Firms that hire convicts to be eligible for federal loans

Entrepreneurs who employ people with a criminal past would have easier access to small business loans under a new proposal from the Obama administration.

The Small Business Administration (SBA) is considering changes to the eligibility requirements for a program that doles out "microloans" to women, low-income, veteran and minority entrepreneurs in need of small amounts of financial assistance. The new rule would expand access to these loans for small businesses that employ people who are on probation or parole. 

This is part of an interagency effort headed by the Justice Department to help formerly incarcerated individuals reenter the workforce once they are released from prison. 

"Formerly incarcerated individuals who maintain steady employment are less likely to return to jail," the Small Business Administration wrote in the Federal Register. "However, many formerly incarcerated individuals have difficulty finding steady employment."

The Small Business Administration provides microloans of $50,000 or less to certain entrepreneurs who are in need of small amounts of financial assistance. The agency gives larger loans to program administrators, or intermediaries, which then turn around and provide microloans to certain entrepreneurs.

But often times, small businesses that employ former criminals are turned down for these loans, so many companies shy away from hiring them. The new rules would take away that disincentive, so small businesses that hire former criminals will still have access to capital, with a few exceptions. 

The new rule would specify, however, that small businesses that employ former criminals who were convicted of fraud would be ineligible.

"Under the amended rule, businesses with an associate on probation or parole for an offense involving fraud or dishonest would be ineligible, as would child care businesses with an associate on probation or parole for an offense against children," the agency wrote. "Also, under the proposed rule, individuals who are currently incarcerated or under indictment would remain ineligible for microloans."

The Small Business Administration's proposed rule would also make several other changes to the microloan program, including a requirement that intermediaries make more loans each year. The agency pointed out that 77 intermediaries made fewer than 12 loans to entrepreneurs in 2012.

"Intermediaries would be required to increase the number of microloans made each year in order to receive grant funding, which is used to provide technical assistance to borrowers and prospective borrowers," the agency wrote.

Additionally, intermediaries would be allowed to keep the money they receive from the Small Business Administration in federally-insured credit unions. "The current definition specifies only insured banks and savings associations," which the agency admitted can be confusing.

A provision that requires intermediaries to keep the money in "interest-bearing accounts" would also be removed with this rule.

"The SBA is proposing these changes in order to clarify certain program requirements that have caused confusion," the agency wrote.

The public has 60 days to comment on the proposed rules.