California’s small businesses — employers to more than half the state’s workforce — are staring down what some owners, experts, and advocates say could be immense negative consequences from President Donald Trump’s slew of executive orders.

Levi Sumagaysay

CalMatters

Trump’s embattled federal funding freeze and anti-diversity push have seeded uncertainty about the economy, jobs and spending on infrastructure and innovation.

The freeze, imposed on Jan. 27, affected hundreds of billions of dollars for thousands of federal programs, including many aimed at small businesses. After states including California filed suit, a federal judge issued a temporary restraining order putting the freeze on hold. Since then there has been more legal wrangling, including a court order stating that Trump failed to comply with the initial ruling.

The administration has said funding for small business would not be paused, but owners and advocates are not sure if that will prove true, and say uncertainty about the freeze may already be doing damage.

Liz Perez, who owns a small general contracting firm in San Diego County, said news of the funding freeze gave some people in her Native American community “heart attacks.” She said some projects that were under construction had to be temporarily halted while those in charge tried to figure out what was going on.

“I’ve never seen tribal leaders — the most put-together leaders — so frazzled,” Perez said.

Small Business Owners Worry About Trump’s Freeze

Perez and other small business owners, allies and experts worry that a freeze could mean fewer opportunities for entrepreneurs to start and grow businesses, which could lead to fewer jobs and less spending and investment for communities, industries and larger businesses.

Small businesses with fewer than 20 employees accounted for 29% of jobs in California, and businesses with 20 to 100 employees accounted for 30% of jobs in the state as of the end of 2022, according to an analysis of Bureau of Labor Statistics data by the Public Policy Institute of California.

California, the nation’s most populous state, is the biggest recipient of Small Business Administration loans, with $1.15 billion in loans approved for this year. Not all loans from the agency are federally funded, but they are guaranteed by the government. The loans funded by the agency, which could be most at risk from the freeze, include disaster loans and microloans.

Other federal funds that help small businesses and were on the list of programs to be frozen include the $25 million for the State Small Business Credit Initiative, which the Finance Department said is in the state’s 2025-2026 fiscal year budget. Community development financial institutions, which provide banking services to small businesses, are also facing a “real and immediate threat” to their funding that includes possible cancellation of contracts, the CDFI Coalition said in an email to its members this week that was seen by CalMatters.

Related Story: ‘Wouldn’t Be Where I Am Today:’ California’s Small Business Owners Fight to Save State Aid

Simon Brown, spokesperson for national advocacy group Small Business Majority, said small business owners, who “struggle to access capital from all institutions at all levels,” count on the Small Business Administration as a key source of help. Although he is unclear about whether funding from the agency will be affected, he is concerned. “If SBA funding was choked off in some way, it would be a major blow to the entire ecosystem,” Brown said.

Representatives from the Small Business Administration did not return multiple requests for comment, and neither did the White House.

Alex Bloom, economic development manager for Central Sierra Economic Development District as well as Mother Lode Job Training — which handles training funded by the federal Workforce Innovation and Opportunity Act — said the effects of a federal funding freeze could be far-reaching.

“Overall there’s a level of uncertainty,” that could lead to a drop in investor confidence, he said. And “a funding freeze or delay could halt infrastructure projects, which would affect job creation and development that are critical to our region,” Bloom added.

Others say a freeze or pullback on funding will have an impact on equity — that it could hurt those who need the most help.

How Federal Aid and Policies Have Boosted Small Business

Perez said she served in the U.S. Navy for nine years, then “transitioned right into a recession.” At one point, she was pregnant and had nowhere to live. She began working in construction and eventually started a business.

“My business helped get me out of poverty,” said Perez, owner of GC Green, a general contracting and consulting firm that focuses on clean energy, and subsidiary Veterans Energy Services Company.

On the list of programs the Trump administration is examining include funds for small business development centers, development loans and technical assistance for small businesses.

The budget office also said it wanted to root out “Marxist equity, transgenderism, and green new deal social engineering policies.”

