Loans for formerly incarcerated people

A criminal record can damage your finances — and your ability to start fresh. In fact, formerly incarcerated people faced unemployment rates five times that of the national average, according to a 2018 study by the Prison Policy Initiative. 

Funding opportunities are available to you if you know where to look, even if your financial health isn't where you want it to be.

3 types of personal loans for those with a felony record

Rebuilding is about more than just work — and you may need more than business funding to get fully on your feet.

Federal student loans

School can be a great way to get your life going in the direction you want to take it. And student loans can be used for more than universities — you can pay for trade or online schools too.

The requirements for a federal student loan and other financial aid are clearly outlined on the Federal Student Aid website. In many cases, your previous conviction won't affect your eligibility.

Private loans

Despite your past, you may be able to get a personal loan from a bank or credit union. Typically you'll need to be willing to secure the loan with collateral — which means you risk losing it if you default. 

A good credit score of 670 or higher is required in many cases, so carefully read the lenders' requirements for eligibility before you apply. Each loan application that requires a hard pull on your credit history could shave a few points off your credit score on top of taking up your time.

Short-term loans

Take caution when applying for a short-term personal loan. While they’re easier to qualify for than traditional loans, you can wind up paying a lot more or getting trapped into a cycle of debt.

6 types of business loans for those with a felony record

Explore both traditional and nontraditional financing options to get a business off the ground — or take a current one to the next level.

SBA Microloans

Small Business Administration (SBA) microloans are available through community development financial institutions and nonprofits — and they are open to people with a criminal record. These loans are typically easier to qualify for than traditional bank business loans and can be used to fund a startup, as working capital or to purchase inventory or equipment.

Loans are up to $50,000 and have a maximum term of six years. And unlike other SBA loans, microloans aren't guaranteed — so there's no guarantee fee.

Crowdfunding

Get your business going by turning to a crowdfunding platform. While not a loan in the traditional sense, crowdfunding offers an opportunity to get financing at a low cost that you typically don't need to pay back. Plus, your background isn't checked for most of these platforms.

Friends and family loans

Better than anyone, your close friends and family know you and the limitations you face as you get your life moving again. If you decide to seek help from family members or friends, get the details of your loan in writing. This might include the amount, repayment terms and interest rate.

A written agreement can help you stay accountable and both parties avoid confusion as you repay the loan.

Real estate and equipment financing loans

Both commercial real estate loans and equipment financing are secured forms of financing — what you're purchasing serves as collateral. Having collateral that secures the loan gives lenders the assurance that they will be paid back — and if you default, they can collect the collateral to repay what you borrow.

As a result, your lender may not find your criminal history as important . But your collateral will need to be in good enough shape to outweigh the perceived risk your history presents.

Loans from online lenders

Online lenders may offer more flexibility than banks and credit unions when it comes time to qualify for your loan. Plus, most of these lenders won’t disqualify you if you have a criminal history — as long as you meet other eligibility requirements.

But you may not be able to borrow as much as you would from a traditional lender. And you may be on the hook for an origination fee of 5% of the loan amount or more.

Short-term business loans

For smaller loan amounts, you may be able to rely on a short-term business loan solution. Be careful though — requirements aren't as tough for these types of financing, but they can end up costing significantly more.

• Invoice financing. Rely on your business’s accounts receivables to get funded, rather than your personal credit. With this type of financing, a lender gives you an advance on your invoices.
• Invoice factoring. Another type of accounts receivable financing is invoice factoring. Instead of borrowing against your invoices, you sell them at a discount.
• Business cash advances. Also known as merchant cash advances, this type of business financing relies on your sales performance rather than your personal finances to determine eligibility. But watch out — they can come with daily or weekly repayments.

3 types of grants for those with a felony record

You'll find many grants that come from the local, state or federal government — but private and community organizations may have options too. Unlike loans and other types of financing, you do not have to pay them back.

Federal government 

Grants.gov is a great place to start when it comes to looking for grants from the federal government. Grants are available to small businesses and individuals, and a criminal record won't automatically disqualify you.

If you have low income and need help with basic necessities like food, medical expenses, housing and other costs, the federal government also offers federal benefit programs for individuals and families in need to help lower expenses and help them become more self-sufficient.

Private grants 

You can find private grants awarded by foundations, nongovernment agencies and corporations. They are typically easier to get than federal grants, and you may be able to get your funds more quickly. Because these grants tend to focus on local communities, there can be fewer applicants than for federal grants, so you may have a better chance of receiving funds.

Pell grants

If you can show financial need and haven't earned an undergraduate, graduate or professional degree, you may be eligible for a Pell Grant from the federal government. While awards typically won't cover the full cost of attendance, proving you're eligible for one can allow you to qualify for other need-based student financial aid.

Other opportunities for felons

It can take more than only financial resources to be successful. You may find even more assistance through:

• Inmates to Entrepreneurs. Take an eight-week course to get help starting or improving your own small business. It's free to anyone with a criminal record, and you can sign up anytime online. It also offers a shorter, 12-hour course called Starter U.
• State reentry programs. Check with your state government to find out about its re-entry program options. You may be able to get assistance finding a job, housing, getting personal ID and more.

Bottom line

A criminal record can make it challenging to get funding — but it’s not impossible. If you want to finance your business or go back to school, understanding all your options is your first major step.