How the Government Shutdown Affects US Small Businesses

If you thought that the new year would see a speedy end to the US government shutdown, think again.

With negotiations at a standstill, it doesn’t look like there’s an immediate end in sight to the shutdown, which is now in its third week. In fact, President Donald Trump reportedly said he’s prepared to keep the government closed “for a very long period of time — months or even years” until funding is approved for his proposed border wall.

The partial government shutdown, which began Dec. 22, means there is no funding for about 25% of the US government, affecting nine out of 15 federal departments and dozens of agencies.

If the government shutdown stretches past this Saturday (Jan. 12), it will become the longest one on US record.

In addition to having 800,000 government workers deal with temporary financial losses, the shutdown is also negatively affecting many of the 30 million small businesses across the US due to revenue loss and delays with loans.

Here’s a look at a few of the ways the government shutdown is affecting US small businesses.

SBA Closure

The Small Business Administration (SBA) is one of the federal agencies affected by the government closure. That means that for the duration of the shutdown, small business loan applications through the agency won’t be processed. However, disaster loans through the SBA aren’t affected by the shutdown, and SBA employees who work for disaster services are “excepted” from the closure and still report to work.

“Due to the lapse in government funding, SBA will remain inactive until further notice. We apologize for any inconveniences and we look forward to assisting you when we return,” the agency posted on Twitter.

Small businesses — both new and established — waiting on financing will have to either find the capital elsewhere or wait until the government is back to work. But if previous shutdowns are any indication, it could take quite a while for the SBA to clear the backlog once the shutdown ends.

According to a report from the House Committee on Small Business, the shutdown means that access to capital for small businesses that use the SBA’s 7(a) program is reduced by approximately $90 million per day. That translates to 192 small businesses per day that can’t access the capital they require to grow.

While going elsewhere to find capital may sound like the obvious choice, it’s not necessarily a simple solution. In 2013, during the 16-day government shutdown under President Barack Obama, small business approval rates at small banks dropped from 50% to 44.3%. And at big banks, small business approvals fell by nearly 20%.

It’s also important to note that while small business loans are an essential aspect of the SBA’s mandate, that’s not all the agency does. The SBA also offers management assistance, counseling, investment programs, entrepreneurial development programs, and federal contract guidance, none of which are available during the shutdown.

Government Contracts

For some small businesses, landing a government contract is a huge advantage. But during a government shutdown, that same contract can turn into a burden in the event of contract interruptions.

According to the House Committee on Small Business, “on a daily basis, a shutdown could cause small firms to forgo approximately 6,875 contract actions worth $301,656,083 million.”

What’s more, small businesses are responsible for covering payroll and other expenses out of pocket until they can prepare claims to try and recoup costs, a process that can take several months.

Consumer Spending During Shutdown

For the 800,000 federal employees who aren’t getting paid during the shutdown, cutting unnecessary expenses will no doubt be essential to ensure they have funds to pay bills and other necessities for however long the shutdown lasts.

That means fewer meals at restaurants, fewer trips to the salon, and no happy hour drinks with colleagues.

With government workers curbing their spending, small businesses, particularly those around Washington, DC and other areas with federal offices, will undoubtedly see hits to their bottom lines.

During the 2013 government closure, retail store traffic fell an average of 7.3% each week of the shutdown and research indicates that spending by federal workers dropped by 2 to 4%.

But it’s not just areas with high numbers of federal employees that are feeling the effects. With some national parks completely closed and most others with drastically limited services, many small businesses (like restaurants and boutique hotels) that rely on visitors are also feeling the pinch.

While the shutdown is something of a waiting game for many small businesses until operations return to normal, it does serve as a reminder of the importance to create contingency plans and rainy-day funds. If business is slow during the shutdown, use the time to develop a thorough plan that will help ease financial stress down the road in the event of another shutdown or economic downturn.

Speaking of an economic downturn, while the country’s economy is still faring well, for the time being, a prolonged shutdown could certainly start to take a toll. It doesn’t take an economics wiz to figure out that a lengthy shutdown could shake consumer confidence, which, in turn, could see businesses cut back on investment and growth opportunities. And that scenario could have devastating consequences for the US economy.