LGBTQ-Owned Small Businesses in 2021
The Financial Health & Needs of LGBTQ Firms in the Small Business Credit Survey
Using data from the Federal Reserve Banks’ annual Small Business Credit Survey (SBCS), the Center for LGBTQ Economic Advancement & Research (CLEAR) and the Movement Advancement Project (MAP) have created a first-of-its-kind look at the financial health and needs of LGBTQ-owned small businesses.
Key Findings
LGBTQ small 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% of LGBTQ firms vs. 20% of non-LGBTQ firms) and majority-owned by immigrants (21% vs. 15%).
Despite stereotypes about where LGBTQ people tend to live and thrive, the largest share of LGBTQ businesses was in the South (31%), and LGBTQ businesses were also roughly equally likely as non-LGBTQ businesses to operate in rural areas.
LGBTQ businesses were more likely to report operational and financial challenges, and were also more likely to report taking a variety of different measures in response to these challenges. For example, more than half of LGBTQ-owned businesses (53%) reported difficulties ensuring the health and safety of their customers and employees, compared to 37% of non-LGBTQ businesses. In response, LGBTQ firms were also more likely to report they had temporarily closed, reduced hours, or turned down work in the prior year (53% vs. 37%).
More LGBTQ businesses were negatively financially impacted by the COVID-19 pandemic: 61% of LGBTQ firms reported financial losses in 2020, compared to 48% of non-LGBTQ firms. This disparity continued into 2021, with 85% of LGBTQ firms reporting that the pandemic was having a negative effect on their business at the time of the survey, compared to 76% of non-LGBTQ firms.
LGBTQ businesses were more likely to apply for pandemic relief but less likely to receive it. The majority (57%) of LGBTQ-owned businesses applied for relief through the Paycheck Protection Program, compared to 47% of non-LGBTQ businesses. However, one-in-six LGBTQ firms (17%) 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%).
LGBTQ businesses were equally likely to apply for loans or financing in general, but again less likely to receive it. About 46% of LGBTQ-owned businesses reported that they had received none of the financing that they had applied for in the past year, compared to only 35% of non-LGBTQ businesses that applied for funding. 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% vs. 24%), among other reasons.
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Authoring Organizations
Recommended Citation
Center for LGBTQ Economic Advancement & Research and Movement Advancement Project, LGBTQ-Owned Small Businesses in 2021: The Financial Health & Needs of LGBTQ Firms in the Small Business Credit Survey, Center for LGBTQ Economic Advancement & Research (July 2022) https://lgbtq-economics.org/research/lgbtq-small-businesses-2021/.
Contents
Introduction
The Federal Small Business Credit Survey (SBCS)[1] is a national survey of small businesses that has been conducted annually since 2016 by the 12 Federal Reserve Banks.[6] SBCS respondents–i.e., small businesses–are firms with fewer than 500 employees. The survey asks respondents about their business performance, financing needs and gaps, including applications for credit and outcomes. The SBCS also examines segments of the small business market, including startups, minority-owned firms, and women-owned firms. In 2021 for the first time the SBCS included questions that allow LGBTQ-owned firms to be identified as well. The SBCS, and therefore this report, defines LGBTQ-owned businesses as those where individuals who identify as lesbian, gay, bisexual, transgender, or queer own 50% or more of the business.
This report discusses the financial health and needs of LGBTQ-owned small businesses, using the SBCS data sheet released by the Federal Reserve Banks. For readability purposes, this report uses the terms “LGBTQ-owned businesses/firms,” “LGBTQ businesses,” and “LGBTQ firms” interchangeably to refer to these LGBTQ-owned small businesses.
LGBTQ-Owned Business Demographics
In 2021, 10,914 small businesses participated in the SBCS. More than 4% (n=445) of businesses in the survey reported that they were LGBTQ-owned businesses, and another 2% reported that they were at least partially owned by LGBTQ people. Current population studies estimate that 7.1% of people in the United States identify as LGBTQ,[7] and so LGBTQ people appear to be somewhat underrepresented among small businesses in the SBCS.
