This section of the FEDERAL REGISTER

contains notices to the public of the proposed

issuance of rules and regulations. The

purpose of these notices is to give interested

persons an opportunity to participate in the

rule making prior to the adoption of the final

rules.

Proposed Rules Federal Register

63534 

Vol. 88, No. 178 

Friday, September 15, 2023 

SMALL BUSINESS ADMINISTRATION 

13 CFR Parts 109, 115, 120, and 123 

RIN 3245–AI03 

Criminal Justice Reviews for the SBA 

Business Loan Programs and Surety 

Bond Guaranty Program 

AGENCY: U.S. Small Business 

Administration. 

ACTION: Proposed rule. 

SUMMARY: The U.S. Small Business 

Administration (SBA or Agency) is 

proposing to amend regulations 

governing SBA’s business loan programs 

(7(a) Loan Program, 504 Loan Program, 

Microloan Program, Intermediary 

Lending Pilot Program (ILP), Surety 

Bond Guarantee Program (SBG), and the 

Disaster Loan Program (except for the 

COVID Economic Injury Disaster Loan 

(EIDL) Disaster Loan Program) for 

criminal background reviews. The 

amendments are designed to improve 

equitable access based on criminal 

background review of applicants 

seeking to participate in one or more of 

these programs. 

DATES: SBA must receive comments on 

this proposed rule on or before 

November 14, 2023. 

ADDRESSES: You may submit comments, 

identified by RIN 3245–AI03, through 

the Federal eRulemaking Portal: https:// 

www.regulations.gov. Follow the 

instructions for submitting comments. 

SBA will post all comments on 

https://www.regulations.gov. If you wish 

to submit confidential business 

information (CBI) as defined in the User 

Notice at https://www.regulations.gov, 

please submit the information via email 

to Dianna.Seaborn@sba.gov. Highlight 

the information that you consider to be 

CBI and explain why you believe SBA 

should hold this information as 

confidential. SBA will review the 

information and make the final 

determination whether it will publish 

the information. 

FOR FURTHER INFORMATION CONTACT: 

Dianna Seaborn, Director, Office of 

Financial Assistance, Office of Capital 

Access, Small Business Administration, 

at (202) 205–3645 or Dianna.Seaborn@

sba.gov. 

SUPPLEMENTARY INFORMATION: 

I. Background Information 

The mission of SBA is to ‘‘aid, 

counsel, assist and protect the interests 

of small business concerns in order to 

preserve free competitive enterprise and 

to maintain and strengthen the overall 

economy of our nation.’’ 15 U.S.C. 

631(a). SBA accomplishes this mission, 

in part, through Capital Access 

programs that bridge the financing gap 

in the private market and help 

businesses of all sizes to recover from 

disasters. Further, 15 U.S.C. 636(a)(1)(B) 

states that the Administrator may verify 

criminal background of the applicant, 

which grants SBA the flexibility to 

determine whether and how to consider 

criminal history in the context of 

issuing loan guarantees. After 

conducting a comprehensive study of 

SBA capital programs’ current policies 

on individuals with criminal histories, 

SBA believes the changes proposed 

herein specifically honor and 

incorporate other statutory mandates of 

15 U.S.C. 631 that recognize the 

importance of small business 

development in general as well as the 

responsibility to increase opportunities 

for certain groups that may not 

historically have had equitable 

opportunities for small business 

ownership. Supporting these statutory 

mandates and based on changing 

conditions in how state and local 

governments and the private sector have 

broadened access to business capital 

and employment opportunities coupled 

with data and empirical research 

demonstrating the public safety and 

economic benefits of doing so. Federal 

laws have also evolved regarding 

recidivism and second chances for 

formerly incarcerated individuals. SBA 

has determined the need to update 

regulations to reduce barriers to 

participation in these programs for 

equitable support for small business 

entrepreneurs with criminal history 

records. Throughout this proposed rule, 

‘‘currently incarcerated’’ means ‘‘a 

person who is currently serving a 

sentence of imprisonment imposed 

upon an adjudication of guilt. It does 

not include a person who is detained 

but not convicted, such as people in 

jails.’’ 

SBA is proposing to update the 7(a), 

504, Microloan, ILP, SBG and Disaster 

Loan Program regulations requiring 

criminal background reviews. 

Specifically, SBA is revising 13 CFR 

109.400(b)(15) on ‘‘Eligible Small 

Business Concerns’’; 13 CFR 

115.13(a)(2)(i) on ‘‘Eligibility of 

Principal’’; 13 CFR 120.110(n) on ‘‘What 

businesses are ineligible for SBA 

business loans?’’; 13 CFR 120.707(a) on 

‘‘What conditions apply to loans by 

Intermediaries to Microloan 

borrowers?’’; 13 CFR 123.101(i) on 

‘‘When am I not eligible for a home 

disaster loan?’’; 13 CFR 123.502(c) on 

‘‘Under what circumstances is your 

business ineligible to be considered for 

a Military Reservist Economic Injury 

Disaster Loan?’’; and 13 CFR 

123.702(c)(1) and (2) on ‘‘Character 

requirements’’. 

