A business startup is one of the most difficult things there is. Of course, this is worse for ex-convicts. A criminal record denies you several potential benefits – including access to small business loans.
Regardless of the challenges, several felons have integrated themselves into society, ventured into business, and become successful entrepreneurs. Curtis Jackson (rapper cum entrepreneur) and Dave Dahl (Dave’s Killer Bread Co-founder) are two among many successful felon entrepreneurs.
No doubt, it can be pretty difficult to get a business loan as a felon. There are, however, a couple of things to know – and do – to increase your chances of securing a business loan. It’s all about finding felon-friendly business loans and discovering how to increase your loan approval chances.
When seeking capital to finance your business, think beyond loans – particularly for felons. Why?
Most felons already have some poor financial records. Perhaps, they are battling with lingering debt profile and poor credit score. Worse still, since they probably just served time, most are unemployed and without any steady income stream. Factoring these, the odds are usually against felons when seeking business loans.
So, you may want to go for felon-friendly business grants. And remember – loans and grants are not the same.
Grants are awarded without expected payback, whereas loans are refunded – even with interest. If you are eligible for a grant, that’s a debt-free way to boost your business.
Also, there are incubators designed to assist felons – Inmates to Entrepreneurs and Defy Ventures, among others. These channels offer networking opportunities, executive coaching, leadership training, as well as financing for small business startups.
You can also send words out about your business through crowdfunding channels like Indiegogo and Kickstarter. They welcome anyone above 18 – regardless of your criminal records. You can get monetary contributions if your business idea suits the audience. Then, you may, in turn, offer discounts or product samples to your supporters.
Having said much about debt-free options, let’s talk about loans for felons.
Small Business Loans for Felons
As mentioned – getting a business loan can be a hurdle for felons. So, if you seek a loan as an ex-convict, you may need some strokes of creativity. You need to try your hands on or two things to see what clicks.
Here’s a look at small business loans for persons with criminal records:
Loans from Family and Friends
Here’s the easiest way for ex-convicts to get financing. No one understands your condition better than your immediate family – or friends. These people, more than anyone, are supportive – they want to see you get back on your feet as soon as possible.
However, ensure to document the details of the loan – initial amount, interest repayment plan,and penalties for default. This would help avert any form of disagreement in the future.
Inadequate interest on loans might be regarded as mere gifts by IRL and may attract some tax penalties.
Small Business Administration (SBA) Loans
These small business loans are guaranteed by the government to encourage lending houses and banks to issue low budget loans to small scale entrepreneurs who might not qualify for standard financing. SBA focuses particularly on women, minorities, and people with a criminal past.
Good enough, SBA does not just reject felons; they do a case-by-case check on their criminal background. Financial related crimes (e.g., embezzlement) and violent crimes (like burglary) are good grounds for SBA loan denial. However, some past charges do not hinder your qualification.
To increase your chances of getting an SBA loan, get a good credit score and a convincing business plan.
Real Estate and Equipment Loans
Equipment financing and real estate loans are felon-friendly loans. With such loans, the underlying assets – real estate and equipment – also serves as the loan collateral. So, when borrowers are unable to repay the loan, the collateral is forfeited.
Here, since there’s sure collateral, criminal records matter less – so far the collateral is in good shape.
Short-term Online Lenders
Here’s another opportunity for felons to get small business loans. These short term loans – like Kabbage and OnDeck – offer a lot more flexibility, particularly when it comes to eligibility benchmark.
However, this funding alternative is suitable for those who have had their startup running – for at least one year. These short term lenders are more concerned about your business’ viability.
If you can prove your business makes a good revenue, then nobody cares that much about your criminal past.
Is your business up and running already? You may consider invoice financing for funding. This loan option is designed for B2B businesses that provide customers with an invoice for sales. While awaiting customers’ payment for credit sales, invoice financing may help makeup for your capital.
With an invoice, the lender is pretty sure of your customer’s commitment to pay, so your criminal record has little – or nothing – to prove here. Lenders will, instead, run a check on your customer’s reputation and credit record and if it looks good – this qualifies you.
Merchant Cash Advances
Merchant cash advances are also a good pick in your search for small business funding. With the financing option, you will get money which will be deducted from your credit card sales – over time. So if your credit card sale is adjudged ‘above-average,’ then you can qualify.
You don’t need a criminal record to get this advance cash. However, the rates are expensive. In the end, the yearly interests on this loan can be as high as 100% -sometimes, higher. And, of course, regular deductions from your credit payments can be costly for your business.
Here we are – you have enough small business loan options to choose from, even with your felon profile. However, the fact remains that felons are at a great disadvantage when searching for business funding. To increase your chances, here are three helpful tips:
- Draw a detailed business plan
Here’s a quick look at a typical business plan structure
- A clear description of your brand – product or service
- Data – names and CV – of founders
- Business location
- The mission statement of business
- Target market
- Analysis of competitors
- Advertising and marketing strategy
- Financial projection – of between 3 to 5 years
- Details of existing debts – if any.
- Get a good credit score
- Build connections –network as much as possible
Besides these tips, be accurate in your loan application. The bolder you are, and fewer mistakes you make in your loan application, the higher a lender’s confidence to approve your request – regardless of your felony.
Robert Gomez was born and raised in the Bronx, New York. He currently lives in Northern California with “the wifey,” “the kids,” “the dog,” and “that cat,” 🙁 He is also a former journalist who has interviewed murderers on death row. Felonyfriendlyjobs.org was born to help ex-felons get a second chance in life.