Principal.
(a) * * *
(2) * * *
(i) The Person is currently
incarcerated, serving a sentence of
imprisonment imposed upon
adjudication of guilty, or under
indictment for a felony; or
*
*
*
*
*
PART 120—BUSINESS LOANS
7. The authority citation for 13 CFR
part 120 continues to read as follows:
■
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Authority: 15 U.S.C. 634(b)(6), (b)(7),
(b)(14), (h), and note, 636(a), (h) and (m), 650,
687(f), 696(3) and (7), and 697(a) and (e); sec.
521, Pub. L. 114–113, 129 Stat. 2242; sec.
328(a), Pub. L. 116–260, 134 Stat. 1182.
■
8. Add § 120.4 to read as follows:
§ 120.4
Severability.
Any provision of this part held to be
invalid or unenforceable as applied to
any person, entity, or circumstance shall
be construed so as to continue to give
the maximum effect to such provision as
permitted by law, including as applied
to persons or entities not similarly
situated or to dissimilar circumstances,
unless such holding is that the
provision of this part is invalid and
unenforceable in all circumstances, in
which event the provision shall be
severable from the remainder of this
part and shall not affect the remainder
thereof.
9. Amend § 120.110 by revising
paragraph (n) to read as follows:
■
§ 120.110 What businesses are ineligible
for SBA business loans?
5. Add § 115.3 to read as follows:
§ 115.3
13 CFR Part 120
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PART 115—SURETY BOND
GUARANTEE
■
Claims, Reporting and recordkeeping
requirements, Small businesses, Surety
bonds.
16:24 Apr 29, 2024
*
*
*
*
(b) * * *
(15) Businesses with an Associate
who is currently incarcerated, serving a
sentence of imprisonment imposed
upon adjudication of guilty, or is under
indictment for a felony or a crime of
moral turpitude;
*
*
*
*
*
Authority: 5 U.S.C. app 3; 15 U.S.C. 636i,
687b, 687c, 694a, and 694b note.
13 CFR Part 115
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*
4. The authority citation for 13 CFR
part 115 continues to read as follows:
Community development, Loan
programs-business, Reporting and
recordkeeping requirements, Small
businesses.
§ 109.15
§ 109.400 Eligible Small Business
Concerns.
■
13 CFR Part 109
■
be construed so as to continue to give
the maximum effect to such provision as
permitted by law, including as applied
to persons or entities not similarly
situated or to dissimilar circumstances,
unless such holding is that the
provision of this part is invalid and
unenforceable in all circumstances, in
which event the provision shall be
severable from the remainder of this
part and shall not affect the remainder
thereof.
■ 3. Amend § 109.400 by revising
paragraph (b)(15) to read as follows:
34101
*
*
*
*
*
(n) Businesses with an Associate who
is currently incarcerated, serving a
sentence of imprisonment imposed
upon adjudication of guilty, or is under
indictment for a felony or any crime
involving or relating to financial
misconduct or a false statement;
*
*
*
*
*
10. Amend § 120.707 by revising
paragraph (a) to read as follows:
■
§ 120.707 What conditions apply to loans
by Intermediaries to Microloan borrowers?
(a) General. Except as otherwise
provided in this paragraph (a), an
Intermediary may only make Microloans
to small businesses eligible to receive
financial assistance under this part. A
borrower may also use Microloan
proceeds to establish a nonprofit
childcare business. An Intermediary
may not make Microloans to businesses
with an Associate who is currently
incarcerated, serving a sentence of
imprisonment imposed upon
adjudication of guilty, or to childcare
businesses with an Associate who is
currently on probation or parole for an
offense against children. Proceeds from
Microloans may be used only for
working capital and acquisition of
materials, supplies, furniture, fixtures,
and equipment. SBA does not review
Microloans for creditworthiness.
*
*
*
*
*
E:\FR\FM\30APR1.SGM
30APR1
34102
Federal Register / Vol. 89, No. 84 / Tuesday, April 30, 2024 / Rules and Regulations
11. The authority citation for 13 CFR
part 123 continues to read as follows:
■
Authority: 15 U.S.C. 632, 634(b)(6), 636(b),
636(d), 657n, and 9009.
■
12. Add § 123.22 to read as follows:
§ 123.22
Severability.
Any provision of this part held to be
invalid or unenforceable as applied to
any person, entity, or circumstance shall
be construed so as to continue to give
the maximum effect to such provision as
permitted by law, including as applied
to persons or entities not similarly
situated or to dissimilar circumstances,
unless such holding is that the
provision of this part is invalid and
unenforceable in all circumstances, in
which event the provision shall be
severable from the remainder of this
part and shall not affect the remainder
thereof.
13. Amend § 123.101 by revising
paragraph (i) to read as follows:
■
§ 123.101 When am I not eligible for a
home disaster loan?
*
*
*
*
*
(i) You or other principal owners of
the damaged property are currently
incarcerated, serving a sentence of
imprisonment imposed upon
adjudication of guilty;
*
*
*
*
*
14. Amend § 123.502 by revising
paragraph (c) to read as follows:
■
§ 123.502 Under what circumstances is
your business ineligible to be considered
for a Military Reservist Economic Injury
Disaster Loan?
*
*
*
*
*
(c) Any of your business’ principal
owners is currently incarcerated,
serving a sentence of imprisonment
imposed upon adjudication of guilty;
*
*
*
*
*
15. Amend § 123.702 by:
a. Revising paragraph (c)(1);
■ b. Removing paragraph (c)(2); and
■ c. Redesignating paragraphs (c)(3)
through (5) as paragraphs (c)(2) through
(4).
The revision read as follows:
■
lotter on DSK11XQN23PROD with RULES1
■
§ 123.702 What are the eligibility
requirements for an IDAP loan?
*
*
*
*
*
(c) * * *
(1) is currently incarcerated, serving a
sentence of imprisonment imposed
VerDate Sep<11>2014
16:24 Apr 29, 2024
Jkt 262001
comments by using the Federal
eRulemaking Portal. You may, however,
submit comments by mail, hand
delivery, or courier to: Office of the
Isabella Casillas Guzman,
Secretary, Consumer Product Safety
Administrator.
Commission, 4330 East West Highway,
[FR Doc. 2024–09009 Filed 4–29–24; 8:45 am]
Bethesda, MD 20814; telephone: (301)
504–7479. If you wish to submit
BILLING CODE 8026–09–P
confidential business information, trade
secret information, or other sensitive or
protected information that you do not
CONSUMER PRODUCT SAFETY
want available to the public, you may
COMMISSION
submit such comments by mail, hand
16 CFR Part 1461
delivery, courier, or you may email
them to: cpsc-os@cpsc.gov.