SBA proposes to revise 13 CFR 

109.400(b)(15) for ILP loans to small 

businesses to remove the restrictions on 

Associates of an Applicant who are on 

probation, parole, or who have been 

indicted but not convicted of a felony or 

crime of moral turpitude; SBA proposes 

to revise 13 CFR 115.13(a)(2)(i) for 

surety bond applicants to remove 

restrictions on a Principal bidding for a 

contract (as defined in 13 CFR 115.10) 

who is under indictment but not 

convicted, or previously convicted of a 

felony or received civil judgment 

regarding business transactions; 13 CFR 

120.110(n) for 7(a) and 504 loans to 

remove restrictions on businesses with 

an Associate who is on probation, on 

parole, or is under indictment but not 

convicted of a felony or any crime 

involving or relating to financial 

misconduct or a false statement; 13 CFR 

120.707(a) for Microloans to remove 

restrictions on businesses with an 

Associate who is currently on probation 

or parole for an offense involving fraud 

or dishonesty; 13 CFR 123.101(i) for 

physical and economic injury and 

123.502(c) for military reservist 

economic injury disaster loans to 

remove restrictions regarding principal 

owners of damaged property who are on 

probation or parole following conviction 

for a serious criminal offense. Further, 

regarding Immediate Disaster Assistance 

Program (IDAP) loans in Subpart G of 13 

CFR 123.702(c)(1) and (2), to remove 

restrictions for businesses with an 


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Federal Register / Vol. 88, No. 178 / Friday, September 15, 2023 / Proposed Rules 63535 

1 Investigating Prisoner Reentry: The Impact of 

Conviction Status on the Employment Prospects of 

Young Men. Investigating Prisoner Reentry National 

Institute of Justice Grant, Final Report., October 

2009. 

2 Local Labor Markets and Criminal Recidivism, 

ScienceDirect, Journal of Public Economics, 

Volume 147, March 2017, Pages 16–29. 

3 From Prison to Entrepreneurship: Can 

Entrepreneurship be a Reentry Strategy for JusticeImpacted Individuals? https://doi.org/10.1177/ 

00027162221115378, Sage Journals, Volume 701, 

Issue 1, September 14, 2022. 

4Providing Another Chance: Resetting 

Recidivism Risk in Criminal Background Checks | 

RAND Bushway, Shawn D., Brian G. Vegetabile, 

Nidhi Kalra, Lee Remi, and Greg Baumann, 

Providing Another Chance: Resetting Recidivism 

Risk in Criminal Background Checks. Santa Monica, 

CA: RAND Corporation, 2022. 

Associate who is presently under 

indictment but not convicted, on parole 

or probation; that has ever been charged 

with, arrested for, convicted, placed on 

pretrial diversion, and/or placed on any 

form of probation (including 

adjudication withheld pending 

probation) for any criminal offense other 

than a minor motor vehicle violation 

(including offenses which have been 

dismissed, discharged, or not 

prosecuted). Accordingly, SBA has 

determined that reducing barriers to 

these programs for otherwise qualified 

applicants where one or more of their 

associates has the criminal justice 

system involvement described above is 

necessary to ensure equity and expand 

economic opportunities. The ILP 

Intermediary Program currently 

considers as ineligible Associates of an 

applicant that are incarcerated, on 

parole or probation, or that have been 

indicted but not convicted for a felony 

or a crime of moral turpitude. 

Historically, for the Surety Bond 

Guarantee Program, SBA considers an 

applicant ineligible if any of the 

principals are under indictment but not 

convicted, previously convicted of a 

felony or have received civil judgment 

regarding business transactions. 

Currently for the 7(a) and 504 business 

loan programs, SBA considers an 

applicant ineligible if the business has 

an Associate who is incarcerated, on 

probation, on parole, or is under 

indictment for a felony or any crime 

involving or relating to financial 

misconduct or a false statement, and for 

Microloans, in addition to incarcerated, 

an Associate who is on probation or 

parole for an offense involving fraud or 

dishonesty. For the Disaster loan 

program in 13 CFR 123.101(i) and 13 

CFR 123.502(c), currently SBA 

considers ineligible any principal 

owners of the damaged property that are 

currently incarcerated, or on probation 

or parole following conviction for a 

serious criminal offenses, with 

additional specific restrictions for IDAP 

loans, that include presently under 

indictment, on parole or probation; 

charged with, arrested for, convicted, 

placed on pretrial diversion, and/or 

placed on any form of probation 

(including adjudication withheld 

pending probation) for any criminal 

offense other than a minor motor 

vehicle violation (including offenses 

which have been dismissed, discharged, 

or not prosecuted). 

