Small Businesses, Criminal Histories, and the Paycheck Protection Program
Jun 21, 2021
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Small businesses whose owners have criminal records are often ineligible for federal assistance programs. One recent high-profile example of a program with such restrictions is the Paycheck Protection Program (PPP), which was part of the Coronavirus Aid, Relief, and Economic Security Act. The PPP provided money for payroll, rent, mortgage, and utilities to businesses with fewer than 500 employees.
Initially, companies owned by individuals with felony criminal records were ineligible to receive funds. The restrictions were later eased to expand the number of eligible small businesses. However, the PPP restrictions, in both their strict and relaxed forms, were adopted in the absence of solid information about their effects.
To address this knowledge gap, a RAND team
The analysis presents the first-ever national estimate of U.S. small business owners who have criminal records. The researchers used information from a data-aggregation company that collects and organizes data on business ownership and criminal history records, linking individual criminal records with information about company ownership. To obtain a more granular estimate, researchers used data from a different source to estimate prevalence numbers in two states (Minnesota and North Carolina) and used these data to examine how estimates vary by industry sector.
The national estimates (Table 1) show that 3.8 percent of small business owners have a criminal record. This percentage corresponds to approximately 1.1 million small business owners. More than 1.7 million employees are affiliated with these businesses. Within the group of business owners who have criminal histories, approximately 433,000 have a history of felonies.
|Business Owners||Associated Businesses||National Prevalence|
|Any criminal history||1,136,309||1,730,790||3.83%|
|Any felony record||433,013||661,113||1.46%|
The original PPP had sweeping restrictions. Among these, it excluded anyone convicted of a felony within the past five years. After subsequent revisions, only those convicted of a felony and currently incarcerated for a felony were ineligible for PPP funding.
As shown in Figure 1, the original PPP restrictions disqualified
The national prevalence rate among all businesses was 0.47 percent.
The revised PPP restrictions substantially reduced these numbers: 0.03 percent of small business owners were potentially affected, translating into approximately
Approximately 241,000 more businesses were eligible for the PPP under the revised restrictions.
|Original restrictions||Revised restrictions|
|Disqualifying felonies||140,325 (95% CI = 136,148–144,502)||6,956 (95% CI = 6,670–7,243)|
|Affected businesses||212,655 (95% CI = 207,450–217,861)||11,481 (95% CI = 11,030–11,931)|
|Affected employees||343,198 (95% CI = 336,767–349,629)||17,533 (95% CI = 16,399–18,666)|
NOTES: Under the original felony restrictions, 0.47 percent of our nationwide estimate of 45,159,461 small businesses were affected. Under the revised restrictions, 0.03 percent were affected—a reduction of 95 percent.
Using data on two states—Minnesota and North Carolina—researchers examined prevalence rates by industry sector. They focused on the construction and hospitality industries, which were expected to be most affected by felony restrictions. Approximately 3.4 percent of the owners of construction small businesses and 2.5 percent of the owners of hospitality businesses had some criminal history (Figure 2). Overall, 2.5 percent of owners across all other industries had some criminal history. Of those, less than 1 percent had felony records and less than 0.3 percent had a felony within the past five years.
|All criminal history||All felonies||Within 5 years|
|Construction||3.43 (95% CI = 2.71–4.54)||0.82 (95% CI = 0.53–1.52)||0.09 (95% CI = 0–0.56)|
|Hospitality||2.48 (95% CI = 1.86–3.50)||0.38 (95% CI = 0.20–0.97)||0.13 (95% CI = 0–0.63)|
|Other||2.54 (95% CI = 1.57–4.35)||0.86 (95% CI = 0.36–2.21)||0.22 (95% CI = 0–1.33)|
NOTE: Data weighted to reflect the distribution of small businesses in the 2012 Survey of Business Owners.
|State||CJARS Estimate||RAND National Estimate|
Note: The CJARS analysis was of sole proprietorships (five or fewer employees), while RAND's analysis examined small businesses (fewer than 500 employees).
The RAND team compared the national estimates of small business owners with felony convictions in the last five years with the CJARS estimates of small business owners with such recent felonies. The CJARS estimates are for sole proprietorships in seven states, while RAND's estimates are for all businesses with fewer than 500 employees and were pulled from nationwide data. Despite differing definitions, the RAND estimates are consistent with the CJARS estimates in the states for which there is overlap (see Table 2). For example, the CJARS estimates show a prevalence of 0.7 percent for North Carolina, while RAND researchers estimate 0.87 percent for that state; for Pennsylvania, the CJARS estimate of 0.6 percent is close to RAND's estimate of 0.5 percent. The RAND results showed lower rates than CJARS in Michigan (0.44 percent versus 2 percent) and New Jersey (0.05 percent versus 0.6 percent) and higher rates in Texas (1.16 percent versus 1 percent). CJARS estimates in Michigan and Texas might differ from those of RAND researchers because CJARS data for those states has been extensively curated.
The researchers found that an estimated 3.8 percent of small business owners nationwide have a criminal record. Approximately 0.5 percent of small businesses were disqualified from benefits under the original PPP rules; under the relaxed rules, this prevalence fell to 0.03 percent, and the revised rules would allow up to 201,000 more businesses and an additional 326,000 employees to benefit from the program. Some owners and businesses will benefit more than others. Although we do not have complete data on race, our estimates suggest that 24 percent of businesses affected by the original restrictions were owned by African-Americans.
This analysis makes unique use of large-scale commercial small business and criminal history record information. To the best of our knowledge, this is the first time this kind of data has been used by researchers to generate national estimates of the prevalence of criminal records in the United States. A main challenge with this type of estimate is the limited information about the completeness of the criminal history records from the aggregator across states. A comparison of the prevalence estimates showed that many states with the lowest estimates were also states for which the aggregator did not have statewide court information. Further documentation of the strengths and weaknesses of the commercially aggregated data would make similar analyses more valuable in the future.
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