As business dwindled to almost nothing at his Baltimore electrical contracting company, owner Sekwan Merritt couldn’t see how he could afford overhead expenses plus the $9,000 he pays five workers every two weeks.
Tens of thousands of Maryland small business owners in his position have benefited from the federal Paycheck Protection Program during the coronavirus-caused economic turmoil, but Merritt was deemed ineligible because he has a criminal record.
He didn’t think that was fair. And so, even as he was tapping savings and scraping together $30,000 to keep his company afloat, Merritt went to court to challenge the U.S. Small Business Administration rule excluding him, and won a partial victory.
While there is no guarantee that he will receive his forgivable loan of as much as $100,000, the electrician learned late last month that he will no longer be precluded from applying. That’s because the SBA, prodded by his lawsuit and Congress, recently eased the rules that initially blocked applicants convicted of a felony or placed on parole or probation within the last five years.
Merritt remains on parole after serving five years at Jessup Correctional Institution for possession of heroin with intent to distribute. He said he developed a business plan while in prison and started a firm, Lightning Electric, after his release in 2017. He predominantly hires formerly incarcerated people like him.
“Sitting in that cell, I said, ‘I’m going to provide opportunities for people.’ I wanted to be that role model,” Merritt said.
Maryland small businesses have received billions of dollars from the Paycheck Protection Program, which provides funding to keep companies going even when business has plummeted because so many people are working at home and forgoing outside entertainment to stay safe during the pandemic. The loans don’t need to be paid back if used for certain purposes, such as payroll.
When Merritt applied on April 15, a screen popped up saying: “Based on the answers provided, your application cannot be processed at this time,” according to the lawsuit he filed in federal court in Baltimore in June. He is among several plaintiffs, including Carmen’s Corner Store, a Hagerstown convenience store.
The SBA said in court that the criminal history exclusion was meant to reduce the misuse of funds.
The plaintiff’s lawyers argued that the exclusion was arbitrary and that Congress intended for all businesses to be eligible. The suit asked the court to block the rule.
It is uncertain how many other applicants around the country were denied from applying because of criminal histories. Merritt’s complaint says one in three working-age Americans have criminal records.
“The rule makes it harder for their businesses and employees to maintain economic stability,” says a YouTube video created about Merritt’s case that shows him huddling with co-workers at a job site. “At a time when people across the country are protesting the overcriminalization of Black individuals and communities, the injustice of this exclusion is clear.”
The video was prepared by the ACLU, which is helping represent him.
U.S. Sen. Ben Cardin and U.S. Rep. David Trone, both Maryland Democrats, joined other members of Congress in urging the SBA not to deny assistance to small business owners with criminal records.
Congress has moved in recent years to help many people with criminal histories gain better access to education assistance, get loans to start businesses and avoid being refused a job solely because they once committed a crime. In politically polarized Washington, criminal justice reform is a rare social issue attracting support from Democrats and Republicans.
SBA spokesman Jim Billimoria referred a reporter to a June 12 SBA release in which the agency announced it was easing the exclusion rule “in furtherance of President Trump’s leadership and bipartisan support on criminal justice reform.”
The rule was revised again on June 24. Unless owners have a history of loan application fraud, this current version only blocks applicants facing felony charges or those who began felony probation or parole in the past year.
Merritt is free to pursue a loan under the new rules.
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“He’s still in the process of connecting with a lender that can advise him,” said Claudia De Palma, a Philadelphia-based attorney with the Public Interest Law Center who is helping represent Merritt.
“We’re glad to see, in response to our lawsuit, the SBA and the court addressing the wrongful exclusion of many small business owners with arrests and conviction records from the (program),” said ACLU attorney ReNika Moore, another of Merritt’s lawyers.
Merritt and the other plaintiffs had hoped the court would strike down the entire criminal history rule, but that didn’t happen.
In a June 29 decision, U.S. District Judge Catherine C. Blake in Baltimore said Congress did not restrict the SBA from including a criminal history rule when it approved the economic relief program. But, because she agreed with the plaintiffs that earlier versions of the rule were arbitrary, she gave them until July 21 to apply under the new standard.
Last week, Congress moved to extend the program, which was to have expired June 30, until Aug. 8.
Merritt said he’s hopeful of getting as much as $100,000 in aid “to keep going” with his business.
“This lawsuit was about the opportunity to apply, and he’s won that,” De Palma said. “I feel like this opens a door. This puts everyone in a better position than they were.”