SBA understands the original intent 

of these restrictions was to protect the 

performance of SBA’s capital programs 

against a presumed higher likelihood of 

default. Data and research, however, 

refute what may have animated SBA’s 

initial rationale. Importantly, SBA 

reviewed the relevant research and 

found no evidence of a negative impact 

on repayment for qualified individuals 

with criminal history records in any 

American business loan program. This 

lack of data demonstrates that 

continuing to rely on this restriction for 

that purpose would contradict the 

available evidence and although the 

restrictions may have been originally 

put in place with the goal of protecting 

program performance, the lack of data 

suggests continuing to rely on this 

restriction would reflect an outdated, 

inaccurate structural bias against 

individuals with criminal history 

records. Specifically, research 

demonstrates that employment 

increases success during reentry and 

decreases the risk of recidivism, with 

entrepreneurship providing an 

important and distinct avenue for 

economic stability given persistent 

stigma from employers who may decline 

to hire people with criminal history 

records. Notably, SBA found several 

studies showing the difficulty of 

obtaining employment for formerly 

incarcerated people (see for example, 

Investigating Prisoner Reentry: The 

Impact of Conviction Status on the 

Employment Prospects of Young Men; 1

from the Department of Justice’s 

National Institute of Justice Grant) and 

a positive link between employment 

and successful reentry, including 

avoiding recidivism (see for example, 

Local Labor Markets and Criminal 

Recidivism 2 in the Journal of Public 

Economics). Moreover, because justiceimpacted individuals may face barriers 

in obtaining employment, 

entrepreneurship can be an attractive 

option, and SBA found several studies 

showing the potential for 

entrepreneurship among Americans 

with criminal histories (see for example 

From Prison to Entrepreneurship 3 in the 

American Academy of Political and 

Social Science). Given the lack of data 

suggesting program performance issues 

and the breadth of research indicating 

the benefits, SBA is proposing to 

remove unnecessary restrictions that 

limit access to capital for justiceimpacted individuals. Furthermore, by 

providing an employment opportunity 

for formerly incarcerated individuals 

through entrepreneurship and/or 

growing a small business, SBA seeks to 

strengthen economic opportunity and 

growth as well as support public safety 

by reducing recidivism. 

SBA believes that modernizing the 

character requirements regarding 

consideration of the criminal history 

records of SBA loan applicants and 

Associates of business loan applicants is 

timely and appropriate to reflect 

changes in the public and private sector 

that have reduced unnecessary barriers 

to access to capital and successful 

reentry. Doing so also promotes 

equitable consideration for applicants 

who are ineligible for federal assistance 

in SBA’s programs due to pending 

indictments that have not led to 

convictions; prior convictions that have 

been adjudicated; and terms of 

incarceration that have been served. 

These changes create the opportunity 

for formerly incarcerated individuals to 

participate in SBA’s loan and surety 

bond programs and engage in 

entrepreneurial endeavors that research 

shows statistically decrease recidivism 

based on employment and continued 

engagement within their communities, 

thereby strengthening public safety.4

These proposed changes will enable 

SBA programs to provide capital in the 

form of Surety Bonds, 7(a), 504, 

Microloan, ILP, and Disaster loans to 

more qualified small businesses and 

disaster survivors, which will 

strengthen our economy. SBA does not 

propose to remove or change 13 CFR 

120.110(q) regarding ineligibility due to 

prior default and loss to the Federal 

Government. Finally, SBA will continue 

the pandemic implemented practices to 

access certain public data to perform 

fraud checks prior to approval of any 

7(a), 504 or Disaster loans. 

The Agency requests comments on all 

aspects of the revisions in this proposed 

rule and on any related issues affecting 

the 7(a) Loan, 504 Loan, Microloan, ILP, 

Surety Bond Guarantee, and Disaster 

Loan Programs. 

II. Section-by-Section Analysis 

Section 109.400(b)(15) Eligible Small 

Business Concerns 

Current section 109.400(b)(15) for the 

ILP Program states that ineligible 

businesses are those with an Associate 


ddrumheller on DSK120RN23PROD with PROPOSALS1
63536 Federal Register / Vol. 88, No. 178 / Friday, September 15, 2023 / Proposed Rules 

who is currently incarcerated, on 

probation, on parole, or has been 

indicted but not convicted of a felony or 

crime of moral turpitude. SBA proposes 

to revise this regulation to remove those 

barriers while maintaining the 

prohibition against only those 

businesses with an Associate who is 

currently incarcerated at the time of 

application or any time thereafter, and 

between the time of application and 

disbursement of loan proceeds. This 

revision is therefore narrowly tailored to 

reduce barriers to access for qualified 

formerly incarcerated small business 

owners who may be eligible to receive 

a loan through the ILP Pilot from an 

existing Intermediary with remaining 

funds to lend. 

Section 115.13(a)(2)(i) Eligibility of 

Principal 

Current section 115.13(a)(2)(i) for the 

Surety Bond program states that 

ineligible businesses are those with a 

Principal who is under indictment but 

is not convicted, or has been previously 

convicted of a felony, or a final civil 

judgment has been entered stating that 

such Person has committed a breach of 

trust or has violated a law or regulation 

protecting the integrity of business 

transactions or business relationships. 

SBA proposes to remove those barriers 

while maintaining the prohibition 

against only those businesses with a 

Principal who is currently incarcerated. 

This revision is therefore narrowly 

tailored to reduce barriers to access for 

qualified justice-impacted small 

business owners to compete for Federal 

and other contract opportunities by 

obtaining guarantees for surety bid and 

final payment and/or performance 

bonds. 

Section 120.110(n) What businesses are 

ineligible for SBA business loans? 

