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Business Loans and Grants for People With Felony Convictions

Business Loans and Grants for People With Felony Convictions
Nancy Bilyeau
Nancy BilyeauUpdated November 17, 2022
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Editor’s note: Lantern by SoFi seeks to provide content that is objective, independent and accurate. Writers are separate from our business operation and do not receive direct compensation from advertisers or partners. Read more about our Editorial Guidelines and How We Make Money.
Having a felony record doesn’t block you from starting your own small business. When getting a business off the ground, you’ll have to follow the same best-practice guidelines as any other budding owner, from developing a well-thought-out business plan to presenting a strong financial profile when seeking financing.In fact, becoming an entrepreneur could prove a solution to the problem of finding work. On some job applications, there is an option to check a box indicating whether or not you have a criminal record or conviction. Or the existence of a past conviction could come out in an employee background check. According to one survey, 40% of employers will not even consider a job applicant for employment once they are aware that the individual has a criminal record. This is why a movement is growing called “Ban the Box,” a campaign by advocates for ex-offenders aimed at removing the check box that asks if applicants have a criminal record from hiring applicationsOwnership is a direction some people are taking so that they can make a living.  According to the Rand Corporation, more than 3.8 percent of U.S. small business owners have a criminal record, and about 1.5 percent have a felony record.Read on to learn about exploring business loans and grants to help finance your business start-up.

5 Small Business Grants for People With Felony Convictions

Loans and grants are not the same thing. Grants are non-repayable. They’re like a gift. They may be awarded by government departments, trusts, or corporations.Small business grants for felons are available. There are no grants specifically set aside for people with criminal records, but some grants are available for women, minorities, veterans, and rural residents, if any of those targeted groupings help. It’s also important to find out if the location of your small business qualifies you for special state, city, or corporate grants.These are some of the places to check out for opportunities.

1. Grants.gov

Grants.gov, a portal website that allows you to search and apply for federal funding opportunities, is an important source. It is a government agency that maintains information about federal government grants that are available to small businesses which qualify. All applicants for federal grants, such as small businesses, nonprofit organizations, and educational institutions, start with Grants.gov. 

2. National Association for the Self-Employed (NASE) 

NASE Growth Grants are offered to members of the organization who are trying to take their business to the next level. These grants are worth up to $4,000 and can be used for all types of activities.

3. Minority Business Development Agency (MBDA)

The U.S. Department of Commerce Minority Business Development Agency offers targeted grants to aid minority-owned businesses.  The grants can be for securing capital, competing for a contract, identifying a strategic partner or becoming export-ready. 

4. The FedEx Small Business Grant

The FedEx Small Business Grant Contest offers corporate small business grants for growth. FedEx awards $25,000 in grants to 12 qualified applicants as well as additional services each year through their grant contest.

5. Amber Grant for Women

The Amber Grant has been giving money to female entrepreneurs monthly since 1988. They’ve expanded their grant-giving to include “Marketing Grants” and “Business Category Grants,” as well as two “$25,000 Year End Grants.”Recommended: 20 Small Business Start-Up Grants, Programs, and Checklists 2022

3 Small Business Loans for People With Felony Convictions

Having a felony conviction record doesn’t automatically disqualify you from getting approved for a business loan. What lenders look for when considering a small business loan is strong credit, a solid business plan, and usually a business track record of at least a year. However, it’s possible that as part of the approval process, a lender could decide not to approve a loan because of a criminal record.The reality is that people who’ve been impacted by the criminal justice system may have poor credit. That can make it difficult to qualify for lenders that require certain credit scores and extensive business experience. The time spent in prison may have limited credit history or prevented gaining real-world experience. For these reasons, small business loans for felons are not easy to get.Here are three types of loans to learn more about:

1. Small Business Administration (SBA) Loans

SBA loans are guaranteed by the U.S. Small Business Administration. The government guarantee is designed to encourage banks and lending institutions to loan money to small business owners who might otherwise find it difficult to qualify for affordable financing. You can use SBA loans to pay for almost any type of business expense.However, a criminal justice background can make it impossible to get an SBA loan under certain circumstances. The SBA says on its website under “Probation or parole”:“Applications will not be accepted from firms where a principal (any one of those required to submit a personal history statement, SBA Form 912) is currently incarcerated, on parole, or on probation; is a defendant in a criminal proceeding; or whose probation or parole is lifted expressly because it prohibits an SBA loan. This restriction would not necessarily preclude a loan to a business where a principal had responded in the affirmative to any one of the questions on the Statement of Personal History. These judgments are made on a case-by-case evaluation of the nature, frequency, and timing of the offenses. Fingerprint cards (available from the local SBA office) are required any time a question on the form is answered in the affirmative.”SBA loans have interest rates that make them very attractive, so it is usually a good idea to investigate getting one, and see if you can qualify after making your case.

