Approximately 3.8% of US business owners have a criminal record, and about 1.5% have a felony on their record, according to a study by RAND, a nonprofit, nonpartisan research group. That adds up to more than a million business owners who were able to keep their company afloat or start a new business, despite past legal issues.
Individuals with criminal records face certain challenges when going into business, but there are numerous options — including loans, grants and educational opportunities — to realize the dream of owning your own business.
Most business lenders don’t check your criminal background when you apply for a loan. Here are some types of business financing if you’re looking to start or expand a business, but your credit history isn’t perfect.
If you’re recently released from prison, your credit score may have declined in your absence. For that reason, you may need to look into lenders that specialize in bad credit business loans. You’ll pay more in interest than borrowers with good credit, but it can be a way to build your business credit and qualify for better rates down the road.
Term loans are a staple of business loans, and lenders offer both short-term and long-term options with a wide range of loan amounts. They’re widely available from banks, credit unions and online lenders. They also typically come with fixed interest rates and equal monthly payments, which can make them easier to budget for. But you may need a credit score around 670 to qualify.
If you’re not sure exactly how much you need to borrow, a business line of credit (LOC) is a flexible form of financing. In most cases, you can borrow as often as you like, and the funds replenish as you pay them back — a lot like a credit card. But unlike credit cards, LOCs typically have short loan terms — around 24 months or less — so it’s not a great long-term solution. Plus, you may need to pledge collateral or have a good credit score to secure the credit line.
A business credit card is typically easier to qualify for than other types of financing and can be a good option if you’re just starting a business. They’re flexible, often have great perks like cash back rewards and travel points, and many have 0% or low-rate promotional offers. But rates are high once the promotional period ends, and depending on your credit, you may not qualify for a high credit limit.
Some SBA loans have certain restrictions for lending to people with a criminal past, although it depends on the crime and other factors. However, SBA microloans — with amounts up to $50,000 — may be a better option. Microloans are generally distributed by local nonprofit lenders that have their own lending criteria, which may not involve a background check.
Lenders that offer MCAs are typically less concerned with your credit score than other types of business financing. This feature could make them a solid option if you have a felony record and don’t have the best credit. However, they are one of the more expensive forms of funding and usually best suited for businesses with strong monthly cash flow and a lot of debit and credit card sales.
This type of financing can be a smart option for business owners with a felony record who need to purchase or upgrade machinery, vehicles or other equipment. The equipment itself acts as collateral, which means lenders may be more flexible with credit requirements. However, some equipment loan lenders may require a down payment, and the equipment must hold enough value to secure the loan.
Check out these lenders that offer business loans for felons. Select Compare to evaluate up to four lenders side by side.
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Business lenders generally consider revenue, credit scores and time in business to determine loan approval.
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For those with a criminal background, grants are another source of funding that could be a good option. Grants are competitive, but if you’re eligible, you won’t have to repay the funds.
One place to get started is Grants.gov. Here you can find hundreds of grant opportunities for individuals and small businesses, and having a felony on your record may not be an issue. This site is also a good place to find out how to apply and write a grant proposal, as well as access other helpful resources.
You may be able to find private grants in your area offered by nonprofit organizations, nongovernmental agencies and corporations. Local grants can be less competitive than ones from the federal government and may not care about your record. Reentry programs in your state may have a line on business grants for formerly incarcerated individuals.
Federal Pell Grants — and other financial aid — can be used for almost any type of higher education, whether you’re looking to complete a bachelor’s degree, go to trade school or attend community college. And they’re open to people with criminal records, even if you’re still incarcerated but enrolled in an approved prison education program.
If a business loan isn’t the right move, consider these alternatives.
Financial difficulties may not be the only obstacle to overcome, so you may want to explore additional resources for people who’ve been to jail.
Here are some potential issues to consider when looking for a business loan.
Yes. Most business loans don’t require background checks, so it’s possible to get business financing regardless of your past. However, you still need to meet basic loan requirements, including minimums for credit score, revenue and time in business.
Fortunately, having a felony on your record doesn’t mean you can’t own your own business, but there could be some restrictions on the type of business you can have. For example, you may not be able to get a gaming license if you have a felony and want to open a casino.
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