The CARES Act and Mandatory Disclosures
The Coronavirus Aid, Relief and Economic Recovery Act (CARES Act) is the largest stimulus package in U.S. history. It forges together $2.2 trillion in programs aimed to direct care and relief to businesses and individuals. This includes two loan products designed specifically for small business relief; the Paycheck Protection Program and Economic Injury Disaster Loans.
The recently rolled out Paycheck Protection Program (PPP) sets aside $349 trillion in 100% federally funded loans to support qualified expenses-- including payroll costs, rent and mortgage payments and utilities.
These loans come with a list of regulations from the Small Business Administration (SBA), among which is a prohibition against any business owner facing criminal charges gaining access to the funds. The CARES Act itself does not include any mandates related to criminal records
Economic Injury Disaster Loans are available for disaster-affected, qualifying small businesses. These loans of up to $2 million may be used as working capital for the business. Disaster Loans have been available for affected businesses in previous emergencies. While the loan application requires the applicant to disclose prior convictions, it does not contain language regarding mandatory denial of funds.
The PPP application, created and made available by the SBA, includes questions that automatically disqualify certain small businesses:
- Is the applicant or any owner (of 20% or more of the business) currently subject to indictment, arraignment or any criminal charges?
- Is the applicant or any owner (of 20% or more of the business) currently on probation or parole?
- For any felony, has the applicant or any owner (of 20% or more of the business) been convicted, pleaded guilty, pleaded nolo contendere or been placed in a pretrial diversion program in the last five years?
The Disaster Loan application asks for disclosures, which include:
- Has the business or any owner been convicted of a criminal offense committed during or in a declared disaster in the last year?
- Has the business or any owner ever been convicted of producing or distributing “obscene” material?
- Is the applicant currently subject to indictment, arraignment or other means by which formal charges are brought in any jurisdiction?
- Has the applicant been arrested in the past 6 months for any criminal offense?
- Excepting minor vehicle violation, has the applicant ever been convicted, pleaded nolo contendere, pleaded guilty, been in pretrial diversion or been on probation or parole?
It remains unclear if the SBA will follow previous guidelines meant to ease the burden on those with a criminal record while in the “public interest” screening out those who are not of “good character.” Small Business Administration, SOP 50 30 9. Disaster Assistance Program. (2018). Previously, those with a record could provide an explanation via court records and a personal narrative. If explanations will not be accepted or considered, it will mark an unprecedented “sweeping mandatory disqualification based on a criminal record, in any area of law,” according to the Collateral Consequences Resource Center.
Applying for Help for Your Small Business
For many with a criminal record, entrepreneurship is the best option for employment. Current estimates are that as many as one in three Americans have a criminal record.
These disclosures must be answered honestly. However, some disclosures may be difficult to answer due to a lack of details and definitions on the applications. Take for example the disclosure regarding a conviction of a felony offense. By federal standards, a felony is a crime with a jail sentence of more than 1 year. In Massachusetts, a felony is a crime that includes imprisonment in the state prison. The common criminal offense of OUI-Liquor, first offense carries a maximum penalty of 2 ½ years and is considered a misdemeanor in Massachusetts, but for some federal purposes, it is considered a felony. It is unclear how the SBA is treating this difference between state and federal law.
With courts closed for most matters until May 4, 2020 under the Supreme Judicial Court Standing Order, those with pending cases are unable to seek economic relief under the Disaster Loan or PPP. However, Emergency Advance Funds are available for those who apply for the Disaster Loan and are denied. This $10,000 advance does not need to be repaid under any circumstances. To apply, complete the Disaster Loan application and on the third screen, select that you would like to be considered for an advance.
The Law Offices of Attorney Joseph D. Bernard knows that these uncertain times are stressful and we remain dedicated to providing ongoing support and service to our clients. We will continue to update our clients and the public on matters of concern, including updated federal guidelines for access to these much-needed funds.