I Fought the Law and the Loan Died

Were you wild in your youth? Get ready for some additional work and time.

A Small Business Applicant is not eligible for SBA assistance if the business has an Associate of Poor Character. An individual with Poor Character includes a person who is incarcerated, on probation, on parole, who are currently under indictment for a felony or a crime of moral turpitude, or who are presently subject to an indictment, criminal information, arraignment, or other means by which formal criminal charges are brought in any jurisdiction.

An individual with a deferred prosecution is treated as if the individual is on probation or parole. Such an applicant is not eligible.

Does it matter how long ago your indiscretion was?

On non-SBA financing requests most traditional bank lenders won’t dig back more than 7-10 years to ask loan applicants about possible past criminal activity. So if it happened many years ago your run in with the law many not even be asked about.

However the SBA unlike traditional lenders consider past run-ins with the law, even those that occurred in one’s youth, as a very serious concern that needs to be addressed.

What do I have to do to get approved? (Paperwork, documentation, detailed explanation, SBA direct approval, get bank to now OK)

Paperwork – Statement of Personal History – also called a Form 912. In order to be assured that a Small Business Applicant is eligible under this section, every proprietor, general partner, officer, director, managing member of a limited liability company (LLC), owner of 20% or more of the equity of a Small Business Applicant, Trustor (if the Small Business Applicant is owned by a trust), and any person hired by the Applicant to manage day-to-day operations of the business to complete and sign an SBA Form 912, Statement of Personal History (“912″). The critical questions on the 912 are going to be numbers 7, 8 and 9, which include information regarding past or present arrests, convictions, probation or other adjudications for any criminal offenses other than minor motor vehicle violations.

Every person completing this form must answer each question fully giving details about any “yes” response. PLEASE NOTE: A “yes” is required even when the applicant believes the record is sealed, expunged or otherwise unavailable. (This information must be kept private and confidential by the lender.) There are no exceptions to or waivers of this policy, and that individual must complete, sign, date, and submit SBA Form 912 to the Lender for processing.

Documentation. – The lender must obtain a complete understanding of the reason(s) for the “yes” response and when necessary for clarification, the lender must obtain additional written explanation from the Subject Individual to include the following:

(a) Date of the offense(s).

(b) City and state or the county and state where the offense(s) occurred.

(c) The specific charge(s) [DUI, assault, forgery, etc.] AND the level of the charge; (either a misdemeanor or felony).

(d) Disposition of the charge(s). This may include but is not limited to the following:

(i) Any fines imposed;

(ii) Any class or workshop to be attended;

(iii)Any jail time served;

(iv) If applicable, the terms of probation (including evidence and dates of successful conclusion of the probation); or

(v) Any other court conditions (such as registration as a sex offender).

(e) Assuming the court’s conditions have been met, the applicant should state that all conditions of the court have been satisfied in his explanation and provide court documents evidencing that these conditions were met.

Detailed Explanation Letter – Hands down the best explanation letter you can write is going to tell the following story.

1. What happened was a mistake you regret.
2. You are different person and it’s not likely to happen again.
3. Give detailed reasons on how your life-decision making is now different.

A great credit score can also help make your point and you may want to reference it when you explain how important you view your character.

Fingerprints – When an applicant discloses a felony arrest a Fingerprint Check is required and a Fingerprint Card (FD 258) must be completed. “Electronic Fingerprint Submission” means fingerprints taken and reproduced in a machine-readable format by a fingerprint capture system that complies with the Federal Bureau of Investigation’s Electronic Biometric Transmission Specifications. An Electronic Fingerprint Submission must be compatible with the Federal Bureau of Investigation’s Automated Fingerprint Identification System, or any successor system in place for biometric identification. The Electronic Fingerprint Submission will generally be a piece of paper produced by the fingerprint capture system, which an individual may attach to SBA Form 912 to expedite character check procedures. Where an Electronic Fingerprint Submission is not locally available, paper and ink fingerprint cards may still be used. Local law enforcement agencies will usually assist the individual with the fingerprinting. Lenders may obtain the FD 258 from their local District Office.

When an applicant discloses a past offense(s) that was classified as a misdemeanor, the background check may either be a Name Check or a Fingerprint Check. A Fingerprint Card (FD 258) or the Electronic Fingerprint Submission (as defined above) must be completed.

SBA Field office Approval. Regardless of whether the past offense was a felony or a misdemeanor, your lender must submit the complete 912 package to the local SBA field office before loan processing can proceed.

Getting bank to OK loan – Because new information about your past is now disclosed to the participating Bank who was going to do the loan there is a larger probability that the Lender may decide to pass on your loan request. Past criminal activity involving violence and fraud tend to be the two big concerns that may cause an interested lender to now past on your loan request.

Please Note:

• This whole process can add 5+ weeks to your loan funding time.
• For most applicants your chances of getting the SBA to approve going forward are pretty good. Most of the scenarios we have seen involve past driving while intoxicated records or being caught with illegal drugs while the applicants were in their youth. The longer ago your situation was the better.