As we look back on April’s Second Chance Month, it is important to remember that every year, more than 600,000 people are released from prison and given a chance to build a new life. Discriminatory hiring practices and other barriers often present obstacles to securing stable employment. In fact, nearly 75% of formerly incarcerated people are still unemployed a year after their release.    

Opening a small business can be a pathway to financial security for formerly incarcerated people.  Yet, two substantial obstacles — occupational licensing and capital access — often prevent these individuals from achieving business ownership.   

If states are serious about helping formerly incarcerated people become fully integrated into society, they must start by making occupational licensing standards more equitable and increase access to capital for prospective business owners with criminal records. 

Updating requirements for licensure  

While unifying professional standards through licensure helps ensure quality tradespeople, its enforcement creates a challenge for formerly incarcerated people. Some licensing regulations have “good moral character” provisions that lead occupational licensing boards to reject an applicant based on a criminal conviction. According to the National Conference of State Legislatures, these provisions do not come with proper guidance on the definition of good moral character.   

As the number of jobs needing an occupational license or government approval has increased from five to 25% within the last six decades, this level of ambiguity and constriction may result in quality applicants being automatically excluded even if the criminal offense is unrelated to the license or worse, inaccurate.   

State and local governments are key to tackling issues around occupational licensing. They can have significant influence, and sometimes outright control, of the requirements of occupational licensing boards and licensing standards.   

District of Columbia and Iowa are examples of ensuring that the occupational licensing process is more equitable. In 2021, the D.C. Council passed the Removing Barriers to Occupational Licensing for Returning Citizens Amendment Act of 2020 to give people with a criminal record a fair chance to obtain occupational licensing. The law removes the good moral character requirement and ensures there is a clear and time-limited process for applicants to uncover whether their criminal history disqualifies them from the licensing process. It also limits licensing denials to convictions directly related to the license.   

In 2020, the Iowa legislature passed House File 2627 which limits reasonable denial of licenses to criminal convictions that directly relate to the license or profession and considers the severity and age of the conviction as well as any mitigating actions, such as treatment, taken by the applicant.    

Funding for entrepreneurs  

Another hindrance is securing adequate funding to sustain entrepreneurial ventures. During incarceration, formerly incarcerated people are unable to bolster their credit. If they didn’t have a credit history or if they had a low credit score before incarceration, they may not be able to qualify for business loans. To qualify for lending, some bank loan applications may ask prospective applicants whether they have been arrested or charged with a crime. They seek background information like criminal history as a way of classifying applicants as high risks to the financial institution. But these questions are both discriminatory and can be illegal. 

Community Development Financial Institutions (CDFI), entities like banks and microloan funds that help finance community endeavors like businesses, can also step up to either create products that help formerly incarcerated entrepreneurs or provide technical assistance with their existing financial products.     

Hope Credit Union Enterprise Corporation, a Mississippi-based CDFI covering Alabama, Arkansas, Louisiana, Mississippi and Tennessee, stands as an example to remove the barriers to funding formerly incarcerated entrepreneurs. This CDFI helps people including those with criminal records bolster or establish their credit history by including housing and cell phone payments and matching them with loan services that require only a brief credit history.     

Financial security is tantamount to survival in our society and when a person serves their criminal sentence and rejoins society and establishes themselves through a pathway like entrepreneurship, occupational licensing standards and funding should not be a barrier.  

The change begins with more states working to audit licensing standards and occupational licensing board processes to remove unnecessary hurdles for qualified applicants. In addition, CDFIs can also step up to either create products that help formerly incarcerated entrepreneurs or provide technical assistance with their existing financial products.  

Resources  

• Barred From Working  

• Licensing Laws Make It Harder for Former Offenders to Find Work 

• Access to Capital for Entrepreneurs: Removing Barriers 

• Applying for an SBA Loan with a Criminal Record 

• Entrepreneurship as a Bridge to Employment? Evidence from Formerly Incarcerated Individuals 

• How Financial Barriers Stifle Formerly Incarcerated People 

Seanniece Bamiro is a state and local policy manager at Prosperity Now. She advances state and local policy development, analysis, and advocacy on critical asset-building policies. Seanniece holds a Master of Public Policy from the University of Maryland College Park and a Bachelor of Arts from the University of Maryland Baltimore County.