[Docket No. CPSC–2022–0017]
Instructions: All submissions must
include the agency name and docket
Portable Fuel Container Safety Act
number. CPSC may post all comments
Regulation
without change, including any personal
AGENCY: Consumer Product Safety
identifiers, contact information, or other
Commission.
personal information provided, to:
www.regulations.gov. Do not submit to
ACTION: Direct final rule.
this website: confidential business
SUMMARY: In August 2023, the Consumer information, trade secret information, or
Product Safety Commission (CPSC or
other sensitive or protected information
Commission) accepted ASTM F3429/
that you do not want to be available to
F3429M–23 for prefilled portable fuel
the public. If you wish to submit such
containers as the mandatory standard
information, please submit it according
under the Portable Fuel Container
to the instructions for mail/hand
Safety Act of 2020 (PFCSA). In January
delivery/courier/confidential written
2024, ASTM notified the Commission
submissions.
that ASTM F3429/F3429M–23 had been
Docket: For access to the docket to
revised. The Commission has evaluated read background documents or
revised ASTM F3429/F3429M–24 and
comments received, go to:
finds that the revisions to the standard
www.regulations.gov, and insert the
carry out the purposes of the PFCSA.
docket number, CPSC–2022–0017, into
Accordingly, ASTM F3429/F3429M–24
the ‘‘Search’’ box, and follow the
will be incorporated into the mandatory prompts.
standard for portable fuel containers.
FOR FURTHER INFORMATION CONTACT: Will
DATES: The rule is effective on July 27,
Cusey, Small Business Ombudsman,
2024, unless CPSC receives a significant U.S. Consumer Product Safety
adverse comment by May 30, 2024. If
Commission, 4330 East West Highway,
CPSC receives such a comment, it will
Bethesda, MD 20814; telephone (301)
publish a notice in the Federal Register 504–7945 or (888) 531–9070; email:
withdrawing this direct final rule before sbo@cpsc.gov.
its effective date. The incorporation by
SUPPLEMENTARY INFORMATION:
reference of the publication listed in
I. Background
this rule is approved by the Director of
the Federal Register as of July 27, 2024.
The PFCSA 1 requires the Commission
to promulgate a final rule to require
ADDRESSES: You can submit comments,
flame mitigation devices (FMDs) in
identified by Docket No. CPSC–2022–
portable fuel containers that impede the
0017, by any of the following methods:
propagation of flame into the container.
Electronic Submissions: Submit
15 U.S.C. 2056d(b)(1)–(2). However, the
electronic comments to the Federal
Commission is not required to
eRulemaking Portal at:
promulgate a final rule for a class of
www.regulations.gov. Follow the
portable fuel containers within the
instructions for submitting comments.
scope of the PFCSA if the Commission
Do not submit through this website:
confidential business information, trade determines that:
• there is a voluntary standard for
secret information, or other sensitive or
flame mitigation devices for those
protected information that you do not
want to be available to the public. CPSC containers that impedes the propagation
of flame into the container;
typically does not accept comments
submitted by email, except as described
1 Portable Fuel Container Safety Act of 2020,
below.
codified at 15 U.S.C. 2056d, as stated Public Law
Mail/Hand Delivery/Courier/
116–260, div. FF, title IX, section 901, available at:
Confidential Written Submissions: CPSC www.govinfo.gov/content/pkg/PLAW-116publ260/
pdf/PLAW-116publ260.pdf.
encourages you to submit electronic
upon adjudication of guilty, or is
presently under indictment;
*
*
*
*
*
PART 123—DISASTER LOAN
PROGRAM
PO 00000
Frm 00030
Fmt 4700
Sfmt 4700
E:\FR\FM\30APR1.SGM
30APR1
Agencies
[Federal Register Volume 89, Number 84 (Tuesday, April 30, 2024)]
[Rules and Regulations]
[Pages 34094-34102]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-09009]
=======================================================================
-----------------------------------------------------------------------
SMALL BUSINESS ADMINISTRATION
13 CFR Parts 109, 115, 120, and 123
RIN 3245-AI03
Criminal Justice Reviews for the SBA Business Loan Programs,
Disaster Loan Programs, and Surety Bond Guaranty Program
AGENCY: U.S. Small Business Administration.
ACTION: Final rule.
-----------------------------------------------------------------------
SUMMARY: On September 15, 2023 the U.S. Small Business Administration
(SBA or Agency) published a notice of proposed rulemaking (``NPRM'' or
``proposed rule'') to amend regulations governing SBA's business loan
programs (7(a) Loan Program, 504 Loan Program, Microloan Program,
Intermediary Lending Pilot Program (ILP), Surety Bond Guarantee
Program, and the Disaster Loan Program (except for the COVID-19
Economic Injury Disaster Loan (EIDL) Program) for criminal background
reviews. The proposed rule introduced amendments to improve equitable
access based on criminal background review of applicants seeking to
participate in one or more of these programs. This final rule
implements proposed regulatory changes and addresses comments SBA
received.
DATES: This final rule is effective May 30, 2024.
FOR FURTHER INFORMATION CONTACT: Alejandro C. Contreras, Acting
Director, Office of Financial Assistance, Small Business
Administration, at (202) 205-6436 or [email protected].
SUPPLEMENTARY INFORMATION:
I. Background Information
The mission of SBA is to ``aid, counsel, assist and protect'' the
interests of small business concerns to ``preserve free competitive
enterprise'' and ``maintain and strengthen the overall economy of our
nation.'' 15 U.S.C. 631(a). SBA accomplishes this mission, in part,
through Capital Access programs that bridge the financing gap in the
private market and help businesses of all sizes to recover from
disasters. Further, 15 U.S.C. 636(a)(1)(B) states that the
Administrator may verify the criminal background of the applicant,
which grants SBA the flexibility to determine whether and how to
consider criminal history in the context of issuing loan guarantees, so
long as the loans are of sound value. Congress provided SBA with
authority to promulgate rules to carry out these provisions. See 15
U.S.C. 634(b)(6).
SBA has comprehensively reviewed its capital programs' current
policies on individuals with criminal history records to ensure that
the policies promote SBA's statutory mandates that recognize the
importance of small business development in general as well as the
responsibility to increase opportunities for certain groups that may
not historically have had equitable opportunities for small business
ownership. See 15 U.S.C. 631(a), 636(a)(1)(B), 636(b)(1)(A), 636(l),
636(m), 694(b), and 695. It is SBA's position that this final rule
supports these Federal statutory mandates. The final rule also supports
and reflects changing conditions in how State and local governments and
the private sector have broadened access to business capital for
qualified people with certain criminal history records and Federal laws
and policies, including bipartisan legislation, such as the Second
Chance Act of 2008 and the First Step Act of 2018, that have reduced
barriers to successful reentry in order to reduce the risk of future
criminal justice system involvement. This final rule helps facilitate
employment opportunities for individuals with criminal history records
and is supported by data and empirical research demonstrating the
public safety and economic benefits of doing so.
Based on its review of SBA capital programs' current policies on
individuals with criminal history records, SBA recognizes the need to
update regulations to reduce barriers to participation in these
programs for equitable support for qualified small
[[Page 34095]]
business owners with certain criminal history records and issued a
proposed rule for public comment. As the SBA expands access to capital
to more qualified entrepreneurs, it continues to implement additional
reforms to mitigate the risk of fraud in its traditional capital
programs, including front-end detection protocols conducted by SBA.
