Government Shutdown Could Hurt Small Business

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The Wall Street Journal
By: Emily Maltby
April 7, 2011

As Democrats and Republicans remain in gridlock over the federal budget, some business owners are wondering how they will be affected if agencies run out of funding and the government shuts down

Small firms that use government programs or work with government agencies may be impacted in several ways, according to a Small Business Administration official. Here's the breakdown:

There won't be any new approvals of SBA-backed loans, such as 7(a) or 504 loans. Even though banks and other private lenders underwrite these, the loans also must get approved by the agency before they can be fully processed. That can't happen without funding.

The real backlog will start midnight Friday. Applications that are submitted after that time will be queued up for approval until there's more funding.

Some small-business owners who are involved in federally contracted work may also be at a loss because agencies will cease federal procurement activities. In other words, no new contracts would be awarded.

For those businesses that are already working on completing a government contract, notifications from the issuing agency will be sent out, indicating whether the specific project will continue or be suspended.

Additionally, a good portion of the SBA's counseling outlets will be closed. Every SCORE office would go dark, but some small-business development centers, or SBDCs, would remain open. Unlike SCORE offices, the SBDCs get funding from a variety of sources and don't rely exclusively on the government. However, the SBDCs that are located at a federal facility will likely be closed.

Business owners who need government services the most will still find open doors. As with all the agencies, the SBA will continue to perform any work that is required for the safety and protection of life and property. So SBA disaster-assistance loans for homeowners, renters and businesses will continue to be approved. These are the agency's only direct loans and they run on a separate funding source, outside of the annual budget, so that the government can effectively respond to disasters.

The SBA will also continue its secondary-market oversight operations because, as with disaster programs, there's an importance in maintaining the integrity of the financial system. Banks use the so-called secondary market to sell loans to investors. This transaction enables them to make new loans. But before a bank can sell any SBA loan, it needs to get approval, which is why this aspect of the agency will remain open.

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This page contains a single entry by CFED published on April 8, 2011 3:48 PM.

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