Current section 120.110(n) for the 

7(a), 504 and Microloan programs states 

that ineligible businesses are those with 

an Associate who is currently 

incarcerated, on probation, on parole, or 

is under indictment but not convicted 

for a felony or any crime involving or 

relating to financial misconduct or a 

false statement. SBA proposes to revise 

this regulation to remove some of those 

barriers while maintaining the 

prohibition against businesses with an 

Associate who is currently incarcerated. 

This revision is therefore narrowly 

tailored to reduce barriers to access for 

qualified justice-impacted small 

business owners. Section 636(a)(1)(B) of 

the Small Business Act states that SBA 

may verify an applicant’s criminal 

history background, but does not require 

such verification, nor does it prohibit 

loans for people formerly incarcerated. 

Lenders, CDCs, and Microloan 

Intermediaries make risk-based lending 

decisions. Some lenders include 

conducting criminal history background 

checks and others do not. SBA’s 

proposed revision does not impact a 

lender’s ability to continue to do so, in 

accordance with their own policies, 

provided they do so in a manner that 

complies with the Equal Credit 

Opportunity Act and other relevant 

laws. 

Section 120.707(a) What conditions 

apply to loans by Intermediaries to 

Microloan borrowers? 

SBA proposes to revise section 

120.707(a) to remove some of those 

barriers while maintaining the 

prohibition against where there is an 

Associate on parole or probation. For 

public safety reasons, however, SBA 

will retain the prohibition against 

making a loan to a childcare business, 

where an Associate is on probation or 

parole for an offense against children. 

This change will closely align with the 

proposed requirements for all business 

loan programs regarding the 

determination that an applicant with a 

Principal or Associate that is currently 

incarcerated is ineligible for assistance 

and support the flexibility and access to 

capital for qualified justice-impacted 

business owners. 

Section 123.101(i) When am I not 

eligible for a home disaster loan? 

Current section 123.101(i), for the 

Disaster loan program states that SBA 

considers ineligible any principal 

owners of the damaged property that are 

presently incarcerated, or on probation 

or parole following conviction for a 

serious criminal offense. SBA proposes 

to revise section 123.101(i) to state that 

the applicant is ineligible to receive a 

disaster loan only when any principal 

owner of a home that sustained damage 

is currently incarcerated. The eligibility 

requirements in 123.101 are cross 

referenced in 123.201 and 123.301; 

therefore, this proposed change will also 

apply to business property loans as well 

as economic injury loans. 

Notwithstanding SBA’s proposed 

change, in accordance with the 

requirements of Public Law 90–488 

(August 1, 1968) and as reflected in 

123.101(a), SBA will maintain its 

existing prohibition against any person 

who has been convicted of committing 

a felony during and in connection with 

a riot or civil disorder for a period of 

one year after the date of their 

conviction. This change will align the 

requirements proposed for all SBA loan 

programs regarding persons currently 

incarcerated applicants currently 

serving a term of incarceration and 

support the flexibility and access to 

capital for qualified justice-impacted 

disaster survivors. 

Section 123.502(c) Under what 

circumstances is your business 

ineligible to be considered for a Military 

Reservist Economic Injury Disaster 

Loan? 

Current section 123.502(c), for the 

Disaster loan program states that SBA 

considers ineligible any principal 

owners of the damaged property that are 

presently incarcerated, or on probation 

or parole following conviction for a 

serious criminal offense. SBA proposes 

to revise section 123.502(c) to state that 

for Military Reservist Economic Injury 

Disaster loans (MREIDL), the applicant 

is ineligible to receive a disaster loan 

only when an Associate of a business 

that sustained damage is currently 

incarcerated. Notwithstanding SBA’s 

proposed changes for disaster loans, in 

accordance with the requirements of 

Public Law 90–488 (August 1, 1968) and 

as reflected in 123.502(a), SBA will 

continue to consider as ineligible to 

receive any benefit under any law of the 

United States providing relief for 

disaster victims, any person who has 

been convicted of committing a felony 

during and in connection with a riot or 

civil disorder for a period of one year 

after the date of their conviction. This 

change will align the requirements 

proposed for all SBA loan programs 

regarding individuals currently 

incarcerated and support the flexibility 

and access to capital for qualified 

justice-impacted small businesses. 

Section 123.702(c)(1) and (2) What are 

the eligibility requirements for any IDAP 

Loan? 

Current section 123.702(c)(1) and (2), 

for IDAP loans state that SBA considers 

ineligible any applicant business that 

has an Associate that who is presently 

under indictment but not convicted, on 

parole or probation; charged with, 

arrested for, convicted, placed on 

pretrial diversion, and/or placed on any 

form of probation (including 

adjudication withheld pending 

probation) for any criminal offense other 

than a minor motor vehicle violation 

(including offenses which have been 

dismissed, discharged, or not 

prosecuted). SBA proposes to revise 

section 123.702(c)(1) and (2) to state that 

the applicant is ineligible to receive an 

IDAP loan only when any principal 

owner of a home or business that 

sustained damage is currently 

incarcerated. Notwithstanding SBA’s 

proposed change, in accordance with 


ddrumheller on DSK120RN23PROD with PROPOSALS1
Federal Register / Vol. 88, No. 178 / Friday, September 15, 2023 / Proposed Rules 63537 

5The Prevalence of Criminal Records Among 

Small Business Owners | RAND How Many 

Business Owners, Businesses, and Employees Are 

Affected by PPP Restrictions? 

