(Chicago) – In March 2020, in the midst of the advancing COVID-19 pandemic, some small businesses and nonprofits were offered access to the Paycheck Protection Program (PPP) authorized under the federal government’s CARES Act. The PPP was devised to deliver hundreds of billions of dollars to assist organizations affected by the pandemic and associated economic crisis. However, in its initial borrower application, the Small Business Association (SBA) imposed broad restrictions on loans to applicants with current or past criminal legal system involvement. These restrictions were not considered nor mandated by Congress when passing the bill, and were more onerous than what was required by the program’s initial interim rule. 

These restrictions reflect the imposition of harmful collateral consequences, not only on second-chance entrepreneurs whose criminal cases have been closed and sentences served, but also on those who participated in pretrial diversion programs. For businesses forced to close or furlough staff after being denied access to loans, these consequences extend to employees. The effects of restrictions may be felt more sharply among Black and Latinx people, populations disproportionately affected by implicit bias throughout the criminal legal system.

The PPP rules disqualified loans to any small business owner with a 20 percent or greater stake in the organization who was convicted of a felony within the past five years, or who was placed on probation or parole, during that time. A question on the application (since removed) also denied loans to individuals whose cases were diverted in programs designed, in part, to reduce collateral consequences. In other words, by disqualifying people who have gone through diversion programs, guilt was presumed where none had been found. 

“These exclusions are yet another example of systemic decisions that hold people back,” said TASC Policy Director Laura Brookes. “On top of nonsense restrictions for those whose cases have been closed and served years ago, the original PPP application disqualified people who had not even been found guilty—which defeats the intent of diversion in the first place.” 

This isn’t the first time the federal government sought to treat diversion program participants as if they had been adjudicated guilty. Last year, TASC wrote about its withdrawal of a proposal to require disclosure of participation in a criminal justice diversion program on federal employment applications. If enacted, the proposal would have expanded the current requirements to disclose criminal convictions in a similar fashion. 

Diversion programs can facilitate access to needed services and also mitigate the harms and collateral consequences associated with criminal legal system involvement. In particular, a criminal record—even for arrests that do not result in convictions—can significantly exacerbate difficulties in securing employment, housing, educational financial aid, and more. Diversion programs usually result in dismissal of charges or otherwise prevent a conviction on record when conditions are met.

Limited relief from the original PPP exclusions was provided on June 5 with enactment of the Paycheck Protection Program Flexibility Act. New revisions to the program’s interim final rule reduced the exclusion threshold from five years to one year for people with non-financial felony histories (the period remains five years for financial felonies). A revised PPP loan application reflects this change, and also eliminated the restriction against people who had participated in a pretrial diversion participation.