Lawsuit Against Grants For Black Entrepreneurs Could Slow Economic Growth

Hello Alice, a platform providing resources to all entrepreneurs—particularly those who are underestimated—is facing a class action lawsuit that could potentially slow U.S. economic growth. The importance of grant programs like Hello Alice and Fearless Fund—another organization being sued—in promoting diversity and economic growth cannot be overstated.

A reverse discrimination class-action lawsuit has been filed by America First Legal and Johnathan F. Mitchell. The lawsuit alleges that Nathan Roberts who owns Ohio-based trucking dispatch company Freedom Truck Dispatch was treated differently because he is white.

The lawsuit has caused disruption and uncertainty for Hello Alice’s inclusive grant programs, which has already provided over $40 million in grants to entrepreneurs from all backgrounds. However, Hello Alice is standing firm in its mission by offering $1,000 grants and moving for a dismissal of charges.

The law firm Hogan Lovells, led Neal Katyal, has presented four strong arguments to dismiss the suit.

Hello Alice Counters Lawsuit With Four-Prong Legal Defense And Doubles Down On Grants

The lawsuit is based on the Civil Rights Act of 1866, known as Section 1981. The statute prohibits discrimination based on race, color, and ethnicity when making and enforcing contracts. Hello Alice is filing to dismiss the class-action lawsuit based on four legal arguments.

• To prove reverse discrimination, Roberts—the plaintiff—has not shown that his company satisfied any of the non-race related eligibility criteria.
• The law applies to discrimination in contracts, not gifts where there is no quid pro quo.
• The First Amendment protects Hello Alice and Progressive from being forced to change the terms of their grant program, which aims to address racial inequalities in access to capital.
• The law does not apply to voluntary, private-sector affirmative action programs aimed at addressing existing racial imbalances.

Interestingly, Roberts did apply for the Hello Alice Small Business Growth Fund, which he didn’t win.

Hello Alice has provided over $40 million in grants to entrepreneurs of all genders, races, industries, and geographies. It has connected 1.4 million entrepreneurs to loans, credit, and resources to assist in the growth of their businesses. In response to AFL’s actions, Hello Alice is doubling down on its commitment to entrepreneurs by offering $1,000 grants.

Lawsuit Out Of Step With Current Economy And Public Sentiment

Grants are a game-changer for small businesses and the U.S. economy. Yet some, like AFL and Mitchell, are suing to take away the ability to close entrepreneurial gaps among marginalized people.

Gene Hamilton, VP and general counsel of AFL writes “All Americans deserve to be free from racial discrimination, yet major corporations across the United States inject racial considerations into every aspect of their business operations, employment practices and so much more.”

This sentiment is out of step with the American public. Most consumers (83%) and employees (86%) believe companies should play an active role in shaping ESG best practices, and prefer to support or work for those that share their values, according to PwC research.

The lawsuit is taking its toll on Hello Alice. Expensive legal fees are a problem but so is the distraction caused by the suit. Corporate partners are pausing their work as they re-strategize how to continue providing grants.

“Pausing is a scary word,” admitted Elizabeth Gore, president and cofounder. “It generally means a long time.” That’s bad for Hello Alice’s bottom line but also all the entrepreneurs who need grants.

“If AFL wins the lawsuit, it could set a catastrophic precedent,” said Gore. Private companies will not have the freedom to “gift” capital in a way that meets their business needs. “Over $2 billion has been committed since George Floyd’s murder to minority-owned small business,” stated Gore. That’s just one demographic segment. “We’re talking about billions of dollars stripped from the U.S. economy.”

Many of the grants are for double-bottom-line companies, which make a financial profit and social impact, like childcare and eldercare services or telehealth companies.

“There is ignorance on what the new face of small business looks like,” said Gore. “The vast majority of these programs are targeting socioeconomic barriers that are limiting growth.” This includes white men in rural areas, veterans whose deployment left them without a credit history, or minority groups who have not built generational wealth.

Grants Fuel Growth For Underestimated Entrepreneurs

Grants are an essential lifeline for underestimated small businesses, providing free capital to help close funding gaps. Beyond financial support, grants offer:

• validation and credibility through third-party endorsements
• increased visibility
• networking and training opportunities

By empowering underestimated entrepreneurs to reach their full potential, grants stimulate business growth, create jobs, promote innovation, and support community development.

For example, Black/African American women-owned businesses generate significantly lower average revenues compared to all women-owned and men-owned businesses, according to the Wells Fargo Impact of Women-Owned Businesses (IWOB)*: $47,300 versus $192,600 and $753,500.

If Black/African American women-owned businesses closed this gap with white women, $361.2 billion would be added to the economy and if they closed the gap with men-owned businesses, $1.5 trillion would be added.

Whether a business is starting, struggling, or growing, adequate capital, business knowledge, and networks improves business outcomes.

Nearly two-thirds of new businesses rely on personal or family savings to cover at least some of their start-up costs, according to Kauffman Foundation research. The lack of deeper financial resources is a major hurdle for Black entrepreneurs: 42% of them have cited this as the primary reason for abandoning their business plans, compared to only 31% of white entrepreneurs.

“When you look at the African American community there typically isn’t generational wealth,” said Angela Dingle, acting president and CEO at Women Impacting Public Policy, a nonpartisan advocacy group. “When it comes to trying to start or grow a business, they don’t necessarily have the family and friends network that they could turn to like other demographics might.”

“Many of our underserved segments haven’t been able to get to the starting line, to compete in fair processes,” said Pamela Prince-Eason, President & CEO, Women’s Business Enterprise National Council (WBENC). “There are certain additional barriers that exist, and that need to be reviewed and understood in order to break them down, so that everybody gets to the starting line.”

Hello Alice grant partners fall into two categories:

• Core partnerships that drive growth: Examples include DoorDash, a food delivery company, provides grants to help restaurants improve their capabilities. PepsiCo, a foods and beverages company, provides grants to support innovation in food services and CPG companies.
• Philanthropy: Many companies, foundations, and individuals with an affinity for small business want to underwrite grants for specific demographics.

If the AFL lawsuit prevails, all such help for small businesses will be in jeopardy. So will economic growth in America.

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