On Tuesday, April 30, 2024, SBA published a Final Rule in the Federal Register1 amending criminal background reviews for the Surety Bond Guaranty Program, and the 7(a), 504, Microloan, ILP and Disaster Loan programs. The Final Rule is effective May 30, 2024. Among its major provisions, it removes restrictions on applicants and associates on probation or parole and maintains prohibitions for:

“… Businesses with an Associate who is 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.”

In doing so, SBA encourages 7(a), CDCs, and 504 lenders to review the Final Rule and update their Loan Policies accordingly.

At JRB, we’ve been assisting our clients in updating their SBA Loan Policies to comply with SOPs 50 10 7.1 and 50 56 1. A monumental task. And just when we thought we could stick a fork in it, along came this Final Rule. So we’re not done. With the Final Rule effective on May 30, you have less than a month to update your SBA Loan Policies to remain compliant.

Checking out your SBA Loan Policy … It might have extensive sections about requiring a Lexis Nexis check and completion of  SBA Form 912 for applicants and associates. You can eliminate those sections: SBA no longer requires them. Remember having to provide details for every positive answer from a 7(a) applicant to questions 17-19 on SBA Form 1919, or on Form 1244 from a 504 applicant – or if you’re truly old school – to questions 7-9 on the 912?

And how many times have you asked an applicant about an offense and received an answer like, “But that was at a Frat party 20 years ago! What difference does it make?” SBA now says,  “None indeed!” SBA promises to update its forms to conform with the Final Rule.

Words to wise lenders … If you keep the former, tighter restrictions in your Loan Policy, you must enforce them, or you’ll have an exception that must be tracked. And of course, if you made an exception for one applicant but not another, you might have to answer for it at your next Fair Lending exam.

The best solution of course … amending your SBA Loan Policy to include only those restrictions where one’s character impairs repayment … if they’re imprisoned, or because of an outstanding indictment, might soon be.

Richard Jeffrey
Senior Associate

1 “ Criminal Justice Reviews for the SBA Business Loan Programs, Disaster Loan Programs, and Surety Bond Guaranty Program”. Federal Register 89:84 (April 30, 2024) p. 34094 et seq)