How DEI Bans Could Reshape U.S. Small Businesses
By Selen Ozturk
The Trump administration’s decision to end federal diversity, equity, and inclusion (DEI) initiatives is expected to have a major impact on small businesses across the country.
Executive orders issued in late January have eliminated federal DEI and affirmative action programs, revoked equity-related grants and contracts, and rescinded prior equal opportunity policies. These directives include “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.”
With 33.2 million small businesses making up nearly all U.S. businesses, the effects of these changes could be significant. Women own over 40% of small businesses, immigrants own 24%, and nearly one in five belong to racial minorities, with Latinos representing a major portion.
“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 March 7 Ethnic Media Services briefing. “The fastest growing segment of entrepreneurs in our country are people of color … with an absolutely historic number of veterans as well.”
The rollback of DEI policies is accompanied by a January 27 funding freeze on federal programs and February layoffs under the Elon Musk-led Department of Governmental Efficiency, which cut 20% of SBA staff—about 720 employees.
“We all want to see better efficiency, but laying off 20% of the workforce—many of whom provide essential customer service—without even assessing agency needs is just inefficient,” Syed said. “This will result in even longer wait times for every American looking to start or expand a business.”
Adding to these changes, SBA Administrator Kelly Koeffler announced the closure of offices in six major cities, including Chicago, Denver, and New Orleans, citing sanctuary city laws as the reason.
“That doesn’t help us serve the growing class of entrepreneurs of color,” Syed said. “American economic competitiveness is directly tied to immigrants pursuing their dreams.”
In 2024, 46% of Fortune 500 companies—230 in total—were founded by immigrants or their children.
“We must uphold our country’s laws, but instead of reforming legal pathways to citizenship, we’re choking off an essential labor source by demonizing immigrants,” Syed added.
The SBA has also reduced its diversity funding quota from 15% to 5% across contracts, creating more hurdles for small businesses seeking SBA approval, which is often key to bidding on federal contracts.
“I’m concerned that the very programs we were bidding on will now be eliminated,” said Elizabeth Barrutia, president and CEO of Barú, a multicultural marketing agency in Los Angeles.
“There’s a trickle-down effect across the media landscape,” Barrutia explained. “When minority-owned media outlets—print, broadcast, television—receive fewer federal dollars to market government programs related to health, education, or financial aid, it creates long-term disparities in health equity, educational attainment, and financial success.
“Innovation will suffer, and innovation is what drives economic growth,” she added. “Years ago, people said multicultural marketing was good for business. Now I wonder if they ever truly understood that it was a business imperative.”
Multicultural U.S. consumer spending has grown from $458 billion in 1990 to $3.2 trillion in 2021. In 2023, multicultural media spending increased by 5.7% to $34.64 billion, accounting for 5.3% of total U.S. ad buying.
“These DEI efforts arose to combat systemic discrimination in favor of white men and to ensure that women and people of color received fair opportunities in employment and contracting,” said Thomas A. Saenz, president and general counsel of the Mexican American Legal Defense and Education Fund.
“This administration’s attack on DEI is about making it easier for those inclined to discriminate to do so, while intimidating those who seek to correct systemic bias,” he added.
Dr. Esther Zeledon, founder of Be.Act.Change, highlighted the broader societal impact of these policy changes.
“We’re fostering a scarcity mindset—people believe that if opportunities are extended to others, something is being taken away from them,” Zeledon said. “I personally lost 95% of my contracts across multiple sectors, from human rights to climate science. I have a PhD in environmental science from Berkeley, yet people no longer trust my work.”
“The language in these executive orders—which labels DEI efforts as ‘wasteful’ and ‘radical’—politicizes these initiatives and fosters mistrust,” she continued. “It’s not just about changing a policy; it’s about denying that any wrongs need to be corrected.”
“Because it’s an attack on social mobility, it’s an economic attack on all of us,” Zeledon concluded. “At a time when oligarchy is on the rise, we need to open doors for each other if we want America to be stronger, better, and more prosperous.” (Ethnic Media Services.)
—
