Small businesses across the U.S. rely on government-backed loans to start new businesses and keep their operations running smoothly. The government’s first shutdown in 17 years, however—now over a week long—is already hurting many businesses’ profits and viability.
More than 60 percent of Small Business Administration employees have been furloughed during the shutdown, according to the Silicon Valley Business Journal. The agency has stopped processing its popular 7(a) SBA loans and 504 certified development loans altogether. The only SBA offices that remain operational are the Disaster Loan Program and the SBA’s inspector general office.
The shutdown has been particularly tough on companies awaiting SBA loan approval and final processing measures. Many banks scrambled to finish processing loans before the shutdown—but many are still in limbo.
Charlotte Calmels, owner of a French restaurant in Philadelphia called Bibou, is trying to open her second French restaurant in the city but is awaiting a $150,000 SBA loan. She can’t open her new restaurant until the SBA verifies her legal immigration status with the federal immigration agency, which has been shut down. Calmels fears that the government shutdown could persist for weeks, halting her plans to expand. “I have the keys to the restaurant,” she told The Wall Street Journal. "But that could prevent me from opening and hiring any employees.”
Lending experts say these small businesses may consider turning to alternative lending sources, such as merchant cash advances, factoring or asset-backed loans, to bridge any lending gaps during the shutdown. But those loans can carry interest rates upwards of 8 percent, while SBA loan rates are typically around 5.5 percent to 6.5 percent, according to WSJ.
Once the shutdown ends, experts say there could be a long backlog of loans in need of processing. Some businesses may have to wait for six weeks or longer to get their loans, creating even more headaches and worries for business owners.
“A major chunk of small business lending under the SBA and conventional loan programs requires verification of transcripts by the IRS,” said Rohit Arora, CEO of lending research firm Biz2Credit, said in a news release. “This has halted, and there will be a backlog of SBA loans once the impasse has settled."
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