A new policy brief from Prosperity Now, developed in collaboration with the Collateral Consequences Resource Center, examines how criminal records can stand between otherwise qualified entrepreneurs and the capital needed to start or grow a business. Second Chance Lending: Criminal History, Creditworthiness, and Access to Small-Business Capital draws on research and discussions at the September 1, 2026, Second Chance Lending Forum, jointly convened by the two organizations in Washington, D.C., with keynote remarks by Federal Reserve Governor Michael S. Barr. CCRC Board Secretary Brad Blower worked with colleagues at both organizations to develop this report.
The report builds on CCRC’s longstanding research and advocacy concerning criminal history restrictions in pandemic relief and SBA lending, including its comments supporting reform of SBA eligibility rules and efforts to obtain agency data shedding light on repayment risk through the Freedom of Information Act.
The report highlights a central problem: People with criminal records often turn to entrepreneurship because employment opportunities are restricted, only to encounter another set of barriers when seeking financing. Research reviewed in the report finds that business owners with felony convictions are about 19 percent less likely to obtain startup loans and 21 percent less likely to obtain expansion financing than similar owners without felony convictions. Yet available evidence has not established whether criminal history adds meaningful information about repayment risk beyond ordinary financial factors. Screening practices, uncertainty about regulatory requirements, and credit histories damaged by incarceration can all impede access to capital. Although the SBA removed many formal eligibility restrictions in 2023 and 2024, it left lenders free to conduct their own criminal-history screening. The report argues that changing eligibility rules must be accompanied by practical measures that help lenders evaluate applicants on the merits of their businesses and their capacity to repay.
The report proposes a coordinated agenda for turning these reforms into meaningful access to credit. A first step is to analyze the SBA’s historical loan-performance data, including loans approved under its former “character determination” process, to test assumptions about risk and inform lending practices. Other recommendations include individualized assessments that consider current business performance, cash flow, and relevant evidence of rehabilitation; clearer federal guidance on compliance obligations; and outreach so entrepreneurs know that eligibility rules have changed. The report also calls for partnerships between banks and community development financial institutions, loan-loss reserves that help lenders serve this market, and working-capital lines of credit alongside startup loans. Pairing financing with business training, mentoring, and professional networks would help entrepreneurs translate access to capital into sustainable businesses. The goal is to replace unsupported assumptions with evidence while expanding opportunities for economic independence, job creation, and community investment.
CCRC looks forward to working with Prosperity Now and relevant regulatory agencies in the months ahead to implement the reform agenda proposed in the policy brief.
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