LGBTQ-owned small businesses in the SBCS were diverse with regard to in their owners’ gender, race, ethnicity, and backgrounds as well in their locations of business, industry, size, and length of time in business. In many though not all respects, this diversity among business owners reflects the diversity of the broader LGBTQ community.[8]
Women-Owned Businesses
LGBTQ businesses in the SBCS were more likely to be women-owned businesses than non-LGBTQ businesses (i.e., women owned 50% or more of the business). As shown in Graph 1, more than one-third of LGBTQ-owned businesses were women-owned, (34%), as compared to only a fifth of non-LGBTQ businesses (20%). Data about the broader LGBTQ population shows that 58% of LGBTQ people identify as women.[9]
Immigrant Ownership
LGBTQ businesses were also more likely to be immigrant-owned businesses (i.e., immigrants owned 50% or more of the business). One-fifth of LGBTQ-owned businesses in the SBCS were also immigrant-owned (21%) and nearly a fourth were at least partially immigrant owned (24%), more often than non-LGBTQ businesses (15% and 20%, respectively).
Graph 1
Race & Ethnicity of Owners
LGBTQ-owned businesses in the SBCS were similar to non-LGBTQ businesses with regard to the race and ethnicity of business owners. As shown in Table 1, 83% of both LGBTQ and non-LGBTQ businesses were owned by white business owners, with only 17% of small businesses being owned by people of color. For both LGBTQ and non-LGBTQ populations, this is a significant disparity, as people of color comprise a far greater share of both populations than 17%. In fact, research shows that 42% of LGBTQ people are people of color,[10] a higher share (and therefore a larger disparity) than even in the general population.
Table 1. Race & Ethnicity of SBCS Business Owners
| Race/Ethnicity of Owner | LGBTQ Firms | Non-LGBTQ Firms |
|---|---|---|
|
Asian |
7% |
10% |
|
Black |
2% |
2% |
|
Hispanic |
7% |
5% |
|
Native American / Alaska Native |
1% |
– |
|
White |
83% |
83% |
Geography
Map 1 shows that LGBTQ small businesses from 25 states participated in the SBCS, representing anywhere from 1% to 9% of the small businesses in those states. Despite stereotypes about where LGBTQ people live and thrive, the SBCS data show that LGBTQ businesses were roughly equally likely as non-LGBTQ businesses to operate in rural areas. Overall, 15% of LGBTQ-owned businesses were in rural areas, as were 16% of non-LGBTQ businesses.
Map 1
Although LGBTQ businesses were about as likely to be urban or rural, they did have different geographic distributions compared to non-LGBTQ firms, as shown in Graph 2. Although the greatest disparity for LGBTQ businesses was in the South, the largest share of LGBTQ firms in the SBCS (31%) were located in the South. This is consistent with existing research showing that the largest share of LGBTQ people live in the South.[11] Over a quarter of LGBTQ businesses were in the West (29%), compared to 24% of non-LGBTQ firms.
Graph 2
Industry
As shown in Graph 3, the top three industries among LGBTQ firms in the SBCS were retail, (22%) hospitality (18%), and professional services (17%). LGBTQ-owned businesses were more likely than non-LGBTQ businesses to be in leisure and hospitality (18% vs. 11%) and in retail (22% vs. 13%).
Graph 3
Age of Business
LGBTQ firms were more likely to be newer or younger businesses than non-LGBTQ businesses. LGBTQ firms ranged in age from newly established to long-standing (21+ years) institutions in their local community. However, and as shown in Graph 4, nearly two-thirds (64%) were younger than 10 years compared to 47% of non-LGBTQ firms. That said, more than one-in-six LGBTQ firms (17%) were at least 21 years old.
Graph 4
Size of Business
LGBTQ firms in the SBCS were more likely to have only a few employees. About 62% reported that they only had 1-4 employees at their business, as compared to 55% of non-LGBTQ businesses.
Annual Revenues
LGBTQ-owned businesses had smaller annual revenues than non-LGBTQ businesses. As shown in Graph 5 on the following page, 74% of LGBTQ firms had annual revenues of less than $500,000 compared to 58% of non-LGBTQ firms. One-in-seven LGBTQ-owned businesses had annual revenues of less than $25,000 a year (14%), twice as often as non-LGBTQ businesses (7%). Half of LGBTQ-owned businesses reported that their revenue had decreased in the past year (51%). More than a third said that revenue had increased (37%), and one-in-ten reported that it had not changed (11%).