These safeguards are in addition to ones set and implemented by lenders
and local, State, and Federal laws. Currently, the ILP Intermediary
Program considers as ineligible businesses with an Associate (as
defined by 13 CFR 109.20) that is incarcerated, on parole or probation,
or that has been indicted but not convicted for a felony or a crime of
moral turpitude; for the Surety Bond Guaranty Program, SBA considers an
applicant ineligible if any of the Principals (as defined by 13 CFR
115.10) are under indictment but not convicted, previously convicted of
a felony or have received civil judgment regarding business
transactions; for the 7(a) and 504 business loan programs, SBA
considers an applicant ineligible if the business has an Associate who
is incarcerated, on probation, on parole, or is under indictment for a
felony or any crime involving or relating to financial misconduct or a
false statement, and for Microloans, in addition to an Associate who is
incarcerated, an Associate who is on probation or parole for an offense
involving fraud or dishonesty; and for the Disaster Loan Program in 13
CFR 123.101(i) (adopted by reference in 13 CFR 123.201 and 123.301) and
123.502(c), SBA considers ineligible any principal owners of the
damaged property that are currently incarcerated, or on probation or
parole following conviction for a serious criminal offense, with
additional specific restrictions for Immediate Disaster Assistance
Program (IDAP) loans, that include presently being under indictment, on
parole or probation; charged with, arrested for, convicted, placed on
pretrial diversion, and/or placed on any form of probation (including
adjudication withheld pending probation) for any criminal offense other
than a minor motor vehicle violation (including offenses which have
been dismissed, discharged, or not prosecuted).
Although the original intent of these restrictions was to protect
the performance of SBA's capital programs against a presumed higher
likelihood of default, data and research refute the concerns that may
have animated SBA's initial rationale. Importantly, SBA reviewed the
relevant research and found no evidence of a negative impact on
repayment for qualified individuals with criminal history records in
any American business loan program. This lack of data demonstrates that
continuing to rely on this restriction for that purpose would
contradict the available evidence and although the restrictions may
have been originally put in place with the goal of protecting program
performance, the lack of data suggests continuing to rely on this
restriction would reflect an outdated, inaccurate regulatory barrier
against individuals with criminal history records. Specifically,
research demonstrates that employment increases success during reentry,
decreases the risk of recidivism, and strengthens both public safety
and economic opportunity. Research also demonstrates that
entrepreneurship provides an important and distinct avenue for economic
stability given persistent stigma from employers who may decline to
hire people with criminal history records. Notably, SBA found several
studies showing the difficulty of obtaining employment for formerly
incarcerated people (see for example, Investigating Prisoner Reentry:
The Impact of Conviction Status on the Employment Prospects of Young
Men; \1\ from the Department of Justice's National Institute of Justice
Grant) and a positive link between employment and successful reentry,
including preventing recidivism (see for example, Local Labor Markets
and Criminal Recidivism \2\ in the Journal of Public Economics).
Moreover, because individuals with criminal history records may face
barriers in obtaining employment, entrepreneurship can be a productive
option, and SBA found several studies showing the potential for
entrepreneurship among individuals with criminal records (see for
example From Prison to Entrepreneurship \3\ in the American Academy of
Political and Social Science).
---------------------------------------------------------------------------
\1\ Investigating Prisoner Reentry: The Impact of Conviction
Status on the Employment Prospects of Young Men. Investigating
Prisoner Reentry National Institute of Justice Grant, Final Report.,
October 2009.
\2\ Local Labor Markets and Criminal Recidivism, ScienceDirect,
Journal of Public Economics, Volume 147, March 2017, Pages 16-29
\3\ From Prison to Entrepreneurship: Can Entrepreneurship be a
Reentry Strategy for Justice-Impacted Individuals?, https://doi.org/10.1177/00027162221115378, Sage Journals, Volume 701, Issue 1,
September 14, 2022.
---------------------------------------------------------------------------
After conducting its review of SBA capital programs' current
policies on people with certain criminal history records, SBA posted a
proposed rule for public comment. Given the lack of data suggesting
program performance issues and the breadth of research indicating the
benefits, SBA is removing unnecessary restrictions that limit access to
capital for qualified people with certain criminal history records.
Furthermore, the proposed rule sought to provide employment
opportunities for qualified people with certain criminal history
records because expanding access to entrepreneurship strengthens
individual and community economic opportunity and growth while also
strengthening public safety by facilitating successful reentry and
thereby reducing the risk of future criminal justice system
involvement.
The Agency received 19 comments on all aspects of the revisions in
the proposed rule and on any related issues affecting the 7(a) Loan,
504 Loan, Microloan, ILP, Surety Bond Guarantee Program, and Disaster
Loan Programs. (88 FR 63534) There were 17 comments received from
separate individuals or entities as follows: three Community
Development Companies (CDCs), one trade association, one government
entity, seven advocacy non-profit groups, six individuals, and the
Federal Register posting itself which tallies as a comment. There was
one invalid comment received which was not posted to regulations.gov.
The comments received are tallied by each proposal in the section-by-
section analysis below. SBA has reviewed and considered those comments
and is now issuing a final rule to implement those changes. Throughout
this final rule, ``currently incarcerated'' means ``a person who is
currently serving a sentence of imprisonment imposed upon an
adjudication of guilt.''
Pursuant to its statutory authority to promulgate rules to carry
out its mandate, and after considering public comments, SBA is revising
several regulatory provisions. See 15 U.S.C. 634(b)(6). SBA is updating
the 7(a), 504, Microloan, ILP, Surety Bond Guarantee Program, and
Disaster Loan Program regulations requiring criminal background
reviews. Specifically, SBA is revising 13 CFR 109.400(b)(15) on
``Eligible Small Business Concerns''; 13 CFR 115.13(a)(2)(i) on
``Eligibility of Principal''; 13 CFR 120.110(n) on ``What businesses
are ineligible for SBA business loans?''; 13 CFR 120.707(a) on ``What
conditions apply to loans by Intermediaries to Microloan borrowers?'';
13 CFR 123.101(i) on ``When am I not eligible for a home disaster
loan?''; 13 CFR 123.502(c) on ``Under what circumstances is your
business ineligible to be considered for a Military Reservist Economic
Injury Disaster Loan?''; and 13 CFR 123.702(c)(1) and (2) on
``Character requirements.''
[[Page 34096]]
SBA is revising 13 CFR 109.400(b)(15) for ILP loans to small
businesses to remove the restrictions on Associates of an applicant who
are on probation or parole; 13 CFR 115.13(a)(2)(i) for surety bond
applicants to remove restrictions on a Principal bidding for a contract
(as defined in 13 CFR 115.10) who has been previously convicted of a
felony or received civil judgment regarding business transactions; 13
CFR 120.110(n) for 7(a) and 504 loans to remove restrictions on
businesses with an Associate who is on probation or on parole; 13 CFR
120.707(a) for Microloans to remove restrictions on businesses with an
Associate who is currently on probation or parole for an offense
involving fraud or dishonesty; and 13 CFR 123.101(i) for physical and
economic injury and 13 CFR 123.502(c) for military reservist economic
injury disaster loans to remove restrictions regarding principal owners
of damaged property who are on probation or parole following conviction
for a serious criminal offense.
Further, regarding IDAP loans, in 13 CFR 123.702(c)(1) and (2), SBA
will remove restrictions for businesses with an Associate who is
presently on parole or probation; that has ever been charged with,
arrested for, convicted, placed on pretrial diversion, and/or placed on
any form of probation (including adjudication withheld pending
probation) for any criminal offense other than a minor motor vehicle
violation (including offenses which have been dismissed, discharged, or
not prosecuted).
