Letter to SBA on Returning Citizens (Aug. 17, 2022)

Summary

A letter dated August 17, 2022 from United States Senators Benjamin L. Cardin and Cory A. Booker to SBA Administrator Isabella Casillas Guzman concerning access to SBA programs for justice impacted entrepreneurs. The letter follows a Senate Committee on Small Business and Entrepreneurship hearing and refers to the senators' work during the Paycheck Protection Program, including the Paycheck Protection Program Second Chance Act. It asks the SBA to open the 7(a) and 504 lending programs to people with a criminal record as it did with the Community Advantage program, to evaluate the effect of the good character criterion in lending and contracting programs, and to have the Office of Entrepreneurial Development create programming for justice impacted entrepreneurs in each state. The letter cites incarceration, unemployment and recidivism statistics with footnoted sources.

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                                              August 17, 2022


The Honorable Isabella Casillas Guzman
Administrator
United States Small Business Administration
409 3rd Street, Southwest
Washington, D.C. 20416

Dear Administrator Guzman:

Last month, the Senate Committee on Small Business and Entrepreneurship held a hearing
entitled, “A New Start: Opportunities and Barriers to Entrepreneurship for Returning Citizens
and Justice Impacted Individuals.” Through this hearing, members of the Committee heard about
the numerous barriers, both in the private sector and government, to capital access, mentorship,
and training that exist for justice impacted entrepreneurs. This hearing helped build on the
actions we took during the implementation of the Paycheck Protection Program to ensure
business owners with a criminal record had access to relief, including through the introduction of
the Paycheck Protection Program Second Chance Act. We write today to ask that you: 1) Open
up the 7(a) and 504 lending programs to those with a criminal record as you did with the
Community Advantage program, 2) Evaluate the impact of “good character” criterion for
participation in SBA lending and contracting programs on justice impacted entrepreneurs, and 3)
Direct the Office of Entrepreneurial Development to create specific programming for justice
impacted entrepreneurs to be available in each state.

The United States prison population has seen an increase of over 450% over the last fifty years,
leading to 2 million individuals currently incarcerated in our federal and local prisons. 1 To date,
between 70 and 100 million Americans, or as many as one in three Americans, have had
involvement with the justice system with people of color overrepresented in these statistics.2
Every year, 600,000 individuals return to their communities from prison; two thirds of them are
rearrested within three years and roughly half are re-incarcerated.3 One of the largest obstacles to
successful reentry for many justice impacted individuals is finding a stable occupation once
released; the unemployment rate among previously incarcerated individuals hovers around 27%,
nine times that of the national average. 4 5 There exists a general consensus among researchers
that attaining an occupation upon reentry significantly reduces rates of recidivism, but this



1 “Criminal Justice Facts.” The Sentencing Project
2 “Americans with Criminal Records.” The Sentencing Project
3 “Incarceration & Reentry.” Office of the Assistant Secretary for Planning and Evaluation, U.S. Department of

Health and Human Services.
4 Couloute, Lucius, and Daniel Kopf. “Out of Prison & Out of Work: Unemployment among formerly incarcerated

people.” Prison Policy Initiative, Jul. 2018.
5 “Labor Force Statistics from the Current Population Survey.” U.S. Bureau of Labor Statistics, 3 Aug. 2022.
number fluctuates considerably depending on the quality of the job and the hourly wage that an
individual earns.6

Entrepreneurship can serve as a means of stable employment and in many cases is a necessity for
many justice impacted individuals as they may be denied hundreds of times by the traditional
labor market. Numerous justice impacted entrepreneurs can speak to this phenomenon, including
Mr. Coss Marte, a justice impacted entrepreneur who testified before the Senate Small Business
Committee. Dr. Damon Phillips and Dr. Kylie Hwang found in their research that 18.61% of
returning citizens started their own businesses, compared to 11.48% of those without a criminal
record; as many as 1.7 employees in the American workforce are affiliated with businesses
owned by someone with a criminal record. Additionally, their research found that returning
citizen entrepreneurs earned 11.4% more per hour compared to returning citizens in traditional
employment, and that entrepreneurship reduces the likelihood of recidivism by 5.3%. That’s a
32.5% lower recidivism rate than the rate for returning citizens in traditional employment.7

