Small-business grants are under fire, as banks turn cautious with business loans and one proponent of this funding option said a subsequent “chilling effect” could harm big and small companies alike.
The concern over the future of small-business grant programs comes from Elizabeth Gore, co-founder and president of Hello Alice, an online small-business resource and training platform that also partners with companies to offer grant programs. At a time when interest rates are high and many small businesses are seeking funding, grants can help companies survive and thrive while growing them into suppliers and contractors for larger, Fortune 1000 companies, Gore said.
“Many of these grants are actually driving the supply chain, the customer set for the Fortune 1000 — which is super critical to the big businesses,” Gore said in an interview with The Playbook. “These grants are just critical to the flow in our economy.”
So why the concern? Hello Alice is the target of a lawsuit by America First Legal, headed by former Trump administration official Stephen Miller, over a small-business grant it helped offer alongside Progressive Insurance to give 10 Black-owned small businesses $25,000 to purchase new vehicles. The lawsuit alleges racial discrimination.
“All Americans deserve to be free from racial discrimination, yet major corporations across the United States inject racial considerations into every aspect of their business operations, employment practices, and so much more,” said America First Legal Vice President Gene Hamilton in statement in August announcing the lawsuit. “As alleged in our complaint, our client — who is a small-business owner fighting to create a better life for himself and his family — was denied a contract with Progressive that would have provided him with $25,000 toward the purchase of a new truck solely because of the amount of pigment in his skin. Progressive’s racially-discriminatory arrangement is offensive to the American ideal, and we will fight to vindicate his rights and the rights of all similarly situated Americans.”
Hello Alice has pushed back online, stating that the lawsuit alleges “contracts” but that the grants don’t qualify under the law. Meanwhile, it posted on X, the platform formerly known as Twitter, that “The activists at AFL are using their lawsuit against Hello Alice to support their efforts to fundraise. We’re not the first to be targeted.”
Hello Alice also created a website, ElevateTheAmericanDream.com, that offers people the chance to nominate their favorite small businesses for $1,000 grants.
Multiple challenges to grant programs
The lawsuit against Hello Alice isn’t alone when it comes to threats to grant programs.
The city of Alexandria, Virginia, was sued over a grant program earlier this year. It ultimately agreed to scrap the program. Separately, Atlanta venture firm Fearless Fund was sued over its program for Black women entrepreneurs.
Gore, who spoke to The Playbook more broadly, said she’s worried such lawsuits will cause companies to hesitate when offering targeted grant programs — turning off an important source of capital for the financial ecosystem as a whole.
“Grants are just a really important part of our financial ecosystem or what we would call continuum of capital,” Gore said. “Grants sometimes are the only way forward to launch a business.”
That could include women trying to start a business after having kids, or veterans after they leave the military. Often, entrepreneurs need a business history to qualify for a loan — and sometimes, the lack of access to capital pushes them toward loans with dangerously high interest rates, Gore said.
Large companies can benefit by offering targeted grant programs, Gore said, focusing on companies that could become their own suppliers or customers down the road — making for a bottom-line payoff.
“This rise of enterprise using grants to bolster their own ecosystems I think is a really direct, capitalistic P&L impact,” Gore said.
She cited PepsiCo, Loreal and DoorDash as companies that have used grants to bolster key parts of their own operations while helping small-business owners access needed funding.
Legal challenges like the one from America First Legal could mean these grant programs are put on hold, Gore said.
“What makes me very nervous is that these grant programs, with a risk-averse economy right now, we don’t need any more reasons to pull back on the capital continuum,” she said. “If we start seeing a cooling or a wait-and-see mentality because of all the lawsuits, that is going to pull millions of jobs.”
Lawsuits filed against SBA offerings
Other lawsuits have already had an impact on related programs.
The Small Business Administration lost a court challenge on the basis of race — a lawsuit against a prominent Covid-era small-business rescue program known as the Restaurant Revitalization Fund. The $28.6 billion grant program first opened its application process to underserved, economically disadvantaged business owners, then to all owners. In June 2021, several lawsuits challenged that priority application period, and rulings by the U.S. District Court for the Northern District of Texas and elsewhere forced the SBA to freeze pending payments to 2,965 priority applicants. Ultimately, the SBA was unable to fund the applications of the remaining priority applicants and ended up disbursing grants to nonpriority applications, effectively draining the program of its remaining funding.
A separate lawsuit targeting the SBA’s 8(a) program, which provides mentoring, resources and set-aside contracts to underserved small businesses, forced the agency to temporarily suspended new application submissions. The agency later released a number of new guidelines for business owners applying to the program.
The court decisions that dealt with the 8(a) program specifically cited a decision by the U.S. Supreme Court that severely curtailed affirmative action, saying treating people based on their race specifically violates the equal protection clause of the U.S. Constitution. Subsequent lawsuits have targeted corporate-sponsored diversity and equity programs.
Gore said companies should forge ahead on grant programs where it makes sense for their own businesses. The industries that rely on a robust small-business network, such as defense contracting, will continue to offer grants and other programs too, she said.
And while many grant programs target specific groups, such as people of color or women or veterans, companies could end up shutting down their entire programs out of concern, Gore said, and that would impact small-business owners as a whole.
“When we talk about cooling off or a chilling effect, we see it’s for everyone — and I think that’s really important here,” Gore said.