SBA has determined that reducing barriers to these programs for
otherwise qualified applicants where one or more of their associates
has the criminal justice system involvement described above is
necessary to ensure equity and expand economic opportunities. These
changes will further the goals of SBA's statutory mandates. SBA
believes that modernizing the character requirements regarding
consideration of the criminal history records of SBA loan applicants
and Associates of business loan applicants is timely and appropriate to
reflect changes in the public and private sector that have reduced
unnecessary barriers to access to capital and successful reentry. Doing
so also promotes equitable consideration for applicants who are
ineligible for Federal assistance in SBA's programs due to prior
convictions that have been adjudicated and terms of incarceration that
have been served. These changes create the opportunity for formerly
incarcerated individuals to participate in SBA's loan and surety bond
programs and engage in entrepreneurial endeavors that research shows
statistically decrease recidivism based on employment and continued
engagement within their communities, thereby strengthening public
safety.\4\ These changes will enable SBA programs to provide capital in
the form of Surety Bonds, 7(a), 504, Microloan, ILP, and Disaster loans
to more qualified small businesses and disaster survivors, which will
strengthen our economy. SBA did not remove or change 13 CFR 120.110(q)
regarding ineligibility due to prior default and loss to the Federal
Government. Finally, SBA will continue the practices it recently
implemented to access certain public data to perform fraud checks prior
to approval of any 7(a), 504, or Disaster loans.
---------------------------------------------------------------------------
\4\ Providing Another Chance: Resetting Recidivism Risk in
Criminal Background Checks [verbar] RAND Bushway, Shawn D., Brian G.
Vegetabile, Nidhi Kalra, Lee Remi, and Greg Baumann, Providing
Another Chance: Resetting Recidivism Risk in Criminal Background
Checks. Santa Monica, CA: RAND Corporation, 2022.
---------------------------------------------------------------------------
II. Comments That Apply to Every Section
SBA received comments requesting modifications for each section of
the proposed rule. As the same modifications were repeated for each
section, they are addressed in this overview rather than in the
section-by-section analysis. Each of the requested modifications or
requests and the reason for accepting or not accepting the modification
or request is provided below:
(1) SBA should consider retaining the ability to conduct criminal
background checks of program applicants and allow additional time to
review the information contained therein for the expanded categories of
individuals. SBA considered but did not accept the modification
proposed by these comments. As SBA noted in the preamble of the final
rule Lenders, CDCs, and Microlender Intermediaries may continue
background checks if it is in their lending policies to do so. The
final rule makes clear that, as the SBA expands access to capital to
more qualified entrepreneurs, SBA continues to implement additional
reforms to mitigate the risk of fraud in its traditional capital
programs, including front-end detection protocols conducted by SBA, and
these additional SBA front-end safeguards are in addition to ones set
and implemented by lenders and local, State, and Federal laws.
(2) SBA should consider expanding access to capital to small
business owners with criminal convictions only if ten years or more
have elapsed since the last conviction. SBA considered but did not
accept the modification suggested by these comments because (a) the
comment did not provide any empirical support as to why a ten-year
period (as opposed to another period of time) would strengthen either
public safety or economic opportunity; (b) the comment did not provide
any empirical support as to why other fact-specific and individualized
indicia of rehabilitation and success during reentry in a shorter
timespan after conviction should not be given more weight by SBA and
the lender than an arbitrary number of years after conviction; (c) SBA
determined that a categorial ten-year bar would undermine SBA's
ability, through this rulemaking, to honor and incorporate the
statutory mandates of 15 U.S.C. 631 that recognize the importance of
small business development in general as well as the responsibility to
increase opportunities for certain groups that may not historically
have had equitable opportunities for small business ownership; and (d)
small business applicants commented, and SBA agrees, that this ten-year
categorical bar would be overburdensome for compliance. Requiring an
additional waiting period for loan eligibility delays access to
capital.
(3) SBA should provide additional guidance to lenders, beyond the
proposed rule, on how exclusions for criminal convictions may cause a
broad disparate impact for persons of color. SBA considered but did not
accept this request because the research and analysis proposed by the
commenter goes beyond the scope of SBA's authority in this regulatory
rulemaking. This final rule is limited to improving equitable access
based on criminal background review of applicants seeking to
participate in one or more of the programs addressed by this rule.
(4) SBA should develop and issue guidance on this final rule in
order to provide clarity to lenders to ensure that they implement its
provisions with fidelity. Although enforcement goes beyond the scope of
this regulatory rulemaking, SBA will provide future guidance on
compliance in Standard Operating Procedures and training by specific
programs.
(5) The SBA should work with lenders to reassess their underwriting
standards to mirror changes to proposed rule. SBA does not accept this
request because SBA does not have authority to mandate changes to
lenders' safeguards and standards, and lenders are not obligated to
adopt the changes SBA proposed. Lenders' authority to set and implement
safeguards and standards is
[[Page 34097]]
independent, which SBA recognizes and respects.
III. Section-by-Section Analysis
Section 109.400(b)(15) Eligible Small Business Concerns
The current Sec. 109.400(b)(15) for the ILP Program states that
ineligible businesses are those with an Associate who is currently
incarcerated, on probation, on parole, or has been indicted but not
convicted of a felony or crime of moral turpitude. SBA is revising this
regulation to remove those barriers while maintaining the prohibition
against only those businesses with an Associate who is currently
incarcerated or who is indicted but not convicted of a felony or crime
of moral turpitude. SBA considered removing the prohibitions related to
Associates under indictment in the NPRM. However, upon reconsideration
based on its evaluation of public and interagency comments, SBA has
decided to retain the existing language related to indictments. This
revision is therefore narrowly tailored to reduce barriers to access
for qualified formerly incarcerated small business owners who may be
eligible to receive a loan through the ILP Program from an existing
Intermediary with remaining funds to lend. The proposed rule received a
total of 17 public comments of which nine or 53 percent were in
support, 5 or 29 percent were in support with modifications and 3 or 18
percent were neutral and did not comment this on proposed rule
specifically. The summary overview explains why the modifications were
not incorporated into the final rule. SBA is finalizing the rule as
proposed while retaining current prohibitions against businesses with
an Associate indicted for certain crimes.
Section 115.13(a)(2)(i) Eligibility of Principal
The current Sec. 115.13(a)(2)(i) for the Surety Bond program
states that ineligible businesses are those with a Principal who is
under indictment but is not convicted, or has been previously convicted
of a felony, or a final civil judgment has been entered stating that
such Person has committed a breach of trust or has violated a law or
regulation protecting the integrity of business transactions or
business relationships. Through this final rule, SBA is removing those
barriers while maintaining the prohibition against only those
businesses with a Principal who is currently incarcerated or who is
under indictment for a felony. SBA considered removing the prohibitions
related to Principals under indictment in the NPRM. However, upon
reconsideration based on its evaluation of public and interagency
comments, SBA has decided to retain the existing language related to
indictments. This revision is narrowly tailored to reduce barriers to
access for qualified small business owners with certain criminal
history records to compete for Federal and other contract opportunities
by obtaining guarantees for surety bid and final payment and/or
performance bonds. The proposed rule change received a total of 17
public comments of which 9 or 53 percent were in support, 5 or 29
percent supported with modification and 3 or 18 percent were neutral or
did not comment on the proposed rule. The summary overview explains why
the modifications were not incorporated into the final rule. SBA is
finalizing the rule as proposed while retaining current prohibitions
against businesses with an Associate indicted for certain crimes.
Section 120.110(n) What businesses are ineligible for SBA business
loans?