Graph 5
Financial Condition
Overall, LGBTQ firms were more likely to report low revenue and profitability, poor financial condition, and that their business would be considered high credit risk, compared to non-LGBTQ firms.
Current Financial Condition
LGBTQ-owned businesses were more likely to report that they were in poor financial health. Twenty eight percent of LGBTQ-owned businesses said that they were in poor financial condition (28%), compared with 20% of non-LGBTQ businesses.
Looking within the survey sample, reported household incomes were generally similar when comparing non-Hispanic white LGBTQI+ people to LGBTQI+ people of color and when comparing the entire LGBTQI+ sample to transgender people only. As noted above, this was a non-representative online survey, and so this finding is most likely unique to this survey’s sample; existing research clearly and consistently demonstrates that both LGBTQI+ people of color and transgender people have lower incomes and higher rates of poverty than the broader LGBTQI+ community.
Credit Riskiness
LGBTQ-owned businesses were more likely than non-LGBTQ businesses to report that they were a medium or high credit risk. Only 59% of LGBTQ-owned businesses reported that they thought they were a low-credit risk, as compared to 69% of non-LGBTQ businesses. One-third reported that they were a medium credit risk (32%), as compared to a quarter of non-LGBTQ businesses (25%), and one-in-ten reported that they were a high credit risk (9%) compared with 6% of non-LGBTQ businesses.
Profitability
LGBTQ businesses were more likely to report financial losses during 2020 than non-LGBTQ businesses. As shown in Graph 6, 61% of LGBTQ-owned businesses reported a financial loss during 2020, as compared to 48% of non-LGBTQ businesses.
Graph 6
Business Challenges
LGBTQ firms were more likely to report operational and financial challenges in 2021 than non-LGBTQ firms, and about as likely to report challenges in hiring and retaining workers. Notably, the entirety of 2021 was during the COVID-19 pandemic, which has put record stress on businesses, individuals, and communities.
Operational Challenges
As shown in Graph 7 on the following page, while both LGBTQ and non-LGBTQ businesses reported the same top-three operational challenges in 2021, LGBTQ-owned businesses were more likely to report that they had faced all of these operational challenges. The top three challenges reported were supply chain issues, hiring or retaining staff, and growing sales or reaching customers. One especially notable difference is that more than half of LGBTQ-owned businesses reported difficulties ensuring the health and safety of their customers or employees (53%), compared to over a third of non-LGBTQ businesses (37%).
Graph 7
Financial Challenges
As shown in Graph 8, LGBTQ-owned businesses were more likely to report experiencing all types of financial challenges in the last year, compared to non-LGBTQ businesses. About seven-in-ten LGBTQ-owned businesses reported difficulties paying for their operating expenses (72%), uneven cash flow (69%) and weak sales (69%).
Graph 8
Graph 9 shows that LGBTQ-owned businesses took a variety of responses to these challenges, and in almost every instance did so at a higher rate than non-LGBTQ businesses. For example, 73% of LGBTQ businesses reported they used personal funds, compared to 60% of non-LGBTQ businesses.
Graph 9
Workforce Challenges
Over half of both LGBTQ and non-LGBTQ firms reported that it was “very difficult” to fill positions in their firm (58% and 59% respectively), and were roughly equally likely to report that it was “very difficult” (38% vs. 34%) to retain employees.
Graph 10 shows that, as with financial challenges, LGBTQ-owned firms took a variety of responses to workforce challenges, and again did so at a higher rate than non-LGBTQ firms. For example, 53% of LGBTQ small businesses reported they had to reduce operating hours or services or turn down work, compared to 37% of non-LGBTQ small businesses.
Graph 10
Financial Effects of COVID-19
LGBTQ-owned firms were more likely to report that the pandemic negatively affected their business. Overall, nearly two-thirds of LGBTQ-owned businesses (64%) reported that their revenue had decreased since 2019, as did 63% of non-LGBTQ businesses. Thirty-one percent (31%) reported that their revenue was higher than it was in 2019, and 5% reported that it had not changed at all. As Graph 11 illustrates, 85% of LGBTQ firms reported the pandemic was having a negative effect on their business at the time of the survey, compared to only 76% of non-LGBTQ firms.
