The decision by Congressional lawmakers to shut down the federal government earlier this week will likely have many far-reaching implications that could last for years. One of the bigger problems that many small businesses may see in the near future is that it might now be more difficult for them to obtain any more financing from lenders.
Small business credit was already fairly tight to begin with, but the federal shutdown could serve to only exacerbate the problem, according to a report from ABC News Radio. Often, when small business owners used to have difficulty in obtaining financing from traditional lenders, they are able to turn instead to the U.S. Small Business Administration to get some capital, but with the federal government now shuttered for an indeterminate amount of time, that option likely goes out the window. SBA officials said prior to the decision being made that the decision would likely have a massive negative impact on not only its operations, but that of other vital agencies as well.
“Due to the government shutdown, America’s 28 million small businesses will be unable to access an average of $96 million in capital supported by the U.S. Small Business Administration per day, as well as an average of $1.9 billion in capital per month,” the SBA said just prior to the shutdown, according to the news agency. “SBA lending is a critical resource for small businesses and in anticipation of a government shutdown, the last day of the fiscal year saw a significant increase in SBA lending – more than six times the agency’s daily average – to support more than $570 million in capital through our flagship 7(a) and 504 loan programs.”
What does this mean?
While the vast majority of the nation’s financial institutions remain open and often could prove to be viable options for small business owners seeking financing, these added difficulties are certainly not welcome news among many entrepreneurs. If anything, the shutdown, depending upon how long it lasts, could make lenders far more cautious about extending potentially large amounts of credit to small businesses in particular. As pointed out by some experts in the last few days, the financial issues that many independent companies experience as a result of the shutdown could have a lasting impact on their bottom lines overall. For instance, those that had even some government contracts may now go without the money from those deals coming in for however long the shutdown lasts. That could impact their ability to meet their previous income expectations for far longer, which in turn could further impair their ability to qualify for small business loans from traditional lenders; this vicious cycle of not having money coming in because of the shutdown, and then not being able to obtain financing, could severely impact a company’s chances for future growth and success.
In addition to the stresses that small business owners might face on a professional level as a result of this shutdown, they might likewise face personal issues too, the report said. For instance, if they are in the market for a new home loan, they may not be able to have it backed by the Federal Housing Administration – which has set up some contingencies in these cases – as easily as in the past.
Of course, owners wanting to ensure that their businesses run as smoothly as possible during the shutdown may want to consider the value of finding more affordable small business insurance. Reducing costs for workers’ compensation or general liability insurance can go a long way toward improving a company’s flagging bottom line.