Given the critical importance of entrepreneurship for justice impacted individuals and returning
citizens, it is important that we ensure they have access to SBA programs. Ensuring access to
these programs aligns with the SBA’s mission to “aid, counsel, and assist” small businesses, and
aligns with the agency’s long-standing focus on reaching underserved entrepreneurs. We applaud
the SBA, as part of President Biden’s Second Chance Month Proclamation on March 31, 2022,
for opening up the Community Advantage pilot program to justice impacted individuals by
removing restrictions such as questions regarding criminal history that can keep individuals with
a criminal background from accessing the program. However, the Community Advantage
Program is just one of the many lending programs the SBA has to offer. We urge the SBA to
open their traditional 7(a) and 504 loan programs to this group of underserved small business
owners, by removing current restrictions, and working with lenders to make clear that questions
regarding a small business owner’s criminal history are not required.

Additionally, we are concerned that the “good character” criterion for SBA lending and
contracting programs is open ended, vague, and could have a disproportionately negative impact
on justice impacted small business owners. “Good character” criterion is present in the standard
operating procedures for the SBA lending programs, and is also considered when assessing
eligibility for the contracting programs, such as the 8(a) and Veteran Owned Small Business
programs. There is no statute requiring the SBA to consider “good character” of a business to
participate in an SBA program. This allows the SBA to independently revise how it is applying
the criterion, and what constitutes it. Traditionally, “good character” criterion is intended to be a
means of determining creditworthiness, however, there are no empirical studies that actually link
criminal records with lower creditworthiness.8 Rather, this type of criterion could exclude those
with a criminal background from accessing SBA programs, and could persist even if other

6
  Visher, Christy, et al. “Employment after Prison: A Longitudinal Study of Releases in Three States.” Urban
Institute, Justice Policy Center, 2008
7
  Hwang, K.J. and D.J. Phillips. “Entrepreneurship as a Response to Labor Market Discrimination for Formerly
Incarcerated People.” Conditionally Accepted at American Journal of Sociology, Mar. 2020. ResearchGate
8 “Federal policies block loans to small business owners with a record.” Collateral Consequences Resource Center, 3

Aug. 2021.; “Video: Governmental Barriers to Small Business Financing for People with a Criminal History.”
Collateral Consequences Resource Center, 23 Nov. 2021
restrictions are removed. We would welcome a review of how the “good character” criterion is
being applied across lending and contracting programs, the determinants taken into account
across programs, and how many justice impacted entrepreneurs have been excluded from SBA
programs as a result.

Finally, given the unique experience of those who are justice impacted, we request that the SBA
create streamlined entrepreneurial development programming for justice impacted and returning
citizen entrepreneurs to be available in each state. This should be done in consultation with the
SBA resource partners and other organizations currently providing high quality entrepreneurial
development programming for justice impacted individuals, such as the programs being
administered by individual Small Business Development Centers and Women’s Business Centers
as well as various private organizations that have created prison entrepreneurship programs.9 10
As was discussed in the hearing, gaining business know-how, building entrepreneurship skills,
and having access to mentorship play a great role in ensuring entrepreneurs are able to
successfully start and operate their businesses. It is the goal of the SBA’s Office of
Entrepreneurial Development to provide entrepreneurs with the tools needed to do just that,
including tools for justice impacted individuals.

Again, we applaud the SBA’s commitment to underserved entrepreneurs. We also commend the
agency for taking the first step in opening up the SBA lending programs to justice impacted
entrepreneurs by removing restrictions in the Community Advantage program. We hope to work
together and build on this by increasing access to other SBA programs for those who are justice
impacted.

Thank you for your time and consideration.

                                                  Sincerely,




        _____________________                                                   _____________________
        Benjamin L. Cardin                                                      Cory A. Booker
        United States Senator                                                   United States Senator




9
 “ASPIRE MO Cultivates Hope for Missouri Women.” Missouri Department of Corrections.
10
  Nijhuis, Austin, and Peter Eberhardt. “Innovative Prison Entrepreneurship Program is Creating Wealth &
Reducing Recidivism Among Formerly Incarcerated.” ICIC, 2022.


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