Need to Know: Business Loans for Felons
*We’re all about helping you make good business decisions, so any opinions or views expressed in our blogs reflect that of our editorial team only and not FaaSfunds, LLC as a whole.
Second chances are important. That’s why making sure that business loan options are available to everyone, including felons, helps give individuals second chances regardless of their past. Business loans for felons can be hard to find, but not impossible by any means.
The U.S. houses 25 percent of the global incarcerated population. With so many individuals going through the prison system, there’s often not a way to ensure their homogenization and success after their release. It’s much harder to find employment because of their status as a felon, and that makes it much harder to assimilate and go back to living a regular life. Felons are 50 percent less likely to be offered a job, and when they are, they make 40 percent less. These roadblocks to success don’t make productivity any easier, so entrepreneurship is often an attractive and logical option for former inmates. For felons looking to start their own business, there can be several funding options.
Is Success Possible?
There are quite a few well-known successful formerly incarcerated entrepreneurs, like Dave Dahl, founder of Dave’s Killer Bread, Performance Two founder Georgia Durante and Pigeonly founder Frederick Hutson. These are large-scale successes, but there are surely thousands of locally successful ex-convicts around the country.
Andrew Medal, an ex-convict turned entrepreneur, writes for Entrepreneur Magazine that there are several factors that make former inmates ideally suited for entrepreneurship – they’re experts at bootstrapping, familiar with the unknown and know how to take healthy risks. These factors, however, don’t show up on a credit report. What’s it like trying to get a business loan as a felon?
The Unfortunate Facts
If you’re looking for business loans for felons, it may not be an easy feat. When you get out of jail and don’t have a steady source of income, the reality of the matter is that your credit score is likely less-than-stellar. This makes qualifying for a loan considerably harder. It’s best to start off with some sort of debt-free financing, if possible. Debt-free financing is exactly what it sounds like – a version of business funding that requires no credit or repayment. One type is a business grant.
Before you focus on business loans for felons, you might want to look into grants for felons. There are entire organizations designed specifically for ex-convicts and felons looking to turn their life around and become entrepreneurs, and several of them offer grants or funding help. Unlike loans, grants don’t have to be paid back, and many are designed to boost small businesses and jump-start careers for underserved entrepreneurs.
A great place to begin is grants.gov, where you can search for federal government grants that match what you’re trying to achieve. With this option, you might not find many designed specifically for felons, but you can look for ones designed for either the type of business you’re trying to start, or ones centered around your nationality, heritage or identity. Local governments and religious organizations often will have resources and programs designed to help felons achieve success, so it’s also a good idea to start by looking hyper-local.
Help For Felons is a website designed to help ex-cons assimilate into society. They don’t specifically offer grants, but they do offer tons of business-applicable tips. Nonprofits like Inmates to Entrepreneurs help ex-cons get information and access to the things they need to start their own businesses. They’re also an incubator, which is a program that provides training, coaching, networking and financing. Defy Ventures is another similar program focused on “humanizing connections” and has a range of programs from incubators to entrepreneur boot camps.
If you think your product or idea could gain traction quickly, and people have expressed interest, it might be worth starting a crowdfunding campaign. Sites like Kickstarter and Indigogo have proven to be successful tools for entrepreneurs in raising capital for their business ventures, and they don’t care if you have a criminal record. Crowdfunding is a form of fundraising where people donate online in support of your product. Depending on the platform you use, donators receive either equity, swag or a version of your product.
Business Loans for Felons
- Equipment financing
If you’re looking for business loans for felons and your venture requires large equipment to get started, or even real estate, equipment loans are “self-securing.” The equipment or property acts as collateral to secure the loan. This means that you won’t require extra collateral to get them, which is good if you’ve just been released from prison and don’t have the best financials. Lenders are more inclined to give loans to people with less-than-stellar credit if the loan is secured, so your criminal history is not as important as it would be with other loans.
- Online Lenders
Online marketplace lenders are able to be more flexible on terms and qualification requirements than traditional banks – sites like Kabbage, OnDeck or Lending Tree. These could be easier options if you’re a felon looking for a business loan. These options do, however, cost more in interest than a traditional bank loan, but are usually quicker to acquire.
If you have a criminal record and are looking to fund your business, or are trying to keep track of your business credit, let FaaSfunds help. We’re here to make sure you make the best decisions for your business.