How Will DEI Bans Affect U.S. Small Businesses?

Since Trump’s termination of federal diversity, equity and inclusion (DEI) initiatives, small businesses nationwide are expected to take a major hit.

The executive orders issued during Trump’s first week of office in late January end all federal DEI and affirmative action programs; equity-related grants and contracts; and prior equal opportunity executive orders.

The directives come mainly from a trio titled “Ending Illegal Discrimination and Restoring Merit-Based Opportunity,” “Ending Radical and Wasteful Government DEI Programs and Preferencing” and “Defending Women from Gender Ideology Extremism and Restoring Biological Truth to the Federal Government.”

There are 33.2 million small businesses in the U.S., comprising 99.9% of all businesses.

Over 40% of small business owners are women, 24% are immigrants, and nearly one in five are racial minorities, with Latinos comprising a major portion of that group.

“The attack on so-called DEI is really an attack on American entrepreneurship, and this is just the start,” said Dilawar Syed, former deputy administrator of the Small Business Administration (SBA), at a Friday March 7 Ethnic Media Services briefing about impacts on small businesses. “The fastest growing segment of entrepreneurs in our country are people of color … with an absolutely historic number of veterans as well.”

The executive orders accompany a January 27 funding freeze of hundreds of billions of dollars for federal programs, and February federal layoffs under the Elon Musk-led Department of Governmental Efficiency including 20% of SBA staff, approximately 720 employees.

“We all want to see better efficiency, but this approach of laying off 20% of the workforce — many of whom are people providing customer service — without even stepping a foot in these agencies, is just inefficient,” said Syed. “Now you have even longer wait times to get help.  It would affect every single American who wants to start or grow a business.”

Last Thursday, SBA Administrator Kelly Koeffler also announced that the agency would close offices in six major cities — including Chicago, Denver and New Orleans — due to sanctuary city laws.

“That doesn’t help us serve this unmet need of a rising class of entrepreneurs of color,” said Sayed. “American economic competitiveness in the world is directly tied to immigrants pursuing their dreams.”

In 2024, 46% of Fortune 500 companies, or 230 companies, were founded by immigrants or their children.

“We have to uphold our country’s laws, but we’re not talking about reforming proper legal pathways for people to become productive citizens,” added Sayed. “All we’re doing is choking a very important source of labor in this country by demonizing immigrants.”

These SBA rollbacks — alongside a reduction of the agency’s diversity funding quota from 15% to 5% across contracts — mean steeper hurdles for small businesses trying to get SBA approval, which is crucial to bidding on federal contracts.

“I’m concerned that the very programs we were bidding on will be eliminated now,” said Elizabeth Barrutia, president and CEO, Barú, a multicultural marketing agency she founded in Los Angeles 17 years ago.

“There’s a trickle-down effect into the whole media landscape I work with,” she continued. “When minority outlets — print, broadcast, television — are getting less dollars to market government programs like health, education or financial aid services … there will be long-term disproportionate outcomes for health equity, educational attainment and financial attainment.

“Innovation will falter, and innovation is what generates more dollars,” Barrutia added. “Years ago, they would say multicultural marketing is good for business. Now I’m wondering whether they understood it was a business imperative to begin with.”

Multicultural U.S.consumer spending rose from $458 billion in 1990 to $3.2 trillion in 2021.

In 2023, multicultural media spending grew by 5.7% over the past year to $34.64 billion, comprising 5.3% of total U.S. ad buying.

“These efforts under the banner of DEI rose up in order to stop discrimination that was ongoing and widespread in favor of white men … and to ensure that that discrimination is replaced by policies that ensure that people of color and women receive a fair shake in competing for employment or contracts,” said Thomas A. Saenz, president and general counsel of theMexican American Legal Defense and Education Fund.

“This administration’s attack on dei is about making it easier for those who are inclined to engage in that discrimination in favor of white men, and intimidate those who are interested in taking steps to end that discrimination,” he added.”

“We’re creating this scarcity mindset of ‘If I give other people opportunities, then you’re taking away from me,’” said Dr. Esther Zeledon, founder of Be.Act.Change, a life coaching organization. “In my own case, I lost 95% of my contracts across sectors, from human rights to climate science … I have a PhD in environmental science from Berkeley, and people no longer trust my work.”

“The language of the executive orders — that all DEI efforts are wasteful and radical — politicizes and puts mistrust onto people who have benefited from those programs,” she continued. “It’s not just changing a policy, it’s saying that we don’t have any wrong to correct.”

“Because it’s an attack on social mobility, it’s an economic attack on all of us who are seeing a rise in oligarchy in our leadership,” Zeledon added. “We need to open doors for each other if we want to help America be stronger, better, more prosperous.”