6https://onlinelibrary.wiley.com/doi/10.1002/ 

pam.22438 Criminal Justice Involvement, Selfemployment, and Barriers in Recent Public Policy. 

Journal of Policy Analysis and Management, 

42(1),11–4 

7Providing Another Chance: Resetting 

Recidivism Risk in Criminal Background Checks | 

RAND 

the requirements of Public Law 90–488 

(August 1, 1968) and as reflected in 

123.101(a), SBA will continue to 

consider as ineligible to receive any 

benefit under any law of the United 

States providing relief for disaster 

victims, any person who has been 

convicted of committing a felony during 

and in connection with a riot or civil 

disorder for a period of one year after 

the date of their conviction. 

In addition to applicants in all 

programs certifying to having no owners 

or Associates that are currently 

incarcerated, SBA proposes to access 

certain external and widely acceptable 

and reliable databases to verify 

eligibility regarding incarceration and 

criminal history status. While increasing 

loan volume, SBA believes that these 

changes do not compromise the credit 

quality and performance of the loan 

portfolios. In fact, the Microloan and 

SBG programs have permitted loans to 

businesses with individuals on parole or 

probation at no negative impact to 

overall program performance. 

As published in June 2021, The 

RAND Research Brief 5 estimated that 

over 200,000 small businesses were 

affected or disqualified from 

participating in the Paycheck Protection 

Program due to SBA’s rules regarding 

current indictments and incarceration, 

and prior criminal convictions and 

criminal justice system involvement 

current incarcerations. Predictably, the 

survival rate of legitimate small 

businesses that did not receive 

assistance during the pandemic is lower 

than those that did receive support. Due 

to significant barriers to employment for 

individuals with criminal history 

records, self-employment and 

entrepreneurship are often vital avenues 

to successful reentry and employment. 

In fact, 28 percent of individuals with 

criminal history records are selfemployed.6 Accordingly, SBA’s general 

and targeted loan programs must be a 

resource that provide options that 

support economic success and growth 

for individuals and communities, from 

basic self-employment to becoming 

employers within communities, and 

that support successful reentry 

outcomes, thereby strengthening public 

safety. Research is clear that reducing 

barriers to employment reduces 

recidivism and supports successful 

reentry, leading to better outcomes for 

individuals and communities 7—all of 

which underscore the necessity for SBA 

to revisit and update these regulations 

to remove barriers to small-business 

employment and business ownership. 

Under the proposed rule, for each 

program, SBA, Lenders, CDCs, 

Microloan intermediaries, Sureties, and 

ILP Intermediaries, will consider the 

applicant business ineligible based on 

any criminal history record only when 

there is an Associate that who is 

currently incarcerated at the time of 

application or between the time of 

application and disbursement of loan 

proceeds or bond execution. 

SBA’s proposed rule also streamlines 

SBA’s lending criteria by reducing the 

number of factors that are required to be 

applied in determining eligibility based 

on criminal history records of small 

business owners. Lenders, CDCs, and 

Microloan Intermediaries make riskbased lending decisions. Some lenders 

include conducting criminal history 

background checks and others do not. 

SBA’s proposed revision does not 

impact a lender’s ability to continue to 

do so, in accordance with their own 

policies, provided that they do so in a 

manner that complies with the Equal 

Credit Opportunity Act and other 

relevant laws. 

Compliance With Executive Orders 

12866, 12988, 13132, and 13563, the 

Paperwork Reduction Act (44 U.S.C., 

Ch. 35), and the Regulatory Flexibility 

Act (5 U.S.C. 601–612) 

Executive Order 12866 

The Office of Management and Budget 

has determined that this rule is a 

‘‘significant regulatory action’’ under 

Executive Order 12866, as amended by 

Executive Order 14094. SBA has drafted 

a Regulatory Impact Analysis for the 

public’s information in the next section. 

Each section begins with a core 

question. 

A. Regulatory Objective of the Proposal 

Is there a need for this regulatory 

action? 

In accordance with statutory 

mandates of 15 U.S.C. 631 above, the 

Agency believes it needs to reduce 

regulatory restrictions for applicants 

with Associates or Principals based on 

criminal histories for the SBA Disaster, 

7(a), 504, Microloan, ILP and SBG 

programs by reducing the requirement 

for criminal history records 

consideration to only applicants with a 

Principal or Associate currently 

incarcerated in the manner proposed 

above or employment as an Associate at 

a small business. Many formerly 

incarcerated persons experience 

significant barriers in accessing 

employment and capital and credit 

often necessary to start a business. 

SBA’s proposed revisions will remove 

barriers to access capital for qualified 

applicants and employment. SBA will 

reduce the administrative burden on 

applicants as well as the need for 

fingerprints by providing a single 

succinct directive that SBA determines 

any applicant with a Principal or 

Associate that is currently incarcerated 

to be ineligible with no further 

requirements for disclosure of prior 

criminal records. 

