The federal government’s shutdown has impacted many corners of the U.S. economy and in a number of different ways, but one of the sectors that might be most affected is small business. For this reason, it might be wise for owners to acquaint themselves with the ways in which the shuttering of many federal services can impact them and their bottom lines in the near future.
One of the ways in which independent enterprises will likely be hit hardest by the shutdown is that the U.S. Small Business Administration is all but boarded up at this point and that means that its programs on which many owners usually rely are simply not available at this time, according to a report from the Washington Post. This means that training and assistance programs like the Small Business Development Centers and other services are simply not available. But even beyond that, the SBA is crucial to the sector because of the ways in which it offers loans to such companies, and that financing is now not available.
“You start looking for where small businesses get long-term loans, and the SBA is it,” Tony Wilkinson, president and chief executive of the National Association of Government Guaranteed Lenders, told the newspaper. “And the government shutdown turns off that spigot.”
This is problematic in particular because a number of studies and plenty of anecdotal evidence has shown that banks of all sizes were keeping their small business lending efforts constricted even before the shutdown, and now these have all but ground to a halt, the report said. The reason for this is that pretty much all lenders will use verification services from the Internal Revenue Service or Social Security Administration to verify that the data submitted by loan applicants – for everything from small business financing to mortgages – is correct. Without the ability to ensure that information about revenues, income and the like is correct, banks will likely just not grant such loans to companies trying to expand. That may be extremely unhelpful to expanding companies, but at the same time, from the banks’ point of view, they cannot simply grant potentially massive loans to companies without ensuring that they are as good investments as possible.
Those with government contracts may be most affected
Of course, thousands of small businesses across the country rely heavily on contracts they’ve struck with the federal government to keep money coming in, but will not receive payments on those deals while the shutdown is under way, the report said. Further, they may be asked to delay work they were originally scheduled to do, and that can leave companies idle for long periods of time. And with all the uncertainty about when the shutdown will end, it may likewise be impossible for these companies to take on more work as a means of making ends meet during the gridlock, because they may be asked to begin their contracted operations as soon as it ends.
Finally, small businesses may see another impact on their bottom lines simply because hundreds of thousands of federal employees are now going without pay, and therefore may not be able to make the purchases they would have made if they were receiving their paychecks as normal, the report said. While those people will receive their back pay when the government opens for business once again, the intervening time could be difficult for non-essential employees and small businesses alike.
Owners looking to shore up their bottom lines may want to look into ways in which they can reduce their costs for small business insurance. Cutting workers’ compensation or general liability premiums can go a long way for those dealing with tight margins.