2. Online Business Loans

Online business lenders may offer alternative business loans with less stringent requirements compared to traditional banks or through the SBA. While approval and funding times can be fast, you still need to provide proof showing that you’ll be able to repay the loan.Remember to consider the drawbacks of subprime online business loans. They usually come with a very high APR and a shorter repayment term. There also may be a requirement for a personal guarantee, which means your personal credit score can be impacted for any late payments or delinquency—and your personal assets may also be at risk to pay back the loan if your business isn’t able to.

3. Invoice Financing and Factoring Loans

Compared with other types of business loans, invoice financing and invoice factoring can be easier to qualify for, even if you have bad credit. Invoicing financing is a type of short-term business loan based on the outstanding invoices you have from your customers. Also called accounts receivable financing., invoice financing is considered to be secured funding because your company invoices serve as collateral for the funds you receive. In addition to this traditional secured loan structure, there are several other kinds of invoice financing. One of these is invoice factoring, in which you actually sell your unpaid invoices to a factoring company for a percentage of the invoices’ face value The factoring company then becomes responsible for collecting from your customers. Recommended: Guide to Funding a Small Business

Debt-Free Financing Ideas for People With Felony Convictions

Steering clear of debt — not just small business loans but business credit cards and lines of credit — is clearly desirable. But if you aren’t independently wealthy, how do you start and grow a small business, particularly if you have a felony conviction?The answer could be equity financing, otherwise known as getting investors.“Prison prepared me for entrepreneurship even more than I could have prepared earning an MBA,” Andrew Medal, who served a prison sentence and is now a podcaster and angel entrepreneur, said in an article published by Entrepreneur, “An inmate is forced to operate at his or her most optimal efficiency, leveraging those already-scarce resources. How does this apply to entrepreneurship? Bootstrapping is a vital skill for any newly formed startup.”When you get investors, you offer shares of your company to family, friends, and acquaintances in your networks in exchange for money. Depending on the planned size and scope of your startup, you could be pitching your dream to venture capitalists (employees of risk capital companies who invest money in companies) and angel investors (individuals who offer their own money in exchange for a piece of the business).The forms of equity financing are:
  • Crowdfunding (such as CircleUp, EquityNet, WeFunder, and Fundable)
  • Angel investors, high net worth individuals who provide capital for startups
  • Venture capital firms, individuals, or companies that invest in young businesses
The chief advantage of equity financing is that there is no obligation to repay the money acquired. However, you are giving up some control of your business. In order to gain funding, you gave investors a percentage of your company. You’ll have to share your profits and consult with your partners any time you make big decisions.Recommended: Pre-seed Funding and How it Works

Resources for Entrepreneurs With Criminal Justice Background

To learn how to brainstorm, launch, and grow a small business, you can get free advice from both the Small Business Development Center (SBDC) and SCORE, which is affiliated with the SBA. A mentor can make a huge difference in whether you succeed.These two organizations offer advice targeted to people who have been impacted by the criminal justice system:

Inmates to Entrepreneurs

The mission of Inmates to Entrepreneurs is to assist people with criminal backgrounds in starting their own business by providing practical education through in-person and online courses taught by entrepreneurs.

Help for Felons

Help for Felons “provides support and direction to felons, inmates, and ex-offenders in every aspect of life.”  On its site, the group provides sources and directories for jobs, reentry, housing, and financial help.

The Takeaway

If you have a felony conviction, finding work can be a challenge. Some people solve the problem by becoming an entrepreneur. Through applying for business grants and connecting with angel investors, investigating small business loans, and seeking advice from qualified mentors, you can find ways to get your business off the ground.Whether you're looking for an SBA loan, term loan, line of credit, or more options, Lantern can help you find the right financing.
Photo credit: iStock/Bulgac
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About the Author

Nancy Bilyeau

Nancy Bilyeau

Nancy Bilyeau writes about student loans, mortgages, car insurance, medical debt and many other finance topics for Lantern. A veteran of the magazine business, she has edited stories on personal finance for Good Housekeeping and DuJour magazines and has written articles for The Wall Street Journal, Readers' Digest, Parade, Town & Country and Lifetime/A&E, among others. She is a graduate of the University of Michigan.
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