The government shutdown does more than simply disappoint those who want to visit the country’s museums, national parks, and zoos. In fact, numerous small business owners are negatively impacted by the shutdown, which began on December 22, 2018.
Here are three consequences of the government shutdown that are hurting small business owners:
1. IRS Closure
Ironically, the agency responsible for generating revenue for the federal government, the Internal Revenue Service (IRS), is closed. Some people might say that’s great news … unless you are awaiting a big tax refund. Although the agency announced that it will be paying refunds despite the shutdown, one cannot expect this process will be without delays. People who file early usually are those who are counting on large refunds in order to pay off debts, make purchases or use the refund to go on vacation and other uses. Others may need their most recent tax documents soon to start the process of applying for small business financing from banks or other lenders.
Got a question about filing your taxes? Forget it. You better ask your accountant because no one is available at the IRS to answer questions right now.
2. SBA Closure
With the doors of the Small Business Administration (SBA) closed, loan applications from small businesses have halted. Following a month (November 2018) in which the approval rate for small business loans at regional and community banks was greater than 50%, the percentages of approved funding applications dropped three tenths of a percent in December. This can be attributed to the fact that SBA Loan applications are on hold.
With the SBA closed, there is a backlog of companies awaiting funding primarily from small banks. 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. Established business owners seeking funding for growth will have to wait. If you were hoping to use an SBA loan to cover operating expenses, you will have to look elsewhere for the money, and it will likely come at a higher interest rate if you have to approach an alternative (nonbank) lender because your credit score is sub-par.
Further, the SBA helps small business owners by offering seminars, mentoring programs, guidance in applying for federal contracts, and other types of assistance. None of these services are being delivered right now.
3. Furloughed workers
Many federal workers have gone without paychecks for weeks now. Thus, they have less money in their pocket to purchase groceries, buy breakfast or lunch at a deli or restaurant, get haircuts or buy items usually paid for with disposable income. This impacts small businesses around Washington, D.C., and elsewhere across the nation that count on federal workers as customers. Losing this revenue will hurt the bottom line of companies that provide goods and services to government workers.
Meanwhile, business owners may have been counting on revenue from providing goods and services to federal agencies and government workers may be struggling right now. Perhaps they were looking to use money from their tax returns to pay off personal credit card debt accumulated during the holiday season. Because they may not have the resources to pay off current debts, these individuals may refrain from spending money now, which will hurt other businesses in turn. The domino effect will have a souring effect on the economy.
The sooner the government shutdown ends, the better. A prolonged stalemate will cause uncertainty in the markets and could likely result in a lower level of consumer confidence, which will hurt small businesses that rely on customers to spend their disposable income. Optimism among small business owners may begin to wane, and this will put a damper on reinvestment and growth of their firms. President Trump doesn’t seem like he will back down, nor do Congressional leaders. Hopefully, a deal can be struck before the government shutdown begins to hurt the overall economy in significant ways.
