As the U.S. government could be headed for its first shutdown since 1995, small-business owners are divided on the matter. A poll by Pepperdine University finds that 48 percent of business owners support at least a short-term shutdown, while 42 percent think policymakers should strike a deal to avoid it.
Regardless of their political opinions, however, a lengthy shutdown could be financially damaging to small businesses in every corner of the U.S.
Businesses based in government- and military-strong places like Washington, D.C., and Norfolk, Virginia, would be especially hard hit. Many small businesses in those areas rely directly on government spending and federal workers for revenues. Small government contractors could see their income plummet as payments from federal contracts stop.
Certain agencies like the Federal Aviation Administration and the Homeland Security Department would likely keep much of their staff actively working, according to an analysis of past government shutdowns by NBCNews.com. But national parks would likely close completely, and many federal agencies would transition to a bare-bones staffs and cease many of their everyday activities.
Beyond the direct impact, a government shutdown would inevitably scare investors and hurt consumer confidence and spending, causing a ripple effect throughout the U.S. economy. It’s particularly concerning as we approach the holiday season, which often makes up 30 to 40 percent of small retailers’ sales.
“The negative effects of a government shutdown on small business at this time would almost inevitably damage and destroy many small businesses across our country,” Gayle Shanks, an independent bookstore owner in Tempe, Arizona, wrote on AZCentral.com. “The consequences for us and for our economy, on both a local and national level, are unthinkable.”
Businesses that rely on federal assistance would also be affected. The Small Business Administration will probably stop processing and approving SBA-backed loan applications—including those to businesses seeking disaster relief. Federal inspections and oversight of small-business operations would also likely slow, since many inspectors’ jobs would be furloughed throughout the shutdown.
Business owners and employees that need to travel abroad and get visas could also be affected by delays if passport services slow or stop completely.
The financial and economic damage caused by a shutdown would ultimately depend on its length. A few days may not cause much financial pain to small businesses. But one that lasts weeks—something that seems possible this time, given Congressional gridlock, according to the Washington Post—could be economically devastating. “It’s corrosive on the economy,” Mark Zandi, chief economist of Moody’s Analytics, told the Post. A lengthy shutdown followed by a default would be “the nightmare of the recession all over again.”