The current Sec. 120.110(n) for the 7(a), 504, and Microloan
programs states that ineligible businesses are those with an Associate
who is currently incarcerated, on probation, on parole, or is under
indictment but not convicted for a felony or any crime involving or
relating to financial misconduct or a false statement. Through this
final rule, SBA is revising this regulation to address the challenges
people on probation or on parole have accessing capital while
maintaining the prohibition against businesses with an Associate who is
currently incarcerated or who is under indictment for a felony or any
crime involving or relating to financial misconduct or a false
statement. SBA considered removing the prohibitions related to
Associates under indictment in the NPRM. However, upon reconsideration
based on its evaluation of public and interagency comments, SBA has
decided to retain the existing language related to indictments. This
revision is narrowly tailored to reduce barriers to access for
qualified small business owners with certain criminal history records.
Under 15 U.S.C. 636(a)(1)(B), the SBA may verify an applicant's
criminal history background, but it does not require such verification,
nor does it prohibit loans for people with criminal history records.
Lenders, CDCs, and Microloan Intermediaries make risk-based lending
decisions. SBA's final rule revision does not impact a Lender's, a
CDC's or a Microloan Intermediary's ability to conduct a criminal
history background check, in accordance with their own policies,
provided they do so in a manner that complies with the Equal Credit
Opportunity Act and other relevant laws and does not result in an
unjustified discriminatory effect on a protected class group. Lenders
can continue to deny loans, for example, where criminal history, when
considered along with other information, presents an unacceptable
credit risk. The proposed rule received a total of 17 public comments,
of which 12 or 71 percent were in support, and 5 or 29 percent support
with modifications. No commenters opposed. The summary overview
explains why the modifications were not incorporated into the final
rule SBA is finalizing the rule as proposed.
Section 120.707(a) What conditions apply to loans by Intermediaries to
Microloan borrowers?
SBA proposed to revise Sec. 120.707(a) to increase access to
capital to businesses with an Associate who is on probation or parole
for an offense involving fraud or dishonesty while maintaining the
prohibition against a business with an Associate who is incarcerated.
For public safety reasons, however, SBA will retain the prohibition
against making a loan to a childcare business, where an Associate is on
probation or parole for an offense against children. This change will
closely align with the revised requirements for all business loan
programs regarding the determination that an applicant with a Principal
or Associate that is currently incarcerated is ineligible for
assistance and support the flexibility and access to capital for
qualified business owners with criminal history records. The proposed
rule received a total of 17 public comments, of which 9 or 53 percent
were in support, 5 or 29 percent were in support with modifications, 3
or 18 percent were neutral/did not comment and none were opposed. The
summary overview explains why the modifications were not incorporated
into the final rule. SBA is finalizing the rule as proposed.
Section 123.101(i) When am I not eligible for a home disaster loan?
The current Sec. 123.101(i) for the Disaster Loan Program states
that SBA considers ineligible any principal owners of the damaged
property that are presently incarcerated, or on probation or parole
following conviction for a serious criminal offense. In this final
rule, SBA revises Sec. 123.101(i) to state that the applicant is
ineligible to receive a disaster loan when any principal owner of a
home that sustained damage is currently incarcerated. The eligibility
requirements in Sec. 123.101 are cross
[[Page 34098]]
referenced in Sec. Sec. 123.201 and 123.301; therefore, this final
rule change will also apply to business property loans as well as
economic injury loans. Notwithstanding SBA's final rule change, in
accordance with statutory provisions that bar loans to those with
certain convictions, SBA will maintain its existing prohibition where
such prohibition is required by law. This final rule will align the
requirements for all SBA loan programs regarding currently incarcerated
applicants and support the flexibility and access to capital for
qualified disaster survivors with criminal history records. The
proposed rule received a total of 17 public comments, of which 9 or 53
percent were in support, 5 or 29 percent were in support with
modifications, and 3 or 18 percent were neutral/did not comment. The
summary overview explains why the modifications were not incorporated
into the final rule. SBA is finalizing the rule as proposed.
Section 123.502(c) Under what circumstances is your business ineligible
to be considered for a Military Reservist Economic Injury Disaster
Loan?
The current Sec. 123.502(c) for the Disaster Loan Program states
that SBA considers ineligible any principal owners of the damaged
property who are presently incarcerated, or on probation or parole
following conviction for a serious criminal offense. In this final
rule, SBA revises Sec. 123.502(c) to state that for Military Reservist
Economic Injury Disaster loans (MREIDL), the applicant is ineligible to
receive a disaster loan when an Associate of a business that sustained
damage is currently incarcerated. Notwithstanding SBA's final rule
changes for disaster loans, in accordance with statutory provisions
that bar loans to those with certain convictions, SBA will continue to
consider as ineligible applicants whose eligibility is prohibited by
law. This final rule change will align the requirements proposed for
all SBA loan programs regarding individuals currently incarcerated and
support the flexibility and access to capital for qualified small
business owners with criminal history records. The proposed rule
received a total of 17 public comments, of which 9 or 53 percent were
in support, 5 or 29 percent were in support with modifications, 3 or 18
percent were neutral/did not comment and none were opposed. The summary
overview explains why the modifications were not incorporated into the
final rule. SBA is finalizing the rule as proposed.
Section 123.702(c)(1) and (2) What are the eligibility requirements for
any IDAP loan?
The current Sec. 123.702(c)(1) and (2) for IDAP loans state that
SBA considers ineligible any applicant business that has an Associate
that who is presently under indictment but not convicted, on parole or
probation; charged with, arrested for, convicted, placed on pretrial
diversion, and/or placed on any form of probation (including
adjudication withheld pending probation) for any criminal offense other
than a minor motor vehicle violation (including offenses which have
been dismissed, discharged, or not prosecuted). In the final rule, SBA
revises Sec. 123.702(c)(1) and (2) to state that the applicant is
ineligible to receive an IDAP loan when any principal owner of a home
or business that sustained damage is currently incarcerated. SBA will
continue to consider as ineligible applicants who are presently under
indictment or whose eligibility is prohibited by law. SBA considered
removing the prohibitions related to applicants under indictment in the
NPRM. However, upon reconsideration based on its evaluation of public
and interagency comments, SBA has decided to retain the existing
language related to indictments.
Policy Discussion
In addition to applicants in all programs certifying to having no
owners or Associates that are currently incarcerated, SBA will access
certain external and widely acceptable and reliable databases to verify
eligibility regarding incarceration and criminal history status. While
the implementation of the final rule will expand access and thereby
increase loan volume, SBA believes that these changes do not compromise
the credit quality and performance of the loan portfolios. For example,
the Microloan and Surety Bond Guaranty programs have permitted loans to
businesses with individuals on parole or probation at no negative
impact to overall program performance.
As published in June 2021, The RAND Research Brief \5\ estimated
that over 200,000 small businesses were affected or disqualified from
participating in the Paycheck Protection Program (PPP) due to SBA's
rules regarding current indictments and incarceration, and prior
criminal convictions and criminal justice system involvement.
Predictably, the survival rate of legitimate small businesses that did
not receive assistance during the pandemic is lower than those that did
receive support. There are several key distinctions between the PPP
program and the SBA loan and surety programs at issue here. For
example, PPP loans were forgivable while loans in the other SBA loan
programs are not, and SBA has developed and implemented additional
front-end detection protocols to strengthen program integrity since
PPP. This RAND study is useful to highlight the number of otherwise
qualified applicants who were ineligible to apply but required SBA
assistance in order to survive.
