- Recent federal research found that LGBTQ+ entrepreneurs face more application denials than other business owners.
- Owners of LGBTQ+ vehicles were told that their loans had been denied due to low sales, lack of documentation, and other possible bias reasons.
- Working with the Small Business Administration or venture capitalists who prioritize LGBTQ+ entrepreneurs can help obtain funding.
- This article is for business owners interested in learning about the challenges LGBTQ-owned businesses face regarding funding and how they can overcome them.
The Federal Reserve recently added questions about LGBTQ+ business owners to its Small Business Credit Survey. The SBCS now contains critical new data and an astonishing revelation.
According to an SBCS analysis, LGBTQ-owned businesses apply for funding as frequently as other businesses. The Center for LGBTQ Economic Advancement & Research and Movement Advancement Project also conducted a study that found something similar and very concerning: LGBTQ-owned business applications were less likely than those of other businesses to be approved.
The CLEAR and MAP Report’s key findings will be discussed, as well as expert opinions on how LGBTQ+ businesses can get funding despite these obstacles.
Are LGBTQ-owned businesses less likely to receive funding?
Yes. In 2021, according to the CLEAR/MAP report, the number of LGBTQ and non-LGBTQ+-owned businesses that applied for funding was roughly equal. While 34 percent of non-LGBT+ companies were refused funding, this percentage was 46 percent for LGBTQ-owned businesses.
The denial discrepancy is even more significant when you only consider business loans and not all funding options. While 48 percent (of non-LGBTQ) business loan applications did not result in funding, 80 percent (of LGBTQ-owned businesses) received no grant. Small Business Administration loans had 55 percent and 67 percentage, respectively. The corresponding numbers for the now-retired Paycheck Protection Program, which offered early COVID-19 assistance, were 10 percent and 17.
Why do lenders refuse to fund LGBTQ-owned businesses?
The CLEAR and MAP Report states that 35 percent of LGBTQ-owned businesses denied funding had yet to meet the sales threshold for approval. Non-LGBTQ+ business owners were told that their lack of documentation was the reason for loan denial in 26 percent. Similarly, 15 percent of LGBTQ businesses have been told that their lack of documentation has led to a loan denial. However, this is only valid for 6 percent of non-LGBT+ companies.
It is particularly concerning when lenders tell LGBTQ+ entrepreneurs that they do not fund “similar businesses.” This may be a way of expressing explicit anti-LGBTQ+ beliefs. This is similar to the language used in the Supreme Court case Masterpiece Cakeshop V. Colorado Civil Rights Commission, which stated, “We do not serve customers like you.” This was the reason 24 percent of non-LGBT+ businesses were denied funding. The figure for LGBTQ-owned firms was 33 percent.
Why are LGBTQ-owned businesses in need of funding?
LGBTQ+ entrepreneurs may seek out small business funding for the same reasons as other business owners. They may require funding for the following:
- How to start a business
- Buy more or better equipment
- Grow your business
- Boost your cash flow
- Make Payroll
The CLEAR and MAP Report found that LGBTQ-owned businesses may require more outside funding than other businesses.
The small business impact of the COVID-19 pandemic, which is still being felt by some businesses today, is the primary reason for their need for funding. During the SBCS period, more LGBTQ+ than non-LGBTQ companies had to cut back. While 37 percent of non-LGBT businesses cut back on hours, refused work, or temporarily closed their doors, 53 percent did the same.
In 2020, 61 % of LGBTQ-owned businesses suffered financial losses, compared with 48 % of non-LGBTQ+-owned companies. In 2021, 85 percent of LGBTQ businesses continued to report adverse pandemic effects. Comparatively, 76 percent of non-LGBTQ+ business owners said the same thing that year.
LGBTQ+ businesses faced more financial challenges than other businesses, even though vaccines are being distributed and society is “reopened.” This led to their increased need for funding.
How can LGBTQ-owned businesses obtain funding reliably?
According to Justin Nelson (co-founder and President of the National LGBT Chamber of Commerce, NGLCC), LGBTQ entrepreneurs can access funding through the following routes.
Connect with a financial partner for your business.
Despite the CLEAR/MAP analysis revealing dismal approval rates of bank loans for LGBTQ+ borrowers, some significant banks prioritize LGBTQ+ borrowers.
Nelson said that partner banks such as Wells Fargo Chase, Truist, and JPMorgan Chase actively pursue LGBTQ businesses to become clients. “[They] have even appointed dedicated team members for LGBTQ and other diverse customers.”
Join the local or state LGBTQ+ Chamber of Commerce.
You may find that groups that cater to the specific financial needs of LGBTQ+ entrepreneurs can offer you valuable assistance in securing the funding you require. This can include connecting you to banking partners in and outside your local area. You can also access a local or state LGBTQ+ business chamber in your place.
Nelson advised: “I encourage any LGBTQ-owned business to join one of the 54 NGLCC state and local affiliate chambers immediately.” “Nearly all of them have banking partners that are both local and national, but also local and regional. They focus on the needs of their local members.”
SBA can provide you with assistance.
SBA’s mandate is to serve small businesses in the United States, including all business owners. Nelson said that the SBA is a reliable funding source, even though SBA loan applications are denied at higher rates among LGBTQ+ entrepreneurs.
Nelson stated that “[the] SBA offers a variety of financial products for small businesses, regardless of size or background. This includes LGBTQ-owned companies.” The challenge is skepticism about the federal government’s willingness to include LGBTQ needs in its work. NGLCC works hard to change this.
Pursue venture capital.
Venture capital (VC) allows you to obtain large amounts — even millions — of dollars without going through banks or government agencies. It may be easier to get this funding while managing your startup finances. You may not have to pay back the money if your company fails. Nelson said that LGBTQ+ entrepreneurs may have difficulty accessing venture capital firms.
Nelson explained that there are several venture capital groups focusing on diverse businesses. He highlighted the VC company Gaingels. He said that this firm is “a group of mainly LGBTQ investors who are looking to support LGBTQ-owned, founded, or run businesses with a high growth potential.”