Did the Small Business Administration discriminate against white business owners?

The Restaurant Revitalization Fund was setup as part of President Biden’s American Rescue Plan to provide much-needed money to restaurant owners who were devastated by the economic recession caused by the COVID-19 pandemic. The approximately $29 billion fund is providing grants representing the difference between the revenues a restaurant recorded in 2020 and 2019 – a potentially substantial check for many – and is being doled out by the Small Business Administration (SBA).

Except there’s a problem: it’s probably discriminatory against white men.

That’s the case being made by in multiple lawsuits filed last week by a group of business owners and advocates in Texas in Tennessee. They say that the program unfairly prioritizes the distribution of funds initially (for the first 21 days) to minority business owners and those in low- to moderate-income areas, who are statistically likely to be people of color. That, according to the plaintiffs, discriminates against everyone else. 

The suit claims that non-minority business owners were “harmed” because they were “pushed to the back of the line,” and because they were “treated differently because of their race and gender.” The SBA grant program is further accused of “giving priority to certain groups” and putting “white male applicants at significant risk that, by the time their applications are processed, the money will be gone.”

They’re right; the money is gone.

The owners filed the suit after learning that much of the program’s funding has been exhausted already and that few or no funds would be remaining for them. In response, a group of congressmen have already begun talks to add another $60 billion to the fund, but these talks are still in preliminary stages and have a long way to go. As a result, nearly 3,000 restaurant owners have been notified that the funds they were approved to receive are in limbo until the lawsuit is resolved.

“You work so hard, and we made no money last year, like none,” Christine Ameigh, the owner of Christine’s Kitchens, a food hub and incubator in Madison, Wis., told the Capital Times. “It was exciting to be able to continue to move forward with the new project. The money was going to help keep us alive and hire a staff person. There are different things we could have achieved with that money.”

Data show that minority businesses were more severely impacted by the COVID-related shutdowns and the resulting economic recession. Studies have also shown that it’s much more challenging for these same business owners to receive financing compared to their non-minority counterparts. But does that give them the right to receive these funds ahead of other business owners that were also significantly impacted, just because of the color of their skin or their gender? 

“Under the guise of pandemic relief, the American Rescue Plan Act enables the federal government to engage in illegal and unconstitutional race and sex discrimination,” said Rick Esenberg, president and general counsel of the Wisconsin Institute for Law and Liberty, in a May press release announcing the suit. “This is ugly, pernicious, and toxic.”

It’s a tough issue. But I’m betting the courts will side with the plaintiffs. The SBA program is discriminatory. Although trying to do the just thing, the federal government probably went too far in shutting out a specific class of business owners rightly pursuing funds.

The good news is that it’s a fixable problem and it’s not like the government hasn’t been here before. Most government awards and contracts stipulate the inclusion of minority businesses. So, the answer would be to determine a more equitable distribution of funds, similar to the awarding of a government contract, which gives opportunities both to minorities (with benchmarks and targets) as well as everyone else.

What about more funding for the program? That’s also an answer, but one that raises budget concerns and also calls into question the necessity of more stimulus when the economy is rebounding strongly and many restaurants are challenged more with finding workers than getting financing. If those issues can be resolved, then getting money out to business owners who are truly in need would be the best solution possible.

Gene Marks is founder of The Marks Group, a small-business consulting firm. He frequently appears on CNBC, Fox Business and MSNBC.