---------------------------------------------------------------------------
\5\ The Prevalence of Criminal Records Among Small Business
Owners [verbar] RAND How Many Business Owners, Businesses, and
Employees Are Affected by PPP Restrictions?
---------------------------------------------------------------------------
Due to significant barriers to employment for individuals with
criminal history records, self-employment and entrepreneurship are
often vital avenues to successful reentry and employment. In fact, 28
percent of individuals with criminal history records are self-
employed.\6\ SBA's general and targeted loan programs should be a
resource that provides options that support economic success and growth
for individuals and communities, from basic self-employment to becoming
employers within communities, and that support successful reentry
outcomes, thereby strengthening public safety. Research is clear that
reducing barriers to employment reduces recidivism and supports
successful reentry, leading to better outcomes for individuals and
communities \7\--all of which underscore the necessity for SBA to
revisit and update these regulations to remove barriers to small-
business employment and business ownership.
---------------------------------------------------------------------------
\6\ https://onlinelibrary.wiley.com/doi/10.1002/pam.22438.
Criminal Justice Involvement, Self-employment, and Barriers in
Recent Public Policy. Journal of Policy Analysis and Management,
42(1),11-4.
\7\ Providing Another Chance: Resetting Recidivism Risk in
Criminal Background Checks [verbar] RAND.
---------------------------------------------------------------------------
Under the final rule, for each program, SBA, Lenders, CDCs,
Microloan Intermediaries, Sureties, and ILP Intermediaries, must
consider the applicant business ineligible based on criminal history
record when there is an Associate or Principal who is currently
incarcerated or, depending on the program, under indictment.
SBA's final rule also streamlines SBA's lending criteria by
reducing the number of factors that are required to be applied in
determining eligibility based on criminal history records of small
business owners. Lenders, CDCs, and Microloan Intermediaries make risk-
based lending decisions as part of their
[[Page 34099]]
existing and continuing protocols. Some lenders include conducting
criminal history background checks and others do not. SBA's final rule
revision does not impact a Lender's, CDC's or Microloan Intermediary's
authority or ability to continue to do so, in accordance with their own
policies, provided that they do so in a manner that complies with the
Equal Credit Opportunity Act and other relevant laws. This proposed
rule received a total of 17 public comments, of which 9 or 53 percent
were in support, 5 or 29 percent were in support with modifications, 3
or 18 percent were neutral or did not comment on this section and none
were opposed. The summary overview explains why the modifications were
not incorporated into the final rule. SBA is finalizing the rule as
proposed.
IV. Severability
One comment recommended that SBA include in this rule an express
provision addressing the effect of a judicial declaration of invalidity
as to any section or portion of this rule or to parts 109, 115, 120 and
123. The question of severability addresses whether a judicial finding
of a provision's invalidity should extend to other provisions or
applications or whether it should be limited to the invalid provision
or application, leaving in effect the remainder of the rule.
Like the entirety of parts 109, 115, 120 and 123, this rule seeks
to implement, to the maximum extent possible, the stated congressional
purposes of the Small Business Act and the Small Business Investment
Act--i.e., ``to . . . aid, counsel, assist, and protect, insofar as is
possible, the interests of the small-business concerns in order to
preserve free competitive enterprise'' and ``to foster economic
development and to create or preserve job opportunities in both urban
and rural areas by providing long-term financing for small business
concerns.'' See 15 U.S.C. 631 and 695.
This rule includes numerous enhancements to the ILP Program, the
Surety Bond Guaranty Program the Business Loan Programs, and the
Disaster Loan Programs. The individual sections added or modified in
this rule, and those which remain in parts 109, 115, 120 and 123 from
prior rulemakings, shall operate independently in service of the stated
congressional purposes and the objectives set forth above for this
rule.
Accordingly, in the event that any portion or application of the
rule is declared invalid or unenforceable as applied to any person or
circumstance, SBA intends for the provision to be construed so as to
continue to give the maximum effect to the provision permitted by law,
including as applied to persons not similarly situated or to dissimilar
circumstances, unless such holding is that the provision of these
paragraph is invalid and unenforceable in all circumstances. Further,
SBA intends that the various other provisions and applications of parts
109, 115, 120 and 123, including those added or modified in this rule,
be severable from the unlawful portion, unless such declaration of
invalidity renders another section or provision meaningless or deprives
that other section or provision of its functionality though only in
such circumstances. Moreover, such collateral invalidity is intended
only to the extent required by logic or loss of functionality.
As an illustration, if a court were to find unlawful this rule's
revisions to the criminal background provisions in the Business Loan
Programs (Sec. 120.110), such finding would have no effect upon this
rule's revisions to the criminal background provisions in the
Intermediary Lending Pilot (Sec. 109.400), the Surety Bond Guarantee
(Sec. 115.3) and the Disaster Loan (Sec. Sec. 123.101, 123.502 and
123.702) Programs, or various other provisions which in no way are
dependent upon the criminal background provisions. To further this
illustration, if a court were to find unlawful this rule's revisions to
the criminal background provisions in the Business Loan Programs (Sec.
120.110), such finding would have no effect upon any of the other
provisions and applications of parts 109, 115, 120 and 123 (e.g.,
Eligible uses of proceeds as set forth in 13 CFR 120.120). The
foregoing are merely examples and do not express an intent that any
other provision be considered non-severable. SBA reiterates that where
any provision of this part is declared invalid, any collateral
invalidity is intended to the least extent necessary, in order to
advance program objectives to the maximum extent possible. Such
provisions would help mitigate uncertainty that may result from future
court decisions if a lawsuit occurs.
Compliance With Executive Orders 12866, 12988, 13132, and 13563, the
Congressional Review Act (5 U.S.C. Sec. Sec. 801-808), the Paperwork
Reduction Act (44 U.S.C., Ch. 35), and the Regulatory Flexibility Act
(5 U.S.C. Sec. Sec. 601-612)
Executive Order 12866
The Office of Management and Budget has determined that this rule
is a ``significant regulatory action'' under Executive Order 12866, as
amended by Executive Order 14094. SBA included in the proposed rule and
presents in the final rule a Regulatory Impact Analysis for the
public's information in the next section. Each section begins with a
core question.
A. Regulatory Objective of the Proposal
Is there a need for this regulatory action?
In accordance with statutory mandates of 15 U.S.C. 631(a),
636(a)(1)(B), 636(b)(1)(A), 636(l), 636(m), 694(b), and 695, the Agency
believes it needs to reduce regulatory restrictions for applicants with
Associates or Principals based on criminal histories for the SBA
Disaster, 7(a), 504, Microloan, ILP and Surety Bond Guaranty programs
by reducing the requirement for criminal history records consideration
to only applicants with a Principal or Associate currently incarcerated
or, depending on the program, under indictment, in the manner proposed
above. Many formerly incarcerated persons experience significant
barriers in accessing employment and capital and credit often necessary
to start a business. The revisions in SBA's final rule will remove
barriers to access capital and employment for qualified applicants. SBA
will reduce the administrative burden on applicants as well as the need
for fingerprints by providing a single succinct directive that SBA
determines any applicant with a Principal or Associate that is
currently incarcerated or, depending on the program, under indictment,
to be ineligible with no further requirements for disclosure of prior
criminal history records.
