LGBTQ small business owners struggle to find financing

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It’s not an easy time to be a small business in search of financing. For LGBTQ owners, the struggle has been even harder.

LGBTQ-owned businesses reported more rejections than non-LGBTQ businesses that applied for funding, according to a 2022 report from Movement Advancement Project, a nonprofit think tank that focuses on equality and opportunity, and the Center for LGBTQ Economic Advancement & Research (CLEAR).

With the tightening of lending standards, they could be at even more risk of falling behind, said Spencer Watson, president and executive director of CLEAR.

“The tighter economic conditions, the higher interest rates, the collapse of these smaller community banks and the resulting constriction of lending is certainly more detrimental for the LGBTQ community than non-LGBTQ community,” Watson said.

Concerns about the economy and lending conditions aren’t only on the minds of LGTBQ entrepreneurs. Holly Wade, executive Director of the National Federation of Independent Business’ Research Center, says that small business owners in general are concerned about their business future. While financing isn’t the top issue for small business, many owners are concerned about the state of the banking sector for their own purposes after the March banking turmoil. “

Yet data shows that small business owners who are LGBTBQ have been left behind when it comes down to financing. According to the MAP/CLEAR Report, in 2021 46% of LGBTQ owned businesses reported that they did not receive any funding they applied for in 2021. The report revealed that 35% of non LGBT businesses who applied for funding were denied. Watson stated that the majority of funding was sought through Covid’s relief programs. They were already struggling to cope with the additional pressures, because their financial situation was weak. While LGBTQ small businesses are optimistic, they also tend to face more financial difficulties than non-LGBTQ companies. Watson, who uses a gender neutral pronoun, said that six out of ten small business owners reported difficulty affording operating costs in the past year. Most of the businesses are owned by people who identify as LGBTQ but their businesses aren’t necessarily oriented towards or servicing the LGBTQ community, they said.

Gavin Escolar

Courtesy: Gavin Escolar

Gavin Escolar, owner of The Chaga Company in San Francisco, is one of those small business owners that has had troubling finding financing. The 47-year old gay man, who makes products out of chaga mushrooms started his business in 2018 using credit cards and his savings. While he hasn’t been rejected for any loans he’s applied for, he has been only offered high-interest bridge loans from lenders to hold him over until a lower-interest small business loan becomes available, he said.

“They’re like, ‘oh yeah, you’re pretty much approved for this particular SBA loan, but it’s going to take like around six months for you to get it. Escolar explained that there is another loan available that he could bridge at 29.75% or whatever the exuberant price was. Escolar feels like the community needs more education on how to get the right financing.

“I’m only getting the higher

because I feel like I don’t have established business credit,” Escolar said. Escolar said, “I fluctuate between my business and personal credit. “I don’t know where to begin to build my business credit. Sarah Scala

Source : Sarah Scala

Forging a path

Sarah Scala

Source : Sarah Scala[interest loans]When Sarah Scala started her company, Sarah Scala Consulting, she knew that going into debt was not an option. The Massachusetts company is an LGBT-certified business enterprise that provides leadership development, public speaking and leadership coaching.

Scala wanted to stay debt free, so she used her own savings and looked for opportunities elsewhere. The Massachusetts Growth Capital Corporation has provided her with two grants. She received a Paycheck Protection Program Loan during the Covid-19 Pandemic. Those grants have helped her with digital marketing and capital expenses.

“There’s a number of wonderful associations that are really helpful if people are looking for support around funding,” said Scala, who operates the business out of her home.

One is SCORE, a network of volunteer business mentors, which Scala is involved with. She also has a strong partnership with the Massachusetts LGBT Chamber of Commerce, which can help open doors, she said.

Discrimination at play

Anti-LGBTQ bias and discrimination against LGBTQ small-businesses can arise during the loan process in a number of places, Watson said.

“If the lender discerns the applicants’ LGBTQ identity, they may choose to deny that loan or charge the applicant a higher cost for the credit they are approved for,” they explained. This is especially true for members of the LGBTQ Community who are highly visible, such as those with nonconforming genders or transgenders. “

It can also show up in other ways, like if a creditor doesn’t understand the business’s market opportunity, like not seeing the benefit or market need for an LGBTQ-serving establishment, Watson said.

Businesses oriented explicitly toward individuals of sexual minorities and that create sex-positive spaces are also frequently excused because Small Business Administration guidelines forbid loans for businesses of a “prurient sexual nature,” they said.

However, Watson cheered the recent rule from the Consumer Financial Protection Bureau that increases transparency in small business lending and includes demographic information, allowing small businesses to identify as women-, minority-, or LGBTQ-owned.

“Implementing that data collection would be an incredible boon to combating discrimination in the private lending market for small businesses,” they said.

The success of these businesses matter — not only for the owners but for the community at large, Watson said.

“There is a need for more small businesses owned by all types of marginalized communities so that those entrepreneurs can support themselves, their fellow community members, and create more inclusive spaces that are authentically by and for those communities,” they said.