B. Benefits and Costs of the Rule 

What are the potential benefits and 

costs of this regulatory action? 

SBA does not anticipate significant 

additional costs or impact on the 

subsidy to operate the 7(a), 504, 

Microloan, ILP, SBG and Disaster Loan 

Programs under these proposed 

regulations because all loans submitted 

must always meet Loan Program 

Requirements. For the SBG program, 

this change will benefit small 

contractors with Principals on parole, 

probation or convicted of crimes who 

will now be able to apply for small 

contracting opportunities. 

SBA does not receive information 

from lenders on how many applicants 

they decline for 7(a), 504, and 

Microloans. SBA has received 

substantial feedback and research from 

stakeholders that its current rules have 

presented broad barriers to otherwise 

qualified individuals with criminal 

history records that seek financing to 

start, run, or expand small businesses. 

This aligns with the statutory mandates 

in 15 U.S.C. 631 and supports the 

inference that reducing or removing 

barriers will result in additional 

applications from those businesses with 

justice-impacted owners who may have 

been deterred from applying due to the 

current prohibitions related to criminal 

history records. In the 7(a) and 504 

programs, for formerly incarcerated 

individuals and people not on parole or 

probation, out of more than 50,000 

thousand loans made annually, SBA 

lenders have submitted to SBA for 

review approximately 586 Character 

determination requests containing 

information on criminal history records 

involving felonies. SBA declines on 

average only 17–23 of the requests per 

year due to the nature of the offense or 

incomplete judicial records. SBA’s 

Disaster Loan Program has declined 93 

individuals for criminal history record 


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63538 Federal Register / Vol. 88, No. 178 / Friday, September 15, 2023 / Proposed Rules 

background checks between 2018 and 

2022, with an additional 1,026 files 

withdrawn by applicants prior to review 

during the same period. Microloan 

Intermediaries do not submit loans to 

SBA for approval, so SBA does not have 

data for criminal history records of 

Microloan applicants. Accordingly, 

SBA’s proposed changes would result in 

the same nominal concerns. Finally, 

Lenders, CDCs, and Microloan 

Intermediaries make risk-based lending 

decisions. Some lenders include 

conducting criminal history background 

checks and others do not. SBA’s 

proposed revision does not impact a 

lender’s ability to continue to do so, in 

accordance with their own policies, 

provided that they do so in a manner 

that complies with the Equal Credit 

Opportunity Act and other relevant 

laws. 

C. Alternatives 

What alternatives have been 

considered? 

SBA considered the impact of 

maintaining the current rules that deem 

as ineligible businesses with Principals 

or Associates currently incarcerated, on 

parole or probation or convicted of 

certain financial and other crimes. This 

would result in continuing barriers for 

small businesses owned by individuals 

with criminal history records. Instead, 

SBA’s proposal to remove all except 

currently incarcerated Principals or 

Associates as ineligible mitigates the 

risk to SBA of making guarantees and 

loans to businesses whose Principals or 

Associates lack the ability to manage 

and execute day-to-day business 

operations. And for disaster survivors, 

SBA’s proposed changes will increase 

equal access and support for recovery. 

Executive Order 12988 

This action meets applicable 

standards set forth in sections 3(a) and 

3(b)(2) of Executive Order 12988, Civil 

Justice Reform, to minimize litigation, 

eliminate ambiguity, and reduce 

burden. The action does not have 

preemptive effect or retroactive effect. 

Executive Order 13132 

This rule does not have federalism 

implications as defined in Executive 

Order 13132. It will not have substantial 

direct effects on the States, on the 

relationship between the national 

government and the States, or on the 

distribution of power and 

responsibilities among the various 

levels of government, as specified in the 

Executive Order. As such it does not 

warrant the preparation of a Federalism 

Assessment. 

Executive Order 13563 

A description of the need for this 

regulatory action and benefits and costs 

associated with this action, including 

possible distributional impacts that 

relate to Executive Order 13563, are 

included above in the Regulatory Impact 

Analysis under Executive Order 12866. 

Paperwork Reduction Act, 44 U.S.C. Ch. 

35 

SBA has determined that this 

proposed rule would require that the 

following forms be revised: SBA Form 

1919, ‘‘Borrower Information Form,’’ 

SBA Form 1920, ‘‘Lender’s Application 

for Loan Guaranty for all 7(a) Loan 

Programs,’’ SBA Form 1244, 

‘‘Application for Section 504 Loans,’’ 

SBA Form 5—Disaster Business Loan 

Application, and SBA Form 5C— 

Disaster Home/Sole Proprietor Loan 

Application and SBA Form, SBA Form 

994 ‘‘Application for Surety Bond 

Guarantee Assistance’’. 

SBA Forms 1919 and 1920 are 

approved under OMB Control number 

3245–0348. SBA Form 1244 is approved 

under OMB Control number 3245–0071. 

SBA Form 5 is approved under OMB 

Control number 3245–0017 and SBA 

Form 5C is approved under OMB 

Control number 3245–0018. SBA Form 

994 is approved under OMB Control 

number 3245–0007. 