B. Benefits and Costs of the Rule
What are the potential benefits and costs of this regulatory
action?
SBA does not anticipate significant additional costs or impact on
the subsidy to operate the 7(a), 504, Microloan, ILP, Surety Bond
Guaranty and Disaster Loan Programs under these proposed regulations
because all loans submitted must always meet Loan Program Requirements.
In general, the final rule benefits otherwise qualified entrepreneurs
who would not otherwise be eligible to apply for these programs due to
outdated restrictions that were not evidence-informed, and therefore it
strengthens our economy and our public safety.
SBA does not receive information from lenders on how many
applicants they decline for 7(a), 504, and Microloans. SBA has received
substantial feedback and research from
[[Page 34100]]
stakeholders that its current rules have presented broad barriers to
otherwise qualified individuals with criminal history records that seek
financing to start, run, or expand small businesses. This final rule
aligns with the statutory mandates in 15 U.S.C. 631 and supports the
inference that reducing or removing barriers will result in additional
applications from those otherwise qualified small business owners with
criminal history records who may have been deterred from applying due
to the current prohibitions related to criminal history records.
In the 7(a) and 504 programs, for formerly incarcerated individuals
and people not on parole or probation, out of more than 50,000 loans
made annually, SBA lenders have submitted to SBA for review
approximately 586 Character determination requests containing
information on criminal history records involving felonies. SBA
declines on average only 17-23 of the requests per year due to the
nature of the offense or incomplete judicial records. SBA's Disaster
Loan Program has declined 93 individuals for criminal history record
background checks between 2018 and 2022, with an additional 1,026 files
withdrawn by applicants prior to review during the same period.
Microloan Intermediaries do not submit loans to SBA for approval, so
SBA does not have data for criminal history records of Microloan
applicants. SBA's final rule provides clarity for borrowers who might
have otherwise withdrawn their application based on eligibility
concerns. Finally, Lenders, CDCs, and Microloan Intermediaries make
risk-based lending decisions. The statistics above do not account for
any checks conducted by lenders or any resultant applications being
withdrawn. Some lenders include conducting criminal history background
checks and others do not. SBA's proposed revision does not impact a
lender's ability to continue to do so, in accordance with their own
policies, provided that they do so in a manner that complies with the
Equal Credit Opportunity Act and other relevant laws.
C. Alternatives
What alternatives have been considered?
SBA considered the impact of maintaining the current rules that
deem as ineligible businesses with Principals or Associates currently
incarcerated, on parole or probation or convicted of certain financial
and other crimes. This would result in continuing barriers for small
businesses owned by individuals with criminal history records. Instead,
SBA's final rule balances that concern against the risk to SBA of
making guarantees and loans to businesses whose Principals or
Associates lack the ability to manage and execute day-to-day business
operations due to their current incarceration. SBA's final rule also
supports disaster survivors during recovery with increased equal access
to capital.
Congressional Review Act
The Office of Management and Budget's (OMB) Office of Information
and Regulatory Affairs has determined that this rule is not a major
rule under Subtitle E of the Small Business Regulatory Enforcement
Fairness Act of 1996 (also known as the Congressional Review Act), 5
U.S.C. 804(2). The annual effect on the economy is less than $100
million.
Executive Order 12988
This action meets applicable standards set forth in sections 3(a)
and 3(b)(2) of Executive Order 12988, Civil Justice Reform, to minimize
litigation, eliminate ambiguity, and reduce burden. The action does not
have preemptive effect or retroactive effect.
Executive Order 13132
This final rule does not have federalism implications as defined in
Executive Order 13132. It will not have substantial direct effects on
the States, on the relationship between the National Government and the
States, or on the distribution of power and responsibilities among the
various levels of government, as specified in the Executive order. As
such it does not warrant the preparation of a Federalism Assessment.
Executive Order 13563
A description of the need for this regulatory action and benefits
and costs associated with this action, including possible
distributional impacts that relate to Executive Order 13563, are
included above in the Regulatory Impact Analysis under Executive Order
12866.
Paperwork Reduction Act, 44 U.S.C. Ch. 35
SBA has determined that this final rule would require that the
following forms be revised: SBA Form 1919, ``Borrower Information
Form,'' SBA Form 1244, ``Application for Section 504 Loans,'' SBA Form
5, ``Disaster Business Loan Application,'' SBA Form 5C, ``Disaster
Home/Sole Proprietor Loan Application,'' and SBA Form 994,
``Application for Surety Bond Guarantee Assistance''.
SBA Form 1919 is approved under OMB Control number 3245-0348. SBA
Form 1244 is approved under OMB Control number 3245-0071. SBA Form 5 is
approved under OMB Control number 3245-0017 and SBA Form 5C is approved
under OMB Control number 3245-0018. SBA Form 994 is approved under OMB
Control number 3245-0007.
SBA will revise SBA Form 1919, and SBA Form 1244 to conform to the
eligibility change at 13 CFR 120.110(n). When small businesses apply
for 7(a) or 504 loans, the estimated hour burden for applicants and
lenders will decrease because the criminal history analysis and
collection of data will no longer be required.
SBA will revise SBA Form 5 and 5C to conform to the eligibility
change at 13 CFR 123.101(i). When disaster survivors apply for disaster
loans, the estimated hour burden for applicants will decrease because
the criminal history record analysis and collection of data will be
reduced.
SBA will revise SBA Form 994 to conform to the eligibility change
at 13 CFR 115. 13(a)(2)(i). When small businesses apply for surety bond
guarantees, the estimated hour burden for applicants will decrease
because the criminal history record analysis and collection of data
will no longer be required.
Regulatory Flexibility Act, 5 U.S.C. 601-612
When an agency issues a rulemaking, the Regulatory Flexibility Act
(RFA), 5 U.S.C. 601-612, requires the agency to ``prepare and make
available for public comment an initial regulatory analysis'' which
will ``describe the impact of the proposed rule on small entities.''
Although the rulemaking may potentially impact a small percentage of
loans reviewed by 7(a) Lenders, CDCs, Microloan Intermediaries, ILP
Intermediaries, the 44 Sureties that participate in the Surety Bond
Guaranty Program, and SBA regarding the disaster loans, SBA does not
believe the impact will be significant because this rule streamlines
regulatory burdens. However, there may be impacts due to increased
loans for businesses with Principals or Associates that have a criminal
history record but are not currently incarcerated or under indictment.
SBA reviews approximately 586 Character determination requests
annually and declines 3 or 4 percent, or 17 to 23 requests, due to the
nature of the offense or incomplete judicial records. The revisions to
Sec. 120.110(n) will eliminate the need for 100 percent of these
character determination
[[Page 34101]]
reviews. SBA Form 1919, ``SBA 7a Borrower Information Form,'' is the
application form for the 7(a) Loan Program. SBA Form 1244,
``Application for Section 504 Loans,'' is the application form for the
504 Loan Program. Each application includes 3 questions that Associates
of the applicant must answer regarding their criminal history records.
Under the final rule revisions, SBA will eliminate the three current
questions and replace them with one new question regarding
incarceration or being under indictment. SBA estimates that all
applicants for the 7(a) Loan Program and 504 Loan Program will save 5
minutes completing the applications due to these revisions.
