LGBTQ small enterprise homeowners are struggling to seek out financing
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It’s not an easy time for a small business looking for financing. For LGBTQ owners, the struggle has been even tougher.
According to a 2022 report by Movement Advancement Project, a nonprofit think tank focused on equality and opportunity, and the Center for LGBTQ Economic Advancement & Research (CLEAR), LGBTQ companies reported more rejections than non-LGBTQ companies that applied for funding. .
As lending standards tighten, the risk of them falling behind could become even greater, said Spencer Watson, CLEAR’s president and chief executive officer.
“The tighter economic conditions, the higher interest rates, the collapse of these smaller community banks and the consequent curtailment of lending are certainly more detrimental to the LGBTQ community than the non-LGBTQ community,” Watson said.
Concerns about the economy and credit conditions are not unique to LGTBQ entrepreneurs. Overall, small business owners are skeptical about their future business conditions, said Holly Wade, executive director of the National Federation of Independent Business Research Center.
“The small business economy is being hampered by inflation, supply chain disruptions and labor shortages,” she said. “While financing is not a major concern for small businesses, owners have expressed concerns about the health of the banking system for their business purposes given the banking turmoil in March.”
But data shows LGTBQ small business owners are behind on funding. According to the MAP/CLEAR report, in 2021, 46% of LGBTQ companies said they had not received any of the funding they requested in 2021. In comparison, 35% of non-LGBTQ companies that applied for funding were turned down, the report said. Much of the funding requested was through the Covid relief programs on offer, Watson said.
“These companies were often smaller, often younger, with lower revenues,” Watson said. “They struggled with that extra pressure because they were already in a weaker financial position.”
Watson said similar themes emerge in analysis of the Federal Reserve’s 2022 Small Business Loan Survey, which has not yet been fully released.
Although LGBTQ small business owners are very optimistic, they are more likely to report more financial challenges than non-LGBTQ businesses. According to Watson, who prefers a gender-neutral pronoun, about six in 10 said they’ve struggled to meet operating costs over the past year. Most companies are owned by people who identify as LGBTQ, but their businesses are not necessarily aligned with or serving the LGBTQ community, they said.
Courtesy: Gavin Escolar
Gavin Escolar, owner of the Chaga Company in San Francisco, is one of those small business owners who had trouble finding financing. The 47-year-old gay man started his company, which makes chaga mushroom products, in 2018 using his savings and credit cards. Although he was not denied any loan he applied for, he was only offered high-interest bridging loans by lenders to hold him up until a lower-interest small business loan becomes available, he said.
“They say, ‘Oh yeah, you’re pretty much approved for this particular SBA loan, but it’s going to be about six months before you get it. But we have this other loan that you can bridge now. that’s 29.75% or whatever inflated costs,” Escolar said.
He’s currently using loans from Square and PayPal and is hoping to find his next step so he can pay off his credit card debt, buy inventory, and do marketing. Escolar believes the community needs more education on how to get the right funding.
“I keep getting taller [interest loans] because I feel like I don’t have an established business credit,” Escolar said. “I’m hesitating between my business loan and my personal loan. I don’t even know where to start on how to build a business loan.”
go your own way
Source: Sarah Scala
Getting into debt wasn’t an option for 43-year-old Sarah Scala when she started her company, Sarah Scala Consulting. The Massachusetts company is an LGBT-certified company offering leadership development, public speaking and leadership coaching.
Scala wanted to remain debt-free, so she used her own savings and looked elsewhere. Aside from a loan from the Paycheck Protection Program during the Covid-19 pandemic, her only other source of outside funding was two grants from Massachusetts Growth Capital Corporation. These grants have helped her with digital marketing expenses and capital.
“There are a number of wonderful clubs that are really helpful when people are looking for support around funding,” said Scala, who runs the company from her home.
One of these is SCORE, a network of volunteer business mentors that Scala is a part of. She also has a strong partnership with the Massachusetts LGBT Chamber of Commerce that can help open doors, she said.
discrimination at play
Anti-LGBTQ bias and discrimination against LGBTQ small businesses can arise at several points during the lending process, Watson said.
“If the lender recognizes the applicant’s LGBTQ identity, they may refuse the loan or charge the applicant more for the loan for which they have been approved,” they explained. “This is especially true for highly visible members of the LGBTQ community – such as transgender or non-conforming gender representation.”
It can manifest itself in other ways, too, such as when a creditor doesn’t understand the company’s market opportunity because it doesn’t see the value or market need for an LGBTQ service provider, Watson said.
Businesses that specifically target people from sexual minorities and create sex-positive spaces are also often excused because the Small Business Administration’s guidelines prohibit lending to businesses with a “lascivious sexual nature,” they said.
However, Watson welcomed the Consumer Financial Protection Bureau’s recent rule that increases transparency in small business lending and includes demographic information that allows small businesses to identify as women, minority or LGBTQ businesses.
“The implementation of this data collection would be an incredible boon in combating discrimination in the small business private lending market,” they said.
The success of these businesses is important — not just for the owners, but for the community at large, Watson said.
“There is a need for more small businesses owned by marginalized groups of all kinds so that these entrepreneurs can support themselves and their fellow community members and create more inclusive spaces that are authentically by and for these communities,” they said.