Longstanding struggles getting hired often push formerly incarcerated people to start their own businesses. According to data from the Prison Policy Initiative, in 2008, unemployment among formerly incarcerated people sat at 27%. This was five times higher than the unemployment rate of the general U.S. population at the time and 2% higher than the nationwide peak in unemployment during the Great Depression. Formerly incarcerated women and people of color have it especially hard. While Black women in general in the U.S. have an unemployment rate of 6.4%, this skyrockets to 43.6% when looking at Black women who are formerly incarcerated.
While formerly incarcerated people have the will to work, they are more likely to be active in the labor market in terms of searching work than the general U.S. public. Ongoing stigma about hiring those with criminal records can make it difficult to secure work and increase their likelihood of returning to prison or jail. While more than 30 states and 150 cities have adopted some form of “ban the box” legislation that removes questions about conviction history on job applications and delay background checks until later on in the hiring process, the stigma persists.
The combination of a tough job market for formerly incarcerated people and the need for a stable income creates a situation where entrepreneurship is often the best avenue. However, even as owners of their own businesses, those who are formerly incarcerated continue to face unique obstacles due to their criminal histories.
‘This is just magnifying the problem’
Katie Leonard, director of Zero Model Nova, a Virginia-based organization that develops business strategies and provides backend support for formerly incarcerated entrepreneurs, says that stipulations like those in the Paycheck Protection Program legislation have impacted her clients. However, Leonard also notes that this moment only highlights challenges that formerly incarcerated entrepreneurs have had to deal with long before the COVID-19 pandemic hit.
“This isn’t new. This is just magnifying the problem,” said Leonard. “This isn’t an issue of ‘Oh wow. With COVID, I can’t access these loans’. They’ve never been able to access loans. In some cases, they don’t have the credit history or they’ve never been able to go to a network of partners.”
Leonard explained that because the pandemic hit at a time of the year when most businesses are coming out of a slower winter season and were expecting to recoup from losses typically incurred during the fourth and first quarters of the year, every small business owner is taking a serious hit and experiencing a slice of what their formerly incarcerated peers have been working through.
“There are barriers like the criminal history to get the capital, but at the same time they’re no different than any other business. But it’s important to know that the issues that some businesses are having right now are structural systemic problems that this group has experienced all along.”
Outside of frequent ineligibility for loans, entrepreneurs with criminal records are typically less equipped with the initial capital, robust networks, and solid credit needed to launch their businesses. Time spent in prison or jail can both drain individuals of their wealth due to costly services like phone fees while creating mountains of debt they will eventually have to repay after they complete their sentence. Debts incurred during incarceration can be attributed to missed payments on preexisting bills, restitution fees, court-related fines, and child support. Incarcerated people are also frequently targets for identity theft and fraud, which can exacerbate their debt upon release. The impact on credit scores coupled with a lack of training around certain business concepts and legal principles can serve as barriers to success for formerly incarcerated first-time business owners.
Leonard also notes that certain funding streams, like venture capital, can provide less opportunity for her clients and other formerly incarcerated business owners. High rejection rates for businesses owned by people of color can make formerly incarcerated entrepreneurs less likely to apply for them, but the nature of venture capital itself—which she said often involves having a “nice exit strategy”—is less attractive to some of the business owners she works with.
“A lot of minority businesses and businesses of people with criminal histories—they’re trying to create life businesses or legacy companies for them and their families,” said Leonard. “They’re not looking to sell. They’re not attracted to a VC, so what does the different funding look like for those types of businesses, as opposed to one that has a really sweet exit or [initial public offering]?”
Outside of the structural barriers that pose challenges to entrepreneurs with criminal histories, the persistently punitive nature of the carceral system also creates obstacles that often remain hidden from the public eye.
For the 3.6 million Americans currently on probation and the over 800,000 on parole, entrepreneurship can be immensely difficult due to the restrictive nature of community supervision. Requirements that prohibit interstate travel, for example, can make attending conferences, networking, or expanding one’s business near impossible.
Paying it Forward
As funding streams like government loans and venture capital are less available to formerly incarcerated entrepreneurs, community-based alternatives may be the best solution. Studies have found that Black and Latinx business owners are less likely to receive small business loans from major banking institutions, despite their good credit scores. If race and gender already inform how formerly incarcerated people experience the job market, it’s likely that formerly incarcerated entrepreneurs of color face even more difficulties than their peers when seeking loans as well. Leonard advocates for the development of smaller community banks and community development financial institutions (CDFI) that may have less restrictive loan requirements than large banks.
Organizations like The First72+ are among these CDFIs who also couple their lending with resources and training for new entrepreneurs with criminal histories. The organization’s name comes from the idea that the first 72 hours after someone is released from prison or jail are the most crucial in terms of meeting basic needs like housing, clothing, transportation, and funds, as well as understanding the many ways their lives have been newly changed since prior to their incarceration. The organization assists in meeting those needs as well as providing resources to help them thrive beyond those first three days.
The First72+’s Pay It Forward Communal Loan Fund helps formerly incarcerated business workers access zero interest loans. During the repayment process, borrowers are also able to build their credit history which can make future access to more traditional loans from larger financial institutions more feasible.
“It takes money to make money. You need money in order to start a business and people don’t have access to capital like that, at least not capital that they’d be able to invest into a business,” said Kelly Orians, co-director of The First72+. “So [the fact that] we’re providing capital so that people can take a plan that we helped them set up and actually implement is pretty huge.”
Orians also noted that simply providing funds is not enough. It’s crucial that formerly incarcerated entrepreneurs are also equipped with knowledge around how to address less-often discussed, but essential, administrative needs. In order to even receive funds from the Paycheck Protection Program, applicants needed a formal payroll processing system, tax filings, balance sheets, and a host of other documentation that had already been filed and maintained. The First72+ provides a mandatory seven-part financial skills course to help relay that information.
“These are all things that require quite a bit of knowledge about what’s required of a business from the state and federal government’s perspective. They really have nothing to do with what most business owners set out to do, which is to start a business to make money for themselves and create jobs for other people,” said Orians. “They can do that, but they don’t necessarily know how to get an occupational license or that an occupational license is even a requirement. So we help folks understand what the formal structures and institutions are that they need to cooperate and participate in.”
Community-based groups that help provide that more formalized training can help keep formerly incarcerated business owners from being locked out of loan programs and other resources. Eventually though, they will need to be met with policy that doesn’t continue to punish those who have been involved in the criminal legal system.
“We need at a local level within our cities and within the city council districts that operate within our cities to have initiatives at the neighborhood level supporting people coming home from prison, meeting their most basic needs and investing in them to grow,” said Orians. “Then [make] sure that those efforts are not then stymied by federal policies that overtly discriminate or state level policy that overtly discriminates against formerly incarcerated people.”
As this pandemic illuminates and exacerbates issues that formerly incarcerated business owners have long had to grapple with, leaders in spaces similar to Leonard’s find hope in the fact that this community possesses an incredible level of tenacity. She says that society needs to provide greater access for these business owners while also recognizing that they have developed tools that everyone can learn from right now.
“They can deal with adversity more than anybody else,” said Leonard. “When you look at people who are impacted now by COVID, they’re like, ‘Oh, we need to worry about the disenfranchised or lower income people,’and I’m like, the lower income people can teach everybody else how to budget and how to survive with little money. So there’s that whole stigma of, you know, ‘they need help’ when they’re actually some of the most resilient people you’ll ever come across, whether that’s lower income [people] or [people with] criminal history.”