After serving five years in prison for distribution of cocaine, Robert Sherrill knew that he would have trouble finding a good job when he was released. He got a job at a restaurant, but the pay was low, with no prospects for growth. So the now-37-year-old decided to start his own cleaning company. “It was something I did just so I could be able to take care of my family,” he said. Eight years later, Sherrill employs 22 people in Nashville, Tennessee, including 14 with criminal records.
Many people with criminal records like Sherrill decide to start small businesses because many companies won’t hire them. According to new research by the RAND Corporation, roughly 3.8% of small business owners have a criminal record — for comparison, about one-third of all American adults have a criminal record. While Sherrill’s new career is largely a success story, he is one of the lucky ones. Roughly half of small businesses with employees fail after five years. And having a criminal record only compounds the many challenges of being an entrepreneur.
Number of American adults who have a criminal record.
All business owners faced huge challenges when the COVID-19 pandemic forced them to shut down or massively reduce their operations. Sherrill had to let go more than 10 of his employees. But for business owners with previous involvement with the justice system, the pandemic proved to be yet another un-level playing field.
When Congress passed the CARES Act in March 2020, the goal was for small-business owners to gain access to forgivable loans to cover payroll and other operating costs under the Paycheck Protection Program. However, Sherrill applied in the first round but was denied. He learned that the Small Business Administration (SBA) was categorically excluding any business owners who had been convicted of a felony in the last five years or who had been charged and put on pretrial diversion, parole, or probation. Sherrill was not alone. According to the RAND report, 140,000 of the nation’s 1.1 million small-business owners with criminal records were disqualified from the original PPP because of these restrictions.
“I was upset,” said Sherrill, who had been pardoned by Tennessee’s governor in 2019 but applied for the loan before his federal charges were pardoned by President Donald Trump in January 2021.
In late June 2020, in response to pushback from advocates and a ruling in a federal lawsuit, the federal government announced it would no longer reject applicants because of criminal convictions.
“Not only did the SBA call me and have me sit on a panel to talk about it, I ended up re-submitting my request, and they approved it finally,” Sherrill said. “But I had lost half of my staff by that time.”
David Schlussel, deputy director of the Collateral Consequences Resources Center, said the SBA never fully explained the restrictions in the first round of the PPP or attempted to justify them, and “there are so many ways that the SBA excluded people from the opportunity to survive the economic fallout of the pandemic because of arrest or conviction history.”
Schlussel’s group, which promotes public discussion of the collateral consequences of conviction, is working on a Fair Chance Lending policy proposal to encourage government-sponsored loan programs that would support small-business owners with a criminal record instead of disqualifying them. They argue that while policymakers are increasingly supporting reintegration and fair chances for people who have completed their sentences, being barred from accessing business capital remains one way in which people with records are still held back.
Sherrill said the ordeal with PPP loans was just one example of the barriers faced by people like him, despite paying taxes and contributing to the economy
“I’m felon enough to pay my taxes but I’m not felon enough to get benefits from the same state I pay taxes to,” Sherrill said. “That doesn’t make sense.”
‘Banks Won’t Even Talk to Us’
Another collateral consequence of a criminal record can involve restrictions on accessing capital to start a business.
After spending 18 years in prison, Minneapolis resident K.B. Brown knew his prospects for employment would be low. He had almost no credit or employment history and knew employers wouldn’t be eager to hire someone like him with a felony record. He eventually found a job at Chipotle, but the pay was low.
So the 46 – year-old began dreaming up a plan to open a print shop. Soon, he developed the idea for Wolfpack Promotionals, a printing business that would sell promotional and advertising materials to other small businesses from a central location in Minneapolis. “I figured entrepreneurship would be more welcoming than the employment area would be,” he said, “but I quickly found out that I was wrong.”
“We couldn’t get funding anywhere,” he said. “If you’ve been in prison over five years, you don’t have a credit history, our credit scores suck, we can’t get loans for starting a business.
“Essentially if you don’t have access to money or anyone who is willing to help you with the integral parts of starting a business, you’re stuck to clock-punching employment. Banks won’t even talk to us.”
His wife ended up taking a second mortgage on their home so they could have the money to launch the business together.
I’m felon enough to pay my taxes but I’m not felon enough to get benefits from the same state I pay taxes to. That doesn’t make sense.Robert Sherrill
Brown suspected the SBA wouldn’t lend to someone with a felony record and he didn’t even try to seek out their loans. According to the Collateral Consequences Resource Center, the SBA and other government agencies treat criminal history as a credit risk, despite the absence of any evidence to support that conclusion or statutory requirement that they do so.
But for Brown, that thinking changed when the COVID-19 pandemic hit in early 2020. Brown’s business immediately suffered. He had been employing eight people in his shop in Minneapolis, but the shutdowns in China disrupted his supply chains even before the virus reached the United States. Then, when Minneapolis shut down, he was forced to let go of the majority of his staff.
Brown applied for a PPP loan and never heard back. Because Brown’s conviction was nearly three decades ago, he should not have been disqualified, but he assumed his conviction was why he was never awarded a loan.
“We’re denied everything,” he said. “Having a felony is an economic death sentence. It doesn’t matter if you start your own business or not. It’s an economic death sentence if you don’t already have money.”
‘You Pay for It Until You’re in the Grave’
Before he was incarcerated in federal prison for seven and a half years for bank fraud, Troy Parker owned an office cleaning business in Cincinnati. So when he was released May 2015 after serving his sentence, he knew what he wanted to do to restart his life.
“I had $500, so I incorporated, I got my liability and workers comp insurance, and I bought 500 business cards,” the 54-year-old said, explaining the origins of his staffing and cleaning company. “I started the business from the halfway house.”
“I saw so many returning citizens come back” to prison, he said. When he asked them what was happening, they often said they couldn’t find a job so they ended up using or selling drugs. That’s why Parker said he prioritizes hiring other returning citizens. Of his roughly 91 employees, Parker estimates that 85% have criminal records.
It wasn’t until he was profitable for more than three years that lenders started to take Parker and his business seriously. This year, Parker’s business is on track to earn $3 million in revenue, but his felony record continues to impede the growth of his business. When he applied for a bond to finance a project, he was unable to find an insurance company that would bond him because of his criminal conviction.
His experiences as a business owner have taught him how society views people with criminal records.
“In our society, they say you do the time and it’s forgiven, but it’s really not,” he said. “For a person who commits a crime, you pretty much live with it indefinitely.”
“You might do five years, ten years, one year,” he added, “but you pay for it until you’re in the grave.”