Intermediaries for the Microloan Program use their own applications for
Microloan borrowers, but it is reasonable to assume similar time
savings. The 7(a) Loan Program, 504 Loan Program, and Microloan Program
make approximately 68,677 loans per year. Saving 5 minutes for each
application will result in total time savings of 5,723 hours annually.
List of Subjects
13 CFR Part 109
Community development, Loan programs-business, Reporting and
recordkeeping requirements, Small businesses.
13 CFR Part 115
Claims, Reporting and recordkeeping requirements, Small businesses,
Surety bonds.
13 CFR Part 120
Community development, Loan programs-business, Reporting and
recordkeeping requirements, Small businesses.
13 CFR Part 123
Disaster assistance, Loan programs-business, Reporting and
recordkeeping requirements, Small businesses.
For the reasons stated in the preamble, SBA amends 13 CFR parts
109, 115, 120 and 123 as follows:
PART 109--INTERMEDIARY LENDING PILOT PROGRAM
0
1. The authority citation for 13 CFR part 109 continues to read as
follows:
Authority: 15 U.S.C. 634(b)(6), (b)(7), and 636(l).
0
2. Add Sec. 109.15 to read as follows:
Sec. 109.15 Severability.
Any provision of this part held to be invalid or unenforceable as
applied to any person, entity, or circumstance shall be construed so as
to continue to give the maximum effect to such provision as permitted
by law, including as applied to persons or entities not similarly
situated or to dissimilar circumstances, unless such holding is that
the provision of this part is invalid and unenforceable in all
circumstances, in which event the provision shall be severable from the
remainder of this part and shall not affect the remainder thereof.
0
3. Amend Sec. 109.400 by revising paragraph (b)(15) to read as
follows:
Sec. 109.400 Eligible Small Business Concerns.
* * * * *
(b) * * *
(15) Businesses with an Associate who is currently incarcerated,
serving a sentence of imprisonment imposed upon adjudication of guilty,
or is under indictment for a felony or a crime of moral turpitude;
* * * * *
PART 115--SURETY BOND GUARANTEE
0
4. The authority citation for 13 CFR part 115 continues to read as
follows:
Authority: 5 U.S.C. app 3; 15 U.S.C. 636i, 687b, 687c, 694a,
and 694b note.
0
5. Add Sec. 115.3 to read as follows:
Sec. 115.3 Severability.
Any provision of this part held to be invalid or unenforceable as
applied to any person, entity, or circumstance shall be construed so as
to continue to give the maximum effect to such provision as permitted
by law, including as applied to persons or entities not similarly
situated or to dissimilar circumstances, unless such holding is that
the provision of this part is invalid and unenforceable in all
circumstances, in which event the provision shall be severable from the
remainder of this part and shall not affect the remainder thereof.
0
6. Amend Sec. 115.13 by revising paragraph (a)(2)(i) to read as
follows:
Sec. 115.13 Eligibility of Principal.
(a) * * *
(2) * * *
(i) The Person is currently incarcerated, serving a sentence of
imprisonment imposed upon adjudication of guilty, or under indictment
for a felony; or
* * * * *
PART 120--BUSINESS LOANS
0
7. The authority citation for 13 CFR part 120 continues to read as
follows:
Authority: 15 U.S.C. 634(b)(6), (b)(7), (b)(14), (h), and note,
636(a), (h) and (m), 650, 687(f), 696(3) and (7), and 697(a) and
(e); sec. 521, Pub. L. 114-113, 129 Stat. 2242; sec. 328(a), Pub. L.
116-260, 134 Stat. 1182.
0
8. Add Sec. 120.4 to read as follows:
Sec. 120.4 Severability.
Any provision of this part held to be invalid or unenforceable as
applied to any person, entity, or circumstance shall be construed so as
to continue to give the maximum effect to such provision as permitted
by law, including as applied to persons or entities not similarly
situated or to dissimilar circumstances, unless such holding is that
the provision of this part is invalid and unenforceable in all
circumstances, in which event the provision shall be severable from the
remainder of this part and shall not affect the remainder thereof.
0
9. Amend Sec. 120.110 by revising paragraph (n) to read as follows:
Sec. 120.110 What businesses are ineligible for SBA business loans?
* * * * *
(n) Businesses with an Associate who is currently incarcerated,
serving a sentence of imprisonment imposed upon adjudication of guilty,
or is under indictment for a felony or any crime involving or relating
to financial misconduct or a false statement;
* * * * *
0
10. Amend Sec. 120.707 by revising paragraph (a) to read as follows:
Sec. 120.707 What conditions apply to loans by Intermediaries to
Microloan borrowers?
(a) General. Except as otherwise provided in this paragraph (a), an
Intermediary may only make Microloans to small businesses eligible to
receive financial assistance under this part. A borrower may also use
Microloan proceeds to establish a nonprofit childcare business. An
Intermediary may not make Microloans to businesses with an Associate
who is currently incarcerated, serving a sentence of imprisonment
imposed upon adjudication of guilty, or to childcare businesses with an
Associate who is currently on probation or parole for an offense
against children. Proceeds from Microloans may be used only for working
capital and acquisition of materials, supplies, furniture, fixtures,
and equipment. SBA does not review Microloans for creditworthiness.
* * * * *
[[Page 34102]]
PART 123--DISASTER LOAN PROGRAM
0
11. The authority citation for 13 CFR part 123 continues to read as
follows:
Authority: 15 U.S.C. 632, 634(b)(6), 636(b), 636(d), 657n, and
9009.
0
12. Add Sec. 123.22 to read as follows:
Sec. 123.22 Severability.
Any provision of this part held to be invalid or unenforceable as
applied to any person, entity, or circumstance shall be construed so as
to continue to give the maximum effect to such provision as permitted
by law, including as applied to persons or entities not similarly
situated or to dissimilar circumstances, unless such holding is that
the provision of this part is invalid and unenforceable in all
circumstances, in which event the provision shall be severable from the
remainder of this part and shall not affect the remainder thereof.
0
13. Amend Sec. 123.101 by revising paragraph (i) to read as follows:
Sec. 123.101 When am I not eligible for a home disaster loan?
* * * * *
(i) You or other principal owners of the damaged property are
currently incarcerated, serving a sentence of imprisonment imposed upon
adjudication of guilty;
* * * * *
0
14. Amend Sec. 123.502 by revising paragraph (c) to read as follows:
Sec. 123.502 Under what circumstances is your business ineligible to
be considered for a Military Reservist Economic Injury Disaster Loan?
* * * * *
(c) Any of your business' principal owners is currently
incarcerated, serving a sentence of imprisonment imposed upon
adjudication of guilty;
* * * * *
0
15. Amend Sec. 123.702 by:
0
a. Revising paragraph (c)(1);
0
b. Removing paragraph (c)(2); and
0
c. Redesignating paragraphs (c)(3) through (5) as paragraphs (c)(2)
through (4).
The revision read as follows:
Sec. 123.702 What are the eligibility requirements for an IDAP loan?
* * * * *
(c) * * *
(1) is currently incarcerated, serving a sentence of imprisonment
imposed upon adjudication of guilty, or is presently under indictment;
* * * * *
Isabella Casillas Guzman,
Administrator.
[FR Doc. 2024-09009 Filed 4-29-24; 8:45 am]
BILLING CODE 8026-09-P