Economy and Analysis How the Government Shutdown Affects Small Business

How the Government Shutdown Affects Small Business

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The timing really couldn’t have been worse. A government shutdown just before the Christmas holiday. One might think that this could benefit businesses that sell to consumers who are government workers and have extra time off to shop. More realistically, people don’t spend money when they’re not sure when their next paycheck will be. The Trump rhetoric speaks to the later. The partial government shutdown that began at midnight Saturday, is likely to affect millions of small businesses.

While 800,000 government workers brace for temporary financial losses, many of the roughly 30 million small businesses nationwide face revenue losses and limited access to certain loans. For example, if you take a look at the SBA website you will notice that they have the open sign on the door switched to close, with the statement, “Due to the lapse of government funding, SBA will remain inactive until further notice. We apologize for any inconveniences and we look forward to assisting you when we return.” Looks like Santa is not going to get your loan processed for Christmas.

In a tweet, Senator Tim Kaine of Virginia said, “@realDonaldTrump has no concept of the hard work our federal employees do every day to keep the country running. Forcing 800,000 of them to spend the holidays unsure about their next paycheck is cruel.” There are two sides to every coin. Rep. Mark Meadows of North Carolina said, “Federal employees knew when they took their jobs that a government shutdown was possible and that they’ll likely be paid.” Point-counter-point.

In regard to the SBA, the disaster relief division will still be up and running to help those still recovering from hurricanes, floods and other natural disasters. A quick note on SBA guaranteed loans. As long as the government is shutdown, there can be no guarantee on loans backed via the SBA. Ostensibly, banks are on the hook during this close-down period for loans made to small businesses. There is a 2013 precedent for such an event. Small businesses were hurt during a 16-day government shutdown when former President Barack Obama was in the White House. Forbes reported that small business loan approval rates dropped from 50 percent to 44.3 percent at small banks, while small business approval rates at big banks dropped by nearly 20 percent.

There is empirical data that supports the deleterious effects of a government shutdown. According to ShopperTrak, retail store traffic fell an average 7.3 percent each week of the 2013 shutdown compared with the same period a year earlier. In addition, the loss of pay during the 2013 shutdown led to an estimated 2 to 4 percent drop in spending among government workers, according to a 2014 Stanford University study. Those workers put off things like dining out and spending less on groceries.

Okay, so how long will this last. Historically, government shutdowns will last for a modest day or two, however in 1996, a shutdown lasted 21 days, and the 2013 shutdown mentioned took 16 days to resolve. Nothing is certain with President Trump, as he tweeted, “There will be a shutdown that will last for a very long time,” if he doesn’t get his way. Wall or no wall, that is the question.

1 COMMENT

  1. Who does this author think he’s kidding? The government shutdown is nothing more than additional paid vacation for the affected workers.

    They will be paid for every hour that they were supposed to have worked.

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