By Kosisochi P. Ifediba
BC Law EIC Student
April 2023
Having a criminal record can make finding gainful employment at a living wage can seem next to impossible. For this reason, many people looking to turn a new leaf are the most motivated to employ themselves. Researchers from Colombia Business School have found that formerly incarcerated individuals are 45% more likely to become entrepreneurs compared to similar non-formerly incarcerated individuals.[1] Although this may be the case, entrepreneurship is no easy way out. Starting a small business is a challenge for anyone, but it can be especially difficult for the formerly incarcerated. Many of them face a range of obstacles, from difficulty finding employment to limited access to funding and support networks. Fortunately, there are several laws and initiatives in place that aim to help these individuals overcome these challenges and succeed as entrepreneurs.
Successful Laws Addressing the Issue
The first and most significant law is the Second Chance Act. This federal law was enacted in 2008 to provide support and assistance to individuals returning from prison or jail.[2] Among its provisions are programs to help these individuals find employment, housing, and education[3]. Additionally, the Second Chance Act provides funding for programs that support entrepreneurship and small business development. These programs offer training and mentorship to formerly incarcerated individuals, as well as access to funding and other resources that can help them get their businesses off the ground.
More recently, we have seen the passage of the Federal First Step Act, which was signed into law in December 2018.[4] This act includes several provisions aimed at promoting entrepreneurship for the formerly incarcerated. For example, the act directs the Small Business Administration (SBA) to develop an outreach program to inform formerly incarcerated individuals about the resources available to them for starting and growing a small business. Additionally, the act allows for the use of federal funds to support entrepreneurship training programs for the formerly incarcerated.
In addition to the First Step Act, several states have passed laws aimed at supporting entrepreneurship for the formerly incarcerated. For example, California’s Fair Chance Business Act[5], which was signed into law in October 2018, prohibits state licensing agencies from denying a business license to an individual based solely on their criminal history. This law allows individuals with criminal records to pursue entrepreneurship without fear of being denied a license.
Similarly, in 2019, New York passed the Entrepreneurial Assistance Program Act [6], which provides grants to community-based organizations that provide entrepreneurship training and technical assistance to individuals with criminal records. The program aims to help individuals develop the skills and knowledge necessary to start and run a successful business.
Finding Financing
One area that requires attention is access to capital. Starting a business requires significant financial resources, and individuals with criminal records often face barriers when attempting to secure funding. Banks and other traditional lenders are often hesitant to provide loans to individuals with criminal records, making it difficult for them to access the capital needed to start a business.
One potential solution to this problem is the use of microfinance. Microfinance is a form of lending that provides small loans to individuals who do not have access to traditional forms of credit. These loans can be used to start a business, and are often accompanied by training and support to help ensure the success of the business.
Several organizations have already begun using microfinance to support entrepreneurship for the formerly incarcerated. For example, the Prison Entrepreneurship Program (PEP)[7], which is based in Texas, provides entrepreneurship training and microloans to individuals who have been released from prison. The program has been highly successful, with a recidivism rate of only 7%, compared to the national average of 67%.
Another organization using microfinance to support entrepreneurship for the formerly incarcerated is the Local Initiatives Support Corporation (LISC)[8]. LISC’s small business lending program provides loans to individuals who have been denied traditional financing. The program has provided loans to several individuals with criminal records, helping them start successful businesses.
While microfinance can be an effective tool for supporting entrepreneurship for the formerly incarcerated, it is not a panacea. More needs to be done to address the root causes of limited access to capital, including the stigma associated with criminal records.
Legal Restrictions on Entrepreneurship
Another area that requires attention is legal restrictions on entrepreneurship for the formerly incarcerated. Many states have laws that limit the types of businesses that individuals with criminal records can start. For example, in some states, individuals with criminal records are prohibited from starting businesses in certain industries, such as healthcare or child care.
While some restrictions may be necessary for public safety reasons, it is important to ensure that they are not overly burdensome and do not unnecessarily limit the ability of individuals with criminal records to start businesses.
Although there are still many challenges to overcome, the laws and programs described above provide vital support and resources that can make all the difference in the success of these entrepreneurs. But more work needs to be done. The laws surrounding entrepreneurship of the formerly incarcerated don’t presently account enough for the capacity for human change. Similarly, they don’t provide enough support for individuals looking to take their lives in a different direction. By empowering formerly incarcerated individuals to become successful business owners, we can help these people rebuild their lives. In doing so, we give them a path to contribute to their communities in meaningful ways and reduce the recidivism plaguing marginalized communities and the public coffers.
[1] See https://www.forbes.com/sites/annefield/2020/11/29/more-entrepreneurship-less-recidivism-among-the-formerly-incarcerated/?sh=444e43322c6d
[2] See generally https://nationalreentryresourcecenter.org/second-chance-act
[3] See id.
[4]See https://www.bop.gov/inmates/fsa/overview.jsp
[5] See https://calcivilrights.ca.gov/fair-chance-act/
[6] See 5 NY ADC 40.1
[7] See https://icic.org/blog/innovative-prison-entrepreneurship-program-creating-wealth-reducing-recidivism-among-formerly-incarcerated/
[8]See https://www.lisc.org/our-initiatives/small-business/our-work/grants-small-businesses/