As the U.S. government shutdown enters its 14th day with negotiations over the budget ongoing, how are small businesses being affected so far?
As Scott Shane pointed out last week, the U.S. government shutdown initially affected few small businesses. But as the shutdown continues, small businesses along with the rest of the economy, are beginning to feel the impact.
And if the U.S. government’s borrowing authority lapses near the end of this week on Oct. 17, it could trigger recession or worse, reports Bloomberg Businessweek.
Below are ways small businesses are directly and indirectly being affected already.
Small Business Administration Closed for Business
First, the Small Business Administration remains closed for business. A notice on the SBA website indicates the agency is closed for non-distaster related activity. The site further explains that this means information won’t be updated and any transactions made through the site could be delayed.
And, of course, inquiries won’t likely be responded to because the agency is shut down and employees have been furloughed.
The shutdown has also brought a halt to all new applications for small business loan guarantees handled through the SBA.
Shutdown of Parks, Employee Furloughs Affect Some
Shutdown of all national parks and monuments, furlough of some federal employees and delay of pay to others all continue to have a trickle-down affect on small businesses, of course.
For example, lodges and other businesses dependent upon tourism around U.S. national parks are already seeing the impact, the Los Angeles Times reports.
Also, some federal workers have been sent home without pay and others in critical areas, for example in the U.S. military, are working without pay. So businesses depending heavily upon these customers are affected.
Federal Contractors May See Cash Flow Problems
Finally, while lucrative government contracts are usually cause for celebration, small businesses that have them may not feel that way now.
National Federation of Independent Business economist Bill Dunkelberg says this group will also continue to be affected, though hopefully not long term.
Still, delay in payments to government contractors may cause some to experience cash flow problems, Dunkelberg says.
And, of course, if the U.S. defaults on its debt, the situation could be much worse…for everyone.
Shutdown Photo via Shutterstock
Aira Bongco
So I guess they had preferred to not take any form of action and just shut things down – but it is still as bad. The longer this takes, the more it will affect the operations of small businesses which can affect the economy in the long run.
If the U.S. defaults on its debt, the situation could be much worse for everyone, especially China, its biggest creditor.
Diana,
It can be disastrous, IMO. Many countries’ economy are depending on The Fed policies and when the U.S. slump, there goes many of us, too.
The great depression is looming? Could be.
Shawn,
Not good. Not good at all. Not only for U.S. businesses, but also for other countries’ businesses. I agree: It might trigger prolonged recession.
I do hope the shutdown ends real soon.
Chuck Blakeman
There are 28 million businesses with 1-19 employees, 98% of all businesses in America. The SBA backs almost no loans to them even when it’s open. There are less than 300,000 businesses with 50-500 employees. 90%+ of all SBA loans go to these bigger businesses.
In the last two years, loans under $250,000 backed by the SBA have steadily decreased. In the last year, the SBA has backed fewer loans under $100,000 than any time in their 60 year history.
True small businesses with 1-19 employees – the 98%” – are largely unaffected by the SBA closure. In fact, they probably benefit, because it keeps the SBA from giving more loans to larger businesses that allow them to take customers from the smalls. The longer the SBA is closed, the more likely the 98% will benefit by a more level playing field that does not favor the 2%.
I would encourage you to celebrate that the is SBA closed until it can figure out how to benefit the 98% instead of the 2% of the largest businesses in America.
The economy is going nowhere. When the small businesses need more stimulus to create more jobs, our beloved Congressmen are on a logjam on raising debt limit and giving a go ahead to the budget. They are all waiting for the giant to fall at its earliest. They are all trying to fail the economy. If the US defaults, our economy is going to enter another phase of deep recession and no one knows whether another Great Depression is waiting for us.
It is getting worse, before it could become better…
Maybe it is time to stack precious metals and ride out the storm?
And then ask the question: what is the proper role of government? To protect individual rights (with police, military and court system), or intruding in our daily life (social and business)?
The shutdown won’t affect our business that much, at least not directly, but it will affect many of our customers as they are frequently environmental consultants which are contracted out by the feds to remediate (i.e. clean up) properties laden with toxic chemicals. In many cases, these contracts won’t be awarded until next year meaning the consultants will have a serious cash crunch this last quarter.