Does a Criminal Record Disqualify me from an SBA Loan?

September 15, 2011

I came across an interesting question recently regarding the personal information required for the Small Business Administration’s (SBA) loan application process. SBA has a business loan requirement checklist on their website and in the personal information section it states,

"Either as part of the loan application or as a separate document, you will probably be asked to provide some personal background information, including previous addresses, names used, criminal record, educational background, etc."

So let’s say you have a criminal record and would like to apply for an SBA loan, are you immediately disqualified for a loan?

To answer this question you first need to understand the role of SBA in lending. SBA directly lends money to small business owners. SBA guarantees loans offered from participating lenders, such as banks and credit unions. The idea is that private lenders will be more likely to provide small business owners a loan if SBA is willing to stand behind a loan and pay if the borrower does not. Both SBA and the lender will have their own requirements to approve you.

SBA has a policy that it will not extend loans to individuals or businesses with an owner or associate convicted of crimes of "moral turpitude." Moral turpitude is a term that is often used but rarely defined in the law. A crime of moral turpitude is generally a violent felony or a crime involving dishonesty. Embezzlement, aggravated assault, attempted murder and perjury would all likely be considered crimes of moral turpitude.

SBA requirements would be in addition to those imposed by the lender. The lender participating in the SBA lending program will likely have its own requirements, which may be that any conviction would disqualify a borrower from receiving an SBA loan. It is perfectly acceptable for a bank or credit union to have such a rule, since it is ultimately up to the bank and SBA to decide whether a borrower qualifies for a loan, not just SBA.

Understanding that SBA lending is a two-part process will help in providing a clearer picture of how SBA approval works. If you call or email the SBA Answer Desk (1-800-827-5722 or they can put you in touch with a lender specialist who will assist you through the process and may be able to tell you if your background would prevent you from qualifying for a loan.

The easiest way to know if your background will prevent you from obtaining a loan is to have no criminal background at all. However, there are cases where a conviction will not prevent you from obtaining a loan, so it is at least worth a phone call to get in touch with a lender specialist to discuss your specific situation.

Derek Dissinger is an attorney at Russell, Krafft & Gruber, LLP in Lancaster, Pennsylvania. He received his law degree from Duquesne University School of Law and practices in a variety of areas including Business Law.  

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