If You’re A Business Owner On Probation, Don’t Bother To Apply For COVID-19 Relief Loans

Apr 16, 2020
Originally published on April 16, 2020 2:38 pm

Brandon Steven is well known as the owner of health clubs and car dealerships that, until the COVID-19 pandemic, collectively employed more than 6,000 people in Wichita.

So when Congress offered relief to small-business owners last month through the CARES Act, it looked like Steven’s different businesses might be able to benefit from the law.

There was just one catch: Steven pleaded guilty last year to a misdemeanor charge of hiding gambling ledgers and was sentenced to three years of probation.

And under new regulations issued by the Small Business Administration to implement the CARES Act, small-business owners with criminal records are prohibited from accessing the $350 billion in SBA loans made available under the act.

“It's our hope that if any applicant is presented with a situation where they’re on probation that they at least have the opportunity to qualify for the CARES Act relief,” said J.R. Hobbs, a Kansas City criminal defense lawyer who represents Steven.

Although the SBA has issued different guidance in the two weeks since the act was passed, the bottom line is that anyone who owns at least 20% of a business who is on probation, parole or in prison is ineligible for financial assistance.

More than a dozen civil rights and advocacy organizations are calling on Congress to remove those restrictions, saying they will have “a significant and detrimental impact on individuals, families, and communities across the United States.”

“The restrictions will have a particularly harsh effect on minority business owners and employees who are disproportionately affected by the criminal legal system as a result of institutional discrimination,” they said in a statement.

Millions of Americans have criminal histories and many of them, because they are unable to secure employment, end up starting businesses of their own.

“It’s completely arbitrary and capricious,” said Kyle O’Dowd, policy director of the National Association of Criminal Defense Lawyers, one of the organizations opposing the restrictions. “Presumably the SBA thinks they’re protecting the public, but to the contrary, this is extremely harmful and bound to have a disproportionate impact, particularly on communities of color.”

Sandy Hawley, chair of the corporate practice at the Kansas City-based law firm Shook Hardy & Bacon, said she believed the SBA was trying to expand the pool of people eligible to receive loans.

“If anything,” she said, “they’re trying to get more money out to more people faster.”

But she acknowledged there wasn’t a compelling rationale for the exclusion of people on probation or parole.

“Maybe it’s something as simple as having to draw the line somewhere. It’s a limited pool of funds and maybe it’s as simple as that,” Hawley said.

Tom Salisbury, the SBA’s regional administrator, could not be reached for comment.

Ryan Udell, a lawyer with White & Williams in Philadelphia who has written about the CARES Act’s Paycheck Protection Program, said the exclusions build on similar restrictions in the SBA’s 7(a) loan program, the agency’s main vehicle for providing financial assistance to small businesses.

“They’ve applied rules that may make sense in the ordinary loan program but may or may not make sense where the ultimate objective is to keep people on the payroll,” Udell said.

Steven was a long-established businessman in Wichita before his conviction in federal court last June of “accessory after the fact to transmission of wagering information” – legal jargon for concealing records containing gambling information.

A high-stakes poker player, Steven competed in the World Series of Poker in Las Vegas and was ranked the No. 1 player in Kansas, according to a Wichita Eagle story about his guilty plea.

But he’s also known to help needy families during Christmas season and for building Eddy’s House, a facility in Wichita for troubled youth.

As part of his sentence, Steven has paid back the government more than $1 million, served all but 17 hours of his 200 hours of mandated community service and completed 10 of the 36 months of his probation.

In a court filing last week, he asked the court to terminate his probation so his businesses could qualify for SBA loans under the CARES Act’s Paycheck Protection Program. The program allows small businesses – those with fewer than 500 employees – to take out loans of up to $10 million that can be forgiven if they’re used to retain employees.

In its response, the government opposed the motion, saying it was unclear whether Steven’s businesses would qualify for the loans even if he wasn’t on probation.

The program is generally limited to businesses with fewer than 500 employees. And while any one of Stevens’ many business enterprises might qualify as a standalone business, the government says they’re “affiliated” under the law and therefore ineligible.

The government’s response doesn’t address whether they’re ineligible because Steven is on probation. But in his reply to the government, Steven says he’s simply asking for “the ability to submit an application in which he is not immediately disqualified for being on probation.”

“His employees deserve this opportunity for continued employment,” Steven says in his reply. “If the application is rejected under the amended affiliation rules, then Mr. Steven accepts that outcome.”

The SBA’s new application form, effective April 3, requires applicants to answer these two questions regarding their criminal history:

  • "Is the Applicant (if an individual) or any individual owning 20% or more of the equity of the Applicant subject to an indictment, criminal information, arraignment, or other means by which formal criminal charges are brought in any jurisdiction, or presently incarcerated, or on probation or parole?"
  • "Within the last 5 years, for any felony, has the Applicant (if an individual) or any owner of the Applicant 1) been convicted; 2) pleaded guilty; 3) pleaded nolo contendere; 4) been placed on pretrial diversion; or 5) been placed on any form of parole or probation (including probation before judgment)?"

June Teasley, a spokeswoman for the SBA, said a “yes” answer to either question is disqualifying.

That defeats the entire purpose of the program, said O’Dowd, of the National Association of Criminal Defense Lawyers.

“This visits the alleged misdeeds of a minor shareholder on the entire business and all of its employees,” he said. “So the impact is magnified beyond the persons who have had contact with the criminal justice system to every employee in that organization.”

Dan Margolies is a senior reporter and editor at KCUR. You can reach him on Twitter @DanMargolies.

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