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Study Shows Nearly Half of LGBTQ-Owned Businesses Were Denied COVID-Relief Loans

Through the worst of the COVID-19 pandemic that shuttered many small businesses, the federal government provided relief loans throughout that period. The Paycheck Protection Program (PPP) loans were available through May 31, 2021 through the U.S. Small Business Administration. 

New data from the Center for LGBTQ Economic Advancement and Research (CLEAR) and Movement Advancement Project (MAP) shows LGBTQ-owned small businesses received COVID-19 relief funds at a far lower incidence than non-LGBTQ businesses. Yet LGBTQ-owned businesses applied at a higher rate, according to researchers. 

The report by CLEAR and MAP analyzed data from the Federal Reserve Banks’ annual Small Business Credit Survey (SBCS). In 2021 that data included questions about LGBTQ identities for the first time. Using that data from SBCS, CLEAR and MAP “created a first-of-its-kind look at the financial health and needs of LGBTQ-owned small businesses.” 

Financial experts told USA TODAY that “poorer economic conditions on average among LGBTQ-owned small businesses hurt them when it came time to apply for COVID-19 relief,” even though, as USA TODAY reported, Congress said it “targeted funding to the smallest and minority-owned businesses.” 

And USA TODAY reported that “Historically, lenders have been prohibited from making loans to LGBTQ-related businesses, and that precedent is still affecting loan application decisions.”  

That prohibition, USA TODAY noted, is “a rule on the books of the SBA that says businesses that get revenue from products or displays with a ‘prurient sexual nature’ are not eligible for loans.” A formalized “Don’t Say Gay” applicable to business loans.

MAP’s Senior Policy Researcher, Logan Casey, said of the report, “The importance of LGBTQ-inclusive data collection cannot be understated. As shown in this report, LGBTQ-owned small businesses have unique experiences, including notable disparities in how they are treated by financial institutions and how they continue to be impacted by the COVID-19 pandemic.” 

Casey added, “The findings also illustrate the clear need and opportunities for better supporting these businesses and the local communities they serve and enrich.”

A key element to this report is the fact that while PPP loan applications offered applicants the opportunity to highlight that they were woman-owned, minority-owned or veteran-owned, the SBA did not have a corresponding section for business owners to state that their businesses as LGBTQ-owned. 

The data analyzed show LGBTQ businesses were equally likely to apply for loans or financing in general, but less likely to receive it. According to the report, “about 46 percent of LGBTQ-owned businesses reported that they had received none of the financing that they had applied for in the past year.” This is compared to only 35 percent of non-LGBTQ businesses that applied for funding. 

The report states that discriminatory practices appeared embedded in the responses from lenders: “Notably, LGBTQ-owned businesses were more likely than non-LGBTQ businesses to explain their denial was due to lenders not approving financing for ‘businesses like theirs’ (33 percent vs. 24 percent), among other reasons.”

While loan providers may not have been discriminating against businesses because those businesses were LGBTQ, Casey explained that the sheer volume of LGBTQ businesses rejected for loans “indicates underlying systemic economic discrimination.” 

The data show that while LGBTQ businesses were more likely to apply for pandemic relief, they were less likely to receive it. The majority (57 percent) of LGBTQ-owned businesses applied for relief through the PPP, compared with 47 percent of non-LGBTQ businesses. A much higher rate of rejection was found for LGBTQ businesses: one-in-six LGBTQ businesses (17 percent) reported that they had received none of the funding that they had applied for in 2021, compared to only one-in-ten non-LGBTQ businesses (10 percent).

Theoretically LGBTQ small businesses should have received more funding as those businesses “were more likely to also be women-owned and immigrant-owned, compared to non-LGBTQ businesses. More LGBTQ-owned firms were also majority-owned by women (34 percent of LGBTQ firms vs. 20 percent of non-LGBTQ firms) and majority-owned by immigrants (21 percent vs. 15 percent),” according to the data analyzed.

Another surprising data point in the study is that CLEAR and MAP report “Despite stereotypes about where LGBTQ people tend to live and thrive, the largest share of LGBTQ businesses was in the South (31 percent), and LGBTQ businesses were also roughly equally likely as non-LGBTQ businesses to operate in rural areas.”

PGN previously reported that LGBTQ people had been disproportionately impacted by COVID-19, with LGBTQ households twice as likely to be unable to get necessary medical care and four times more likely to not have enough food to eat as non-LGBTQ households. 

LGBTQ households experienced higher rates of job losses, serious financial problems, issues accessing health care and increased challenges navigating at-home learning for their children, as compared to non-LGBTQ households.

These disparities are heightened for Black, Latinx and low-income LGBTQ people, reflecting broader national trends of who has been especially impacted by the pandemic. So these new data on LGBTQ-owned businesses parallel that earlier data.

The report showed more LGBTQ businesses were financially impacted by the COVID-19 pandemic, with 61% of LGBTQ firms reported financial losses in 2020 compared to 48 percent of non-LGBTQ firms. 

In 2021, the disparity not only continued, it was heightened: 85 percent of LGBTQ firms reported that the pandemic was having a negative effect on their business at the time of the survey, compared to 76 percent of non-LGBTQ firms.  

Spencer Watson, President & Executive Director of CLEAR, said in a statement,  “LGBTQ small businesses are engines of self-help for the LGBTQ+ community. Financial inequality for LGBTQ-owned small businesses contributes to food insecurity, housing insecurity, and poorer health outcomes for LGBTQ people in the United States.” 

Watson added, “Improving financial equity for LGBTQ-owned businesses will support the economic vitality of LGBTQ workers, communities, and the entire U.S. economy.” 

Story courtesy of Philadelphia Gay News.