Small businesses are the heartbeat of the economy, especially in California, where they employ over half of the state’s workforce. However, President Donald Trump’s sweeping executive orders have placed these businesses — and the jobs they provide — at significant risk. For many, the uncertainty surrounding federal funding, coupled with new anti-diversity measures, is already having a devastating impact.
In this post, we’ll explore how Trump’s executive actions are threatening the future of small businesses, particularly in California, and how it could lead to fewer job opportunities, stalled infrastructure projects, and an overall economic downturn.
Trump’s Federal Funding Freeze: What It Means for Small Businesses
The January 2023 freeze on hundreds of billions in federal funds triggered immediate concerns for small businesses. Among the most vulnerable are small business owners in California, the top recipient of Small Business Administration loans in the country. With around $1.15 billion in loans approved for 2023, any disruption to this crucial funding could send ripples through the state’s entire economy.
Key Programs at Risk:
- Disaster Loans and Microloans: These loans help small businesses recover from unforeseen challenges, including natural disasters and economic disruptions. The freeze puts these essential funds in jeopardy.
- State Small Business Credit Initiative: With $25 million allocated for 2025-2026, this initiative helps boost small business credit. Any funding disruption could stall essential business operations and development.
- Community Development Financial Institutions (CDFIs): These institutions, vital for providing financing to underserved small businesses, are facing possible cancellations of their contracts due to the freeze.
Why It Matters: Small businesses are the backbone of California’s economy. In fact, businesses with fewer than 20 employees account for 29% of jobs in the state. If funding dries up, it could result in fewer new businesses, less innovation, and even layoffs.
The Ripple Effect: How Funding Cuts Impact Jobs and Innovation
One of the biggest consequences of a funding freeze is the potential halt of key infrastructure and job-creating projects. Experts, like Alex Bloom from Central Sierra Economic Development District, warn that a freeze could not only reduce investor confidence but also completely halt infrastructure projects. These projects, which are pivotal for job creation, would see delayed development, leaving local economies in limbo.
For entrepreneurs, the funding freeze could prevent growth. Without adequate financial support, small businesses could struggle to expand, especially when capital access is already limited. For example, Liz Perez, a general contracting firm owner in San Diego, shared her experience of how tribal leaders and other community leaders were “frazzled” over the freeze, impacting ongoing projects.
Example:
Take Perez’s story as an example. After leaving the U.S. Navy, Perez, a Native American entrepreneur, built her general contracting firm with the help of federal loans designed to help veterans and underrepresented entrepreneurs. Without that assistance, Perez’s path out of poverty might have been far steeper. Now, that vital support is under threat, potentially affecting not just her, but thousands of others in her community.
The Threat to Diversity Initiatives
As the funding freeze looms, there is also an underlying shift in federal policy that could have a long-term impact on diversity, equity, and inclusion (DEI) in the small business sector. Trump’s administration has made it clear that it aims to end “illegal discrimination” and curtail DEI measures. This includes stopping affirmative action and reducing goals for minority-owned businesses to secure federal contracts.
For many small businesses, especially those owned by women, veterans, and people of colour, these initiatives are crucial. They help level the playing field in an environment where access to federal contracts can make or break a business.
What this means:
- Decreased opportunities for minority businesses: Programs designed to increase diversity in government contracts could be rolled back, affecting underrepresented entrepreneurs.
- Worsening racial and gender disparities: By rolling back DEI initiatives, Trump’s executive orders risk widening the gap for women and minority-owned businesses, making it harder for them to access the same opportunities as others.
Why Small Businesses Are Concerned
Experts and business owners agree that the funding freeze and anti-DEI push are a “one-two punch” that could lead to significant job losses and economic instability. Small business owners like Perez worry that this uncertainty could suppress growth, lead to fewer opportunities for budding entrepreneurs, and negatively affect communities that depend on federal support.
While federal grants and loans are often the lifeblood of small businesses, especially in challenging economic climates, the freeze could worsen funding access, leading to a stunted economic recovery.
What’s at Stake for the Economy?
If this freeze continues, it’s not just small businesses that are at risk — entire communities could feel the impact. The Public Policy Institute of California highlights that businesses with fewer than 100 employees account for nearly 60% of all jobs in the state. The negative impact of any disruption to this job-creating engine would be profound.
A Way Forward?
The good news is that California’s attorneys general, alongside other states, have secured a temporary restraining order against the freeze. While the legal battles continue, it’s clear that the freeze’s potential impact on small businesses has already begun to ripple across the economy.
It’s crucial that small business owners and advocates continue pushing for solutions that protect small business funding and prevent policy decisions that could undermine DEI initiatives. At the same time, maintaining financial support for small businesses is key to ensuring these enterprises can continue to drive job creation and economic recovery.
Conclusion: A Call to Action for Small Businesses
In California, and across the nation, small businesses are crucial to maintaining economic stability and job creation. The ongoing threat to small business funding under Trump’s executive orders places not just businesses but entire communities at risk.
It’s time for lawmakers and business advocates to stand up and demand that funding for small businesses be safeguarded. The future of job creation, innovation, and economic recovery depends on it.
Relevant links for further reading
- Small Business Administration
- Public Policy Institute of California
- California Attorney General
- Small Business Majority
Photo credit: KPBS