LGBTQ-owned businesses were more likely to report seeking emergency assistance during the pandemic. Eighty-five percent (85%) of LGBTQ-owned businesses reported seeking some kinds of emergency grants, or loans, or assistance versus only 77% of non-LGBTQ businesses.
Graph 11
Paycheck Protection Program (PPP) Loans
Although LGBTQ firms were more likely to apply for PPP loans, Graph 12 on the following page shows that LGBTQ-owned applicants were less likely to receive all of the funds that they applied for, and more likely to have gotten none of the funding they applied for. More than half of LGBTQ-owned businesses applied for relief through the Paycheck Protection Program (57%), as compared to less than half of non-LGBTQ businesses (47%).
Graph 12 shows that 54% of LGBTQ-owned businesses that applied for PPP funding in 2021 received all of the funding they had applied for, compared to 68% of non-LGBTQ businesses. One-in-six reported that they had received none of the funding that they had applied for (17%) in 2021, compared to only one-in-ten non-LGBTQ businesses (10%).
Graph 12
LGBTQ-owned businesses were less likely to report that they had successfully obtained full forgiveness for the PPP loans they received in 2020. Only 78% of LGBTQ-owned businesses had received full forgiveness from their lender for their 2020 PPP loan, as compared to 88% of non-LGBTQ businesses.
Given the outcomes of their previous PPP loan forgiveness applications, LGBTQ firms were understandably more dubious about their prospects for receiving forgiveness for their 2021 PPP loans. LGBTQ firms were twice as likely to say that they were unsure about whether they would recieve forgiveness for their 2021 PPP loan (12% vs. 6%), and less likely to say they thought that they would receive full forgiveness of their loan (84% vs. 90%). This is despite the fact that LGBTQ firms were more likely to report losses in 2021 compared to non-LGBTQ firms, which means they may be eligible for the second iteration of PPP loans, which require demonstrated losses.
Other Pandemic-Related Assistance
As shown in Table 2, LGBTQ businesses were also more likely to apply for other emergency relief during the pandemic. More than half (57%) applied for an Economic Injury Disaster Loan, compared to 47% of non-LGBTQ firms. Forty-six percent (46%) of LGBTQ-owned businesses applied for grants through a state or local government fund, compared to 33% of non-LGBTQ businesses. Over twice as many LGBTQ businesses applied for a grant from a nonprofit or foundation (16% vs. 7%). As with PPP Loans, LGBTQ-owned businesses were also less likely to receive other forms of pandemic assistance from these other sources. Twenty-seven percent (27%) of LGBTQ-owned businesses did not receive any of the pandemic relief that they had applied for, as compared to 19% of non-LGBTQ businesses. Only one-in-five received all of the pandemic relief that they had applied for (19%), as compared to more than one-in-four of non-LGBTQ businesses (28%).
Table 2. Applications for Pandemic-Related Assistance
| Program | LGBTQ Firms | Non-LGBTQ Firms |
|---|---|---|
|
EIDL Loan |
57% |
47% |
|
Paycheck Protection Program |
57% |
47% |
|
Grant from state/local government fund |
46% |
33% |
|
EIDL advance |
38% |
31% |
|
Grant from a nonprofit or foundation |
16% |
7% |
|
Loan from state/local government fund |
13% |
5% |
|
Restaurant Revitalization Fund (RRF) Grants |
9% |
5% |
|
Shuttered Venue Operators (SVO) grants |
1% |
1% |
|
Did not seek emergency assistance |
15% |
23% |
Credit & Financial Services
Access to credit and financing is essential for small businesses to invest in their operations, hire staff, and to grow and expand their businesses.[12] In 2021 LGBTQ-owned firms were about as likely to apply for financing as non-LGBTQ firms (35% and 33%, respectively). Among those who did not apply for financing, about half of both LGBTQ and non-LGBTQ businesses reported that they needed funding, but chose not to apply (50% and 49%, respectively).
