New Criminal Justice Reviews Final Rule Goes Into Effect Today
May 30, 2024
Delaney Sexton
Contributing Editor
New Criminal Justice Reviews Final Rule Goes Into Effect Today
The SBA final rule updates program regulations regarding eligibility based on criminal history records. Under the 7(a) and 504 loan programs, SBA removed the restriction that limited businesses with an associate who is on probation or parole. Keep in mind that the rule did not make any revisions to ineligibility due to prior default and loss to the Federal Government. SBA will continue to access public data to perform fraud checks before approving any 7(a) or 504 loans.
SBA will be revising SBA Form 1919 and SBA Form 1244 to account for the rule change. As of the effective date (today, May 30th), updated forms are unavailable. Until they are released, lenders should carry on using the current forms.
A positive response will continue to render the Applicant ineligible, and because this is a regulatory prohibition, there is no opportunity for an exception or waiver. In the future, the revised question 4 will ask:
Is the Applicant or any Associate of the Applicant 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? (If “Yes” the Applicant is not eligible for SBA financial assistance.)
Until Applicants can apply using the updated program application form, SBA Form 1919, if the Applicant answers “yes” on the question regarding criminal history, 7(a) Lenders must determine whether the Applicant is ineligible for a 7(a) loan based on the Criminal Justice Rule’s requirements in accordance with the new question as stated above. The SBA Lender must document the results in the loan file.
Until Applicants can apply using the updated program application form, SBA Form 1244, CDCs must determine whether the Applicant is ineligible for a 504 loan based on the Criminal Justice Rule’s requirements, and the CDC must document the results in the loan file.