Yes, people with felony convictions can get business loans. A past felony by itself does not disqualify you from SBA-backed financing, bank loans, or any of the private funding options available to other entrepreneurs. After a 2024 federal rule change, the SBA’s own restrictions narrowed to a short list of current legal situations, and most private lenders have never been bound by criminal-history rules in the first place. The practical hurdles are real, but they are narrower than most applicants expect.
When a Felony Blocks an SBA Loan
The Small Business Administration guarantees the most common government-backed business loans, including 7(a) loans, 504 loans, and microloans. Until recently, anyone on probation or parole was automatically ineligible. That changed on May 30, 2024, when the SBA finalized a rule removing probation and parole as disqualifying conditions.1Federal Register. Criminal Justice Reviews for the SBA Business Loan Programs, Disaster Loan Programs, and Surety Bond Guarantee Program
Under the current regulation, only three situations make a business ineligible for an SBA-guaranteed loan:
- An associate of the business is currently incarcerated after being found guilty.
- An associate is under formal indictment for a felony that has not yet been resolved.
- An associate is under indictment for any crime involving financial misconduct or a false statement.
If none of those apply to you, the SBA itself will not block your application based on a past conviction.2eCFR. 13 CFR 120.110 – What Businesses Are Ineligible for SBA Business Loans One thing to understand: the SBA does not make loans directly. It guarantees loans issued by participating lenders, and those lenders can still apply their own credit policies, including background checks. The rule change means the SBA won’t reject you at the federal level. Your bank can still say no for its own reasons.1Federal Register. Criminal Justice Reviews for the SBA Business Loan Programs, Disaster Loan Programs, and Surety Bond Guarantee Program
What the SBA Application Asks
SBA Form 1919, which every 7(a) borrower must complete, contains three criminal-history questions. Question 17 asks whether you are currently under indictment or facing formal criminal charges. A “yes” answer makes the loan ineligible. Questions 18 and 19 ask whether you have been arrested in the last six months and whether you have ever been convicted, pleaded guilty, pleaded no contest, entered a pretrial diversion program, or been placed on parole or probation for any offense other than a minor traffic violation.3U.S. Small Business Administration. SBA Form 1919 – SBA 7(a) Borrower Information Form
A “yes” to question 18 or 19 requires details: dates, location, misdemeanor or felony, sentences or fines, and current parole or probation status. The form’s printed instructions still contain older language stating that current parole or probation makes a loan ineligible. The 2024 regulatory change supersedes that language, and the SBA has indicated it will revise the form.1Federal Register. Criminal Justice Reviews for the SBA Business Loan Programs, Disaster Loan Programs, and Surety Bond Guarantee Program If a lender tells you parole or probation automatically disqualifies you, they may be reading the outdated form rather than the current rule.
Traditional Bank Loans
No federal law prohibits banks from lending to people with felony convictions. One source of confusion worth clearing up: FDIC Section 19 bars people convicted of crimes involving dishonesty or breach of trust from working at or controlling an insured bank. It says nothing about borrowing from one.4Federal Deposit Insurance Corporation. Section 19 – Penalty for Unauthorized Participation by Convicted Individual Whether a bank approves your loan comes down to its internal underwriting.
That freedom runs in both directions. Banks can weigh criminal history however they want, and many do. Convictions involving fraud, embezzlement, money laundering, or identity theft raise the biggest concerns because they relate directly to risk with borrowed money. A drug conviction from fifteen years ago will worry a bank far less than a recent wire fraud charge.
Large national banks tend to use rigid automated underwriting that screens out applicants with records. Smaller community banks and credit unions are often willing to evaluate your application individually, particularly if you already bank with them and have handled your accounts responsibly.
SBA Microloans and CDFIs
SBA microloans are one of the most accessible government-backed options for someone with a record. The program provides loans up to $50,000 through nonprofit intermediary lenders, though the average loan is closer to $16,500.5U.S. Small Business Administration. Microloans Maximum repayment term is seven years. Intermediaries set their own underwriting criteria, so requirements vary.
The microloan program’s criminal-history rule is slightly different from the standard SBA rule. Intermediaries cannot lend to businesses where an associate is currently incarcerated. For childcare businesses, an associate on probation or parole for an offense against children also triggers ineligibility. Beyond those narrow restrictions, the program is open to people with prior convictions.1Federal Register. Criminal Justice Reviews for the SBA Business Loan Programs, Disaster Loan Programs, and Surety Bond Guarantee Program
Community Development Financial Institutions, known as CDFIs, are another strong option. CDFIs are mission-driven lenders that serve communities traditional banks often overlook. Some have developed loan products for borrowers with limited or damaged credit, and a handful focus specifically on formerly incarcerated entrepreneurs. These lenders often pair financing with business mentorship and financial literacy support.
Other Funding Paths
Online Lenders
Online business lenders generally focus on business revenue and cash flow rather than personal background. Many do not run criminal background checks, and those that do weigh recent business performance more heavily. The tradeoff is cost. Interest rates run significantly higher than SBA or bank loans, and repayment terms are shorter. Read the terms carefully, because effective annual rates can be steep.
Crowdfunding
No crowdfunding platform runs criminal background checks on campaign creators. Reward-based crowdfunding on platforms like Kickstarter involves offering a product or perk in exchange for contributions; you don’t repay backers, but you owe them whatever you promised. Equity crowdfunding under SEC Regulation CF lets you raise up to $5 million in a 12-month period by selling ownership shares.6eCFR. 17 CFR 227.100 – Crowdfunding Exemption and Requirements There is no loan to repay, but you give up equity and potentially some control.
Grants and Reentry Programs
A small but growing number of nonprofits offer grants or seed funding for entrepreneurs with criminal records, often combined with business training and mentorship. Because grants don’t require repayment, they are worth pursuing even when the amounts are modest. Search for “second chance” business programs and reentry entrepreneurship organizations in your area. CDFIs and SBA district offices can usually point you to local options.
Friends, Family, and Savings
Loans from friends or family and your own savings bypass every screening criterion a formal lender would apply. If you borrow from people you know, put the terms in writing. A simple promissory note protects both sides and establishes the arrangement as a real loan rather than a gift, which matters for tax purposes if the amount is substantial.
Strengthening Your Application
The factors that make any business loan strong matter more when your background gives a lender reason to hesitate. A few carry outsized weight.
Your credit score is the single most important number in your application. Check your reports from all three bureaus for errors, pay down outstanding balances, and avoid new hard inquiries in the months before you apply. A score above 680 opens most doors. Below 600, your options narrow to microloans, CDFIs, and online lenders.
A detailed business plan with realistic revenue projections, a clear market analysis, and a specific breakdown of how you will use the loan shows a lender you have thought this through. Vague plans get rejected regardless of background. If your business is already operating, bring bank statements, tax returns, and profit-and-loss statements showing consistent revenue. Lenders care most about your ability to repay, and nothing demonstrates that better than money already coming in.
Collateral such as equipment, inventory, or property reduces the lender’s risk and can offset concerns about your record. A co-signer with strong credit and stable income adds similar security, though the co-signer takes on liability if you default, so this is a serious request.
Be upfront about your record. Lenders who run background checks will find your conviction regardless, and discovering it after you failed to disclose it is far worse than hearing about it from you. A brief, honest account of what happened, what has changed, and what you have done since gives the lender a story beyond the charge itself. Rehabilitation programs, steady employment, and time without re-offense all work in your favor. Lenders are assessing risk, not passing moral judgment, and evidence of stability over time is the most persuasive thing you can offer.