LGBTQ-owned businesses sought financing for similar reasons as non-LGBTQ firms, and at roughly similar rates, with one exception. More than two-thirds of LGBTQ businesses applied for funding for their operating costs (68%), slightly more often than non-LGBTQ firms (62%).
Applications for Financing
As shown in Table 3, the most common types of financing that LGBTQ-owned businesses applied for in 2021 were business loans or lines of credit (80%), business credit cards (40%), and merchant cash advances (14%), all at higher rates than non-LGBTQ businesses. LGBTQ-owned businesses were more likely than non-LGBTQ businesses to apply for nearly all these types of financing.
Table 3. Type of Financing Applied For
| Type | LGBTQ Firms | Non-LGBTQ Firms |
|---|---|---|
|
Loan or Line of Credit |
80% |
75% |
|
Credit Card |
40% |
28% |
|
Merchant Cash Advance |
14% |
8% |
|
Trade Credit |
10% |
9% |
|
Lease |
6% |
8% |
|
Equity Investment |
5% |
6% |
|
Home Equity Line of Credit |
5% |
5% |
|
Factoring |
3% |
2% |
As shown in Graph 13, LGBTQ businesses were more likely to be seeking smaller financing amounts than non-LGBTQ businesses. Over half of LGBTQ businesses had sought less than $50,000 in financing in the previous year (51%), as compared to only three in ten non-LGBTQ businesses (31%).
Graph 13
Approval Rates
Among businesses that applied for any type of financing in the past year, LGBTQ firms were more likely to report that they had received none, or only some (i.e., half or less) of the financing that they had applied for—from all sources. As shown in Graph 14 on the following page, 46% of LGBTQ-owned businesses reported that they had received none of the financing that they had applied for in the past year, compared to only 34% of non-LGBTQ businesses. Only a quarter of LGBTQ-owned businesses reported that they had received all the financing that they had applied for (24%), versus a third or non-LGBTQ businesses (32%).
Graph 14
As with financing overall, LGBTQ-owned businesses were less likely to be approved specifically for business loans, and less likely to be approved for the full amount they applied for. Graph 14 shows that eight-in-ten LGBTQ-owned businesses who applied for business loans were not approved for a loan (80%), compared to 48% of non-LGBTQ businesses. Only one-in-ten LGBTQ firms were approved for the full amount they had applied for (11%), compared to 36% of non-LGBTQ businesses.
The U.S. Small Business Administration (SBA) helps small businesses get loans by setting guidelines for loans and reducing lender risk with loan guarantees.[13] Although, LGBTQ firms fared somewhat better in applications for SBA loans or lines-of-credit than for non-SBA business loans, they still were less successful than non-LGBTQ businesses. Two-thirds of LGBTQ-owned business applicants for SBA loans were turned down (67%), as compared to 55% of non-LGBTQ business applicants. Eighteen percent (18%) of LGBTQ-owned businesses were approved for the full amount they applied for, as compared to 28% of non-LGBTQ businesses.
As shown in Graph 15, LGBTQ-owned businesses were more likely than non-LGBTQ businesses to explain that weak sales led to their denial (35% vs. 26%), that lenders do not approve financing for “businesses like theirs” (33% vs. 24%), or that lack of documentation contributed to their rejection for financing (15% vs. 6%). Overall, LGBTQ-owned firms reported similar reasons as non-LGBTQ firms for not applying for financing for their businesses, but LGBTQ-owned businesses were twice as likely to report that the cost of credit was too high (8% vs. 4%).
Graph 15
Financial Services Providers
Table 4. Primary Source of Financial Services
| Source | LGBTQ Firms | Non-LGBTQ Firms |
|---|---|---|
|
Large Banks |
50% |
48% |
|
Small Banks |
28% |
38% |
|
Credit Union |
9% |
4% |
|
Fintech Lender |
4% |
2% |
|
Other |
2% |
2% |
As shown in Table 4, roughly half of both LGBTQ and non-LGBTQ businesses received their financial services primarily from large banks. However, LGBTQ-owned businesses were twice as likely to use a credit union than non-LGBTQ businesses (9% vs. 4%).
