How the partial federal government shutdown affects small businesses

January 9, 2019

By Seth Sandronsky

On the 2016 campaign trail, President Trump vowed that Mexico would pay for a wall on its border with the U.S. from California east to Texas. That was then, and this is now: day 19 of a partial federal government shutdown.

As Trump took to television yesterday to make a case for building a southern border wall that congressional Democrats oppose, we turn to some of the real-world effects on small businesses and the customers they serve.
That customer base includes 800,000 unpaid federal employees. These unpaid workers are furloughed or working as “essential” employees, e.g., at the FBI and Transportation Security Administration.

This economic story of the shutdown is simple. Unpaid federal workers are not buying goods and services from small businesses.

“Impacted federal workers won’t have money to spend on Main Street or even to pay for child care,” Frank Knapp, head of the South Carolina Small Business Chamber of Commerce, told MultiBriefs in an email.
The shutdown also threatens federal funding of food stamps for 39 million low-income Americans, another negative for consumer buying power from small businesses.

Dottie Rosenbaum is a senior fellow with the Center on Budget and Policy Priorities in Washington, D.C. “Millions of poor children, parents, elderly people, and people with disabilities — could have their basic food assistance … virtually eliminated altogether starting in March if the shutdown continues,” according to her.

What about the Small Business Administration making loans to small entrepreneurs? The SBA is not open, a victim of the partial government shutdown. What does that mean?

“With the SBA closed, there is a backlog of companies awaiting funding primarily from small banks,” according to Rohit Arora of Forbes. “At this point, it will take months to recover from this jam and restore the flow capital to small businesses. So if you were in the process of obtaining an SBA loan to start a business venture, your entrepreneurial dreams will have to be put on hold.”

Startup small businesses are not alone feeling the pain. Ongoing enterprises are hurting as well. For instance, non-SBA loans to cover operating costs will result in higher borrowing costs for established small business owners in all likelihood, according to Arora.

The National Federation of Independent Businesses has been conducting outreach to small businesses for feedback on the shutdown, according to Adam Temple of the advocacy group.

“NFIB maintains a consistent dialogue with the small business community, and to this point owners have not expressed concerns about the government shutdown. Small businesses are often the first to feel the brunt of government action or inaction. Small businesses represent half the economy and although today’s focus is on the shutdown, it should only serve as a reminder that government should find ways to make it easier, not harder, to run a small business in this country,” Temple told MultiBriefs by email.
The California Chamber of Commerce and Institute for Supply Management declined requests to comment for this story.

The unpaid federal workforce with crippled purchasing power has company. Consider the small businesses that contract with the federal government experiencing a cash cutoff due to the shutdown.
Meanwhile, ABC News is reporting that some Republicans in Congress are growing increasingly uneasy with the prolonged partial shutdown of the federal government over funding of a U.S.-Mexico border wall.

“There is a host of economic problems for small businesses if the shutdown continues,” Knapp said. “Many small businesses don’t have the financial reserves to weather this self-inflicted storm.”

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