SBA will revise SBA Form 1919, SBA 

Form 1920, and SBA Form 1244 to 

conform to the eligibility change at 13 

CFR 120.110(n). When small businesses 

apply for 7(a) or 504 loans, the 

estimated hour burden for applicants 

and lenders will decrease because the 

criminal history analysis and collection 

of data will no longer be required. SBA 

will revise SBA Form 5 and 5C to 

conform to the eligibility change at 13 

CFR 123.101(i). When disaster survivors 

apply for disaster loans, the estimated 

hour burden for applicants will decrease 

because the criminal history record 

analysis and collection of data will be 

reduced. 

SBA will revise SBA Form 994 to 

conform to the eligibility change at 13 

CFR 115.13(a)(2)(i). When small 

businesses apply for surety bond 

guarantees, the estimated hour burden 

for applicants will decrease because the 

criminal history record analysis and 

collection of data will no longer be 

required. 

Regulatory Flexibility Act, 5 U.S.C. 601– 

612 

When an agency issues a rulemaking 

proposal, the Regulatory Flexibility Act 

(RFA), 5 U.S.C. 601–612, requires the 

agency to ‘‘prepare and make available 

for public comment an initial regulatory 

analysis’’ which will ‘‘describe the 

impact of the proposed rule on small 

entities.’’ Although the rulemaking may 

potentially impact a small percentage of 

loans reviewed by 7(a) Lenders, CDCs, 

Microloan Intermediaries, ILP 

Intermediaries, the 44 Sureties that 

participate in the SBG Program, and 

SBA regarding the disaster loans, SBA 

does not believe the impact will be 

significant because this proposal 

reduces regulations and procedures. 

However, there may be impacts due to 

increased loans for businesses with 

Principals or Associates that have a 

criminal history record but are not 

currently incarcerated. 

SBA reviews approximately 586 

Character determination requests 

annually and declines 3–4 percent, or 

17–23 requests, due to the nature of the 

offense or incomplete judicial records. 

The proposed revisions to § 120.110(n) 

will eliminate the need for 100 percent 

of these character determination 

reviews. SBA Form 1919, ‘‘SBA 7a 

Borrower Information Form,’’ is the 

application form for the 7(a) Loan 

Program. SBA Form 1244, ‘‘Application 

for Section 504 Loans,’’ is the 

application form for the 504 Loan 

Program. Each application includes 3 

questions that Associates of the 

applicant must answer regarding their 

criminal history records. Under the 

proposed revisions, SBA will eliminate 

the three current questions and replace 

them with one new question regarding 

incarceration. SBA estimates that all 

applicants for the 7(a) Loan Program 

and 504 Loan Program will save 5 

minutes completing the applications 

due to these revisions. Intermediaries 

for the Microloan Program use their own 

applications for Microloan borrowers, 

but it is reasonable to assume similar 

time savings. The 7(a) Loan Program, 

504 Loan Program, and Microloan 

Program make approximately 68,677 

loans per year. Saving 5 minutes for 

each application will result in total time 

savings of 5,723 hours annually. 

List of Subjects 

13 CFR Part 109 

Community development, Loan 

programs—business, Reporting and 

recordkeeping requirements, Small 

businesses. 

13 CFR Part 115 

Claims, Reporting and recordkeeping 

requirements, Small businesses, Surety 

bonds. 


ddrumheller on DSK120RN23PROD with PROPOSALS1
Federal Register / Vol. 88, No. 178 / Friday, September 15, 2023 / Proposed Rules 63539 

13 CFR Part 120 

Community development, Loan 

programs—business, Reporting and 

recordkeeping requirements, Small 

businesses. 

13 CFR Part 123 

Disaster assistance, Loan programs— 

business, Reporting and recordkeeping 

requirements, Small businesses. 

For the reasons stated in the 

preamble, SBA proposes to amend 13 

CFR parts 109, 115, 120 and 123 as 

follows: 

PART 109—INTERMEDIARY LENDING 

PILOT PROGRAM 

■ 1. The authority citation for 13 CFR 

part 115 continues to read as follows: 

Authority: 15 U.S.C. 634(b)(6), (b)(7), and 

636(l). 

■ 2. Amend § 109.400 by revising 

paragraph (b)(15) to read as follows: 

§ 109.400 Eligible Small Business 

Concerns 

* * * * * 

(b) * * * 

(15) Businesses with an Associate 

who is currently incarcerated, serving a 

sentence of imprisonment imposed 

upon adjudication of guilty; 

* * * * * 

PART 115—SURETY BOND 

GUARANTEES 

■ 3. The authority citation for 13 CFR 

part 115 continues to read as follows: 

Authority: 5 U.S.C. app.3: 15 U.S.C. 636i, 

687b, 687c, 694a, and 694b, note. 

■ 4. Amend § 115.13 by revising 

paragraph (a)(2)(i) to read as follows: 

§ 115.13 Eligibility of Principal. 

