Do LGBTQ-Owned Businesses Face More Obstacles Obtaining Funding?

• A recent federal report found that LGBTQ+ business owners faced more application denials than other business owners.
• LGBTQ+ owners were told their loans were denied because of low sales, a lack of documentation and potentially biased reasons.
• Assistance from a state or local chapter of the National LGBT Chamber of Commerce can help you obtain funding, as can working with the Small Business Administration or venture capital firms that prioritize LGBTQ+ business owners.
• This article is for business owners who want to learn about the funding struggles of LGBTQ-owned businesses and how to overcome them.

In recent years, the Federal Reserve has added new questions about LGBTQ+ small business ownership to its Small Business Credit Survey (SBCS). This has resulted in the SBCS yielding important new data points ― and a striking revelation. 

According to one SBCS report analysis, LGBTQ-owned businesses apply for funding just as often as other businesses. This analysis from The Center for LGBTQ Economic Advancement & Research (CLEAR) and the Movement Advancement Project (MAP) also found something related and highly concerning: LGBTQ-owned businesses were less likely to have their funding applications approved than other businesses. 

We’ll examine the CLEAR and MAP report’s key findings and share expert commentary on how LGBTQ+ businesses can obtain funding amid these obstacles.

Are LGBTQ-owned businesses less likely to be approved for funding?

Yes. According to the CLEAR and MAP report, roughly the same number of LGBTQ-owned and non-LGBTQ+ businesses applied for funding in 2021. However, while 34 percent of non-LGBTQ+ businesses were denied funding, the percentage was higher — 46 percent — for LGBTQ-owned businesses. 

This denial discrepancy was even more substantial when looking at only business loans instead of all financing options. While 48 percent of non-LGBTQ business loan applications resulted in no funding, 80 percent of LGBTQ-owned businesses received no funding. The corresponding numbers for Small Business Administration (SBA) loans were 55 percent and 67 percent, respectively. For the now-retired Paycheck Protection Program offering early COVID-19 relief, the corresponding figures were 10 percent and 17 percent.

Why did lenders deny funding to LGBTQ-owned businesses?

According to the CLEAR and MAP report, 35 percent of LGBTQ-owned businesses that were denied funding were told they lacked enough sales for approval. The corresponding figure for non-LGBTQ+ businesses was 26 percent. Similarly, while 15 percent of LGBTQ-owned businesses were told their lack of documentation led to loan denial, only 6 percent of non-LGBTQ+ businesses heard the same.

Especially concerning is lenders telling LGBTQ+ business owners that they don’t fund “businesses like theirs.” This phrase may be a dog whistle for explicit anti-LGBTQ+ views. It echoes the “we don’t serve customers like you” language underlying the 2018 Supreme Court case Masterpiece Cakeshop v. Colorado Civil Rights Commission. Where 24 percent of non-LGBTQ+ businesses were given this as a reason for denied funding, this figure was 33 percent for LGBTQ-owned businesses.

Why do LGBTQ-owned businesses need funding?

LGBTQ+ business owners may apply for their first business loan or otherwise seek small business financing for the same reasons as other small business owners. They may need funding to:

However, the CLEAR and MAP report found that LGBTQ-owned businesses may need outside funding more than other businesses. 

Their need for funding stems primarily from the COVID-19 pandemic’s small business impacts, some of which can still be felt today. During the SBCS survey period, more LGBTQ+ businesses than non-LGBTQ businesses had no choice but to scale back. Where 37 percent of non-LGBTQ businesses reduced their hours, turned down work or temporarily closed, 53 percent of LGBTQ+ businesses did the same.

Additionally, in 2020, 61 percent of LGBTQ-owned businesses experienced financial losses as compared to 48 percent of non-LGBTQ+ businesses. This pattern continued in 2021 when 85 percent of LGBTQ-owned businesses reported continued negative pandemic consequences. By comparison, 76 percent of non-LGBTQ+ businesses said the same that year. 

LGBTQ+ businesses clearly faced more financial challenges than others even as vaccines were distributed and society “reopened,” which led to their extra need for funding.

How can LGBTQ-owned businesses reliably obtain funding?

According to Justin Nelson, co-founder and president of the National LGBT Chamber of Commerce (NGLCC), LGBTQ business owners can find funding via the routes below.

1. Connect with a corporate financial partner.

Although the CLEAR and MAP analysis revealed dismal bank loan approval rates for LGBTQ+ business loans, some big-name banks prioritize LGBTQ+ borrowers. 

“Partner banks like Wells Fargo, JPMorgan Chase and Truist are now actively courting LGBTQ businesses as clients,” Nelson shared. “[They] even have appointed dedicated team members to help LGBTQ and other diverse clients.”

2. Join a state or local LGBTQ+ chamber of commerce.

Groups catering directly to the financial needs of LGBTQ+ business owners may offer you powerful assistance in finding the funding you need. This assistance often includes connecting you with banking partners within and beyond your local community. Plus, chances are that a state or local LGBTQ+ chamber of commerce covers your area, so this is a resource you can easily access.

“I would encourage any LGBTQ business that is not a member of one of NGLCC’s 54 state and local affiliate chambers to become so immediately,” Nelson advised. “Nearly every single one has banking partners, both national in scope as well as local and regional, that focus on serving the needs of local membership.”

3. Seek SBA assistance.

The SBA has a mandate to serve the United States small business community ― and that includes business owners of all backgrounds. Nelson said this mandate makes the SBA a reliable funding resource even if SBA loan application denial rates are higher among LGBTQ+ business owners.

“[The] SBA offers several financial products to help small businesses of all sizes and backgrounds, including LGBTQ,” Nelson said. “The challenge here is skepticism of the federal government being inclusive of LGBTQ needs in federal agency work, an issue NGLCC is working hard to change.”

4. Pursue venture capital.

Through venture capital (VC), you can obtain large amounts of funding ― potentially millions of dollars ― without going through banks or government agencies. This funding may be easier to obtain while managing your business’ startup finances. Often, you won’t have to repay the funding if your business fails. Nelson noted that LGBTQ+ business owners might have an especially easy time making inroads with certain venture capital firms.

“There is a growing number of venture capital-related groups that focus on diverse enterprises,” Nelson explained, highlighting the VC firm Gaingels in particular. This firm, he said, is “a group of mostly LGBTQ investors looking to back LGBTQ owned, founded or run businesses with high growth potential.”

LGBTQ+ funding challenges are hurdles, not impasses

Although LGBTQ+ business funding statistics paint a dismal picture, resources exist to transform potential impasses into mere road bumps. Resources from private groups, nonprofits and government agencies abound and LGBTQ+ business owners can pursue them anytime. 

Many of these resources come with assistance from experts who have been down this road repeatedly. Within the LGBTQ+ community lies a small business community; with its help, you can get the funding you need.