LGBTQ-owned businesses were more likely than non-LGBTQ businesses to report challenges in working with large banks as shown in Graph 16. Only 2% of LGBTQ-owned businesses reported absolutely no problems with their large bank, as compared to nearly a third of non-LGBTQ businesses (32%). Graph 16 shows that 66% of LGBTQ firms reported difficulties in the application process at large banks, compared to 38% of non-LGBTQ businesses. Sixty percent (60%) reported high interest rates as a challenge at their large bank, nearly three times more often than for non-LGBTQ businesses (22%). Over a third reported receiving unfavorable repayment terms from a large bank (35%), more than twice as often as non-LGBTQ businesses (16%).
Graph 16
Conclusion
The data from the Federal Reserve Banks’ Small Business Credit Survey (SBCS) sheds much-needed light on the financial wellbeing and needs of LGBTQ-owned small businesses. Unfortunately, LGBTQ businesses are more likely to be suffering from financial difficulties, and are also more likely to face obstacles to accessing financing and emergency assistance. The information also adds hard data to support the anecdotal knowledge that LGBTQ businesses have suffered greater financial effects as a result of the COVID-19 pandemic than non-LGBTQ businesses.
These findings about LGBTQ-owned businesses from the SBCS point to clear action steps. First, these data emphasize that the financial services industry should develop outreach initiatives and programs for LGBTQ small businesses. Federal, state, and local agencies that work with small business owners must increase their knowledge, outreach and capacity to adequately serve LGBTQ-owned small businesses and meet their often unique financial needs.
Actions that all actors within the financial services industry & related agencies should consider to improve equity for LGBTQ small businesses and communities include:
Weeding out discrimination, bias, and harassment against LGBTQ people within their organizations.
Creating offices and positions within their organizations dedicated to supporting LGBTQ-owned small businesses.
Promoting cultural competency within their organizations for understanding and working with LGBTQ-owned enterprises.
Increasing funding opportunities for LGBTQ-owned businesses.
Collecting information about LGBTQ-owned businesses to fill information gaps about their financial wellbeing and needs.
Guarantee fair lending and equal opportunity for LGBTQ small businesses by enacting and enforcing anti-discrimination protections in credit, such as the Equality Act,[14] as well as measures to ensure effective enforcement within small business financing, such as the LGBTQ Business Equal Credit Enforcement and Investment Act.[15]
Endnotes
[1] The Federal Reserve Banks’ annual Small Business Credit Survey (SBCS) and all related materials–including official reports, data, and full questionnaires–are available at https://www.fedsmallbusiness.org/survey.
[2] National LGBT Chamber of Commerce, America’s LGBT Economy (2017).
[3] See, e.g., Jeffrey Escoffier, The Political Economy of the Closet, Homoeconomics (Routledge 1997).
[4] See, e.g., M.V. Lee Badget, The Economic Case for LGBT Equality (Beacon Press, 2020); Oliver McNeil & Spencer Watson, How LGBTQ Economic Equality Benefits Everyone, CLEAR (October 2, 2020).
[5] See, e.g., Gary S. Becker, The Economics of Discrimination (University of Chicago Press, 1957).
[6] Fed Small Business, About (Last visited: July 03, 2022).
[7] Jeffrey M. Jones, LGBT Identification in U.S. Ticks Up to 7.1%, Gallup (February 17, 2022).
[8] Williams Institute at UCLA L. Sch., LGBT Data & Demographics (January 2019).
[9] Supra, note 8.
[10] Supra, note 8.
[11] Supra, note 8. 1
[12] CFPB, Final Report of the Small Business Review Panel on the CFPB’s Proposals Under Consideration for the Small Business Lending Data Collection Rulemaking, (December 2020).
[13] Small Business Administration, Funding Programs: Loans (Last visited July 14, 2022).
[14] H.R. 5, Equality Act, 117th Congress (2021); S. 393, Equality Act, 117th Congress (2021).
[15] H.R. 1443, LGBTQ Business Equal Credit Enforcement and Investment Act, 117th Congress (2021); S. 4002, LGBTQ Business Equal Credit Enforcement and Investment Act, 117th Congress (2021).