* * * * * 

(a) * * * 

(2) * * * 

(i) The Person is currently 

incarcerated, serving a sentence of 

imprisonment imposed upon 

adjudication of guilty; or 

* * * * * 

PART 120—BUSINESS LOANS 

■ 5. The authority citation for 13 CFR 

part 120 continues to read as follows: 

Authority: 15 U.S.C. 634(b)(6), (b)(7), 

(b)(14), (h), and note, 636(a), (h) and (m), and 

note, 636m, 650, 657t, and note, 657u, and 

note, 687(f), 696(3), and (7), and note, and 

697, 697a and e, and note; Pub. L. 116–260, 

134 Stat. 1182. 

■ 6. Amend § 120.110 by revising 

paragraph (n) to read as follows: 

§ 120.110 What businesses are ineligible 

for SBA business loans? 

* * * * * 

(n) Businesses with an Associate who 

is currently incarcerated, serving a 

sentence of imprisonment imposed 

upon adjudication of guilty; or 

* * * * * 

■ 7. Amend § 120.707 by revising 

paragraph (a) to read as follows: 

§ 120.707 What conditions apply to loans 

by Intermediaries to Microloan borrowers? 

(a) Except as otherwise provided in 

this paragraph, an Intermediary may 

only make Microloans to small 

businesses eligible to receive financial 

assistance under this part. A borrower 

may also use Microloan proceeds to 

establish a nonprofit childcare business. 

An Intermediary may not make 

Microloans to businesses with an 

Associate who is currently incarcerated, 

serving a sentence of imprisonment 

imposed upon adjudication of guilty, or 

to childcare businesses with an 

Associate who is currently on probation 

or parole for an offense against children. 

Proceeds from Microloans may be used 

only for working capital and acquisition 

of materials, supplies, furniture, 

fixtures, and equipment. SBA does not 

review Microloans for creditworthiness. 

* * * * * 

PART 123—DISASTER LOAN 

PROGRAM 

■ 8. The authority citation for 13 CFR 

part 123 continues to read as follows: 

Authority: 15 U.S.C. 632, 634(b)(6), 636(b), 

636(d), 657n, and 9009. 

■ 9. Amend § 123.101 by revising 

paragraph (i) to read as follows: 

§ 123.101 When am I not eligible for a 

home disaster loan? 

* * * * * 

(i) You or other principal owners of 

the damaged property are currently 

incarcerated, serving a sentence of 

imprisonment imposed upon 

adjudication of guilty; 

* * * * * 

■ 10. Amend § 123.502 by revising 

paragraph (c) to read as follows: 

§ 123.502 Under what circumstances is 

your business ineligible to be considered 

for a Military Reservist Economic Injury 

Disaster Loan? 

* * * * * 

(c) Any of your business’ principal 

owners is currently incarcerated, 

serving a sentence of imprisonment 

imposed upon adjudication of guilty; 

* * * * * 

■ 11. Amend 123.702 by: 

■ a. Revising paragraph (c)(1); 

■ b. Removing paragraph (c)(2); and 

■ c. Redesignating paragraphs (c)(3) 

through (5) as paragraphs (c)(2) through 

(4). 

The revision read as follows: 

§ 123.702 What are the eligibility 

requirements for an IDAP loan? 

* * * * * 

(c) * * * 

(1) is currently incarcerated, serving a 

sentence of imprisonment imposed 

upon adjudication of guilty; 

* * * * * 

Isabella Casillas Guzman, 

Administrator. 

[FR Doc. 2023–19183 Filed 9–14–23; 8:45 am] 

BILLING CODE 8026–03–P 

DEPARTMENT OF TRANSPORTATION 

Federal Aviation Administration 

14 CFR Part 39 

[Docket No. FAA–2023–1880; Project 

Identifier MCAI–2023–00298–E] 

RIN 2120–AA64 

Airworthiness Directives; Rolls-Royce 

Deutschland Ltd & Co KG Engines 

AGENCY: Federal Aviation 

Administration (FAA), DOT. 

ACTION: Notice of proposed rulemaking 

(NPRM). 

SUMMARY: The FAA proposes to adopt a 

new airworthiness directive (AD) for all 

Rolls-Royce Deutschland Ltd & Co KG 

(RRD) Model RB211–Trent 800 engines. 

This proposed AD was prompted by 

reports of cracks on certain 

intermediate-pressure compressor (IPC) 

rotor shaft balance lands. This proposed 

AD would require initial and repetitive 

on-wing or in-shop borescope 

inspections (BSIs) of certain IPC rotor 

shaft balance lands for cracks, dents, 

and nicks, and replacement of the IPC 

rotor shaft if necessary, and would 

prohibit the installation of a certain IPC 

rotor shaft on any engine, as specified 

in a European Union Aviation Safety 

Agency (EASA) AD, which is proposed 

for incorporation by reference (IBR). The 

FAA is proposing this AD to address the 

unsafe condition on these products. 

DATES: The FAA must receive comments 

on this NPRM by October 30, 2023 . 

ADDRESSES: You may send comments, 

using the procedures found in 14 CFR 

11.43 and 11.45, by any of the following 

methods: 

• Federal eRulemaking Portal: Go to 

regulations.gov. Follow the instructions 

for submitting comments. 


ddrumheller on DSK120RN23PROD with PROPOSALS1