California Attorney General Rob Bonta, who with other state attorneys general won a temporary restraining order against the freeze, said last week during a press conference that, if enacted, it would affect 34% of the state’s budget, which he called “a massive, irreplaceable chunk.”

As a woman, veteran and Native American, Perez said she has been helped by some DEI initiatives. But she said “starting my company didn’t mean I cut in line, or got in front of everybody. It means I got my foot in the door.”

Perez also was able to secure a federal loan to help Native American-owned businesses during the pandemic, during President Joe Biden’s administration, which she said helped her expand her business.

“You roll back these initiatives, what is that going to do to our economy, our supply chains, our workforce?” she asked.

The budget office followed up its original memo with another one that said “funds for small businesses, farmers, Pell grants, Head Start, rental assistance, and other similar programs will not be paused.” But there is evidence that at least one of the things on that list has not been spared: Some Head Start programs have had trouble accessing funding and at least one has been forced to shut down in Washington, according to media reports and the states’ lawsuit.

At least one expert CalMatters spoke with said he thinks small business is “probably one of the last places the spigot will be turned off.” Robert Dekle, an economics professor at the University of Southern California, said “it would actually be suicidal for the Republican party to continue with” cutting off aid to small businesses because he said small business owners make up “a large part of Trump’s base.” (A poll after Trump won the election showed changes in optimism among small business owners differed along party lines.)

‘We’re Going Backwards’

But Catalina Amuedo-Dorante, an economics professor at UC Merced, said this administration has made its priorities clear. “We’re going backwards (in terms of) rights for different minority groups, groups that need more assistance in medical care, food, education,” she said.

The professor added that “harming human capital” is a recipe for disaster. She called the possible rollback of funding to small business, medical research and other programs a threat to this generation and next.

Another one of Trump’s executive orders — titled “Ending Illegal Discrimination And Restoring Merit-Based Opportunity” — includes a directive to the Office of Federal Contract Compliance Programs within the Department of Labor to stop “promoting diversity” and “allowing or encouraging Federal contractors and subcontractors to engage in workforce balancing based on race, color, sex, sexual preference, religion, or national origin.”

The president’s anti-diversity push rides a wave of similar sentiment that has swept the country in recent years, including through lawsuits against affirmative action in government. Last year, a judge ruled that a small business lending program meant to help Black, Latino and other underrepresented entrepreneurs should be open to white people.

In late January, the Small Business Administration reportedly decreased its goals for federal contract awards to small and disadvantaged businesses to 5%, apparently because of the Trump directive on DEI. Under Biden, the goal was 15%.

What all this could mean, regardless of what happens with the funding freeze, is that some small businesses that might otherwise have been considered for federal government contracts may no longer get those chances.

Perez, the small business owner, said DEI initiatives can help when it comes to landing general contracting work, but not always: “Just because these policies are in place, it doesn’t mean you’re going to get the job. It’s so difficult. It’s grinding all the time.”

Carolina Martinez, chief executive of CAMEO Network, a small business advocacy group, said procurement opportunities were already limited, and the Trump administration’s new policies will make things worse. “It seems clear they’re opening the door to discrimination and racism,” she said.

Randell Leach is CEO of Beneficial State Bank in Oakland, a community development financial institution, which serves low-income customers and small businesses that may not be able to get loans elsewhere. Leach said he is concerned about the intersecting effects of “the curtailment of funding and anti-DEI measures that could come together and impact women entrepreneurs and communities of color.”

Not only does that directly affect historically underrepresented small businesses but also, potentially, “a whole host of vendors and tech companies that support them,” he said.

The bottom line: “It’s important to be aware that discrimination in any form is not only bad for communities, but for the economy,” Martinez said.

About the Author

Levi Sumagaysay is part of the economy team and is CalMatters’ first tech reporter.

About CalMatters

CalMatters is a nonprofit, nonpartisan newsroom committed to explaining California policy and politics.