Each year, Congress is responsible for passing appropriations bills that fund government agencies, such as the Small Business Administration, Department of Commerce, the Department of Defense, as well as federal programs including Medicare and Social Security. If Congress isn’t able to reach an agreement to fully fund the government, which is often the case, it will pass a Continuing Resolution (CR) or short-term stop gap measure to temporarily fund the government, and give lawmakers more time to negotiate funding bills.
In the last several weeks, Speaker McCarthy and House Republican leadership have made little headway towards an agreement to fund the government by the September 30 deadline due to pushback from members of the House Freedom Caucus, who publicly bucked leadership to block two attempts to start debate on a military funding bill last week. Members of the House Freedom Caucus are looking for spending cuts and a border security bill to be included in any agreement, though both items are non-starters for the Senate and the White House. The current debate to fund the government breaks a deal brokered by the White House, the Senate and Speaker McCarthy earlier this year to lift the debt ceiling. The Speaker pulled back from the debt ceiling agreement after members of the Freedom Caucus expressed their discontent with the deal. According to the negotiations at the time, the final debt ceiling agreement would have capped government spending until 2025.
“We cannot stress enough how important it is that lawmakers reach an agreement to fund the government and avert a shutdown. No one wins during shutdowns, and they put millions of small businesses in a deeply vulnerable position, especially those working with the federal government and pursuing SBA backed small business loans. A government shutdown would risk the strong progress that small businesses have made in the years since the harshest moments of the pandemic, and in turn, have a severe impact on the economy overall,” acting President and CEO of Women Impacting Public Policy said of the rising risk of a government shutdown.
Here are five ways a government shutdown would harm small businesses across the country:
1. More Expensive Small Business Loans
A shutdown of the US government would have a detrimental effect on both the economy and the ongoing economic recovery of small businesses. According to Moody’s, one of the ‘big three’ credit rating firms in the US, “a shutdown would be credit negative for the U.S.” Moody’s analysis suggests that if the government goes into a shutdown, it would mean a downgrade to the US credit rating. Such a downgrade would drive up interest rates for all Americans. Small business loans will become costlier as private lenders are forced to increase their interest rates. Even Small Business Administration (SBA)-guaranteed loans, which are often lower cost and more accessible but still reflective of market conditions, will become more expensive.
2. Disruptions to Federal Contracting and Procurement Programs
The federal government is the largest customer in the world, and wants to buy from small businesses. Millions of small businesses are executing federal contracts every day, and a government shutdown would disrupt, or halt contracts entirely, threatening jobs and financial stability. Contractors would have to make the difficult decision to either not work or risk not being paid if they move forward with their work. The uncertainty that stems from shutdowns places immense pressure on business owners, and makes it difficult to plan ahead and collaborate with the federal government.
3. Delays to Small Business Loans
The 2018 federal government shutdown, spanning 36 days, caused significant delays in processing $2 billion in SBA loans to small businesses. Each weekday the government is shut down, hundreds of small businesses would see their 7(a) and 504 loan applications fail to move forward. That means small business owners across the country would lose access to more than $100 million in financing each day. Small business leaders expressed their concerns in a letter to lawmakers this week, emphasizing that such delays not only disrupt the day-to-day operations of small businesses but also leave their budgets in limbo as they await funding. Consequently, business owners are forced to postpone necessary expenditures and hiring efforts. Small business owners lack the same resources as large businesses to absorb the blow of a minor loss and even short term shutdowns can have lasting negative impacts.
4. Higher Credit Card Interest Rates
Many small business owners use their personal credit cards to cover business expenses and manage debt. As with loan rates, small business credit card and personal credit card interest rates will also rise, squeezing the amount of capital small business owners have to work with and potentially driving them into more debt.
5. Impact to the Federal Workforce
The federal workforce is enormous and, in the event of a shutdown, most are furloughed without pay until the shutdown is resolved. There are millions of federal employees across the country who support small business. When they feel financially insecure, they tighten their spending, which means less money flowing into small businesses and local economies.
Small businesses, and the economy have made significant progress from the harshest days of the pandemic, as evidenced by strong jobs numbers and inflation beginning to cool. This progress is at serious risk if Congress fails to reach an agreement and avert a government shutdown.
We know that small businesses are concerned about the impact of a shutdown on their businesses. According to Small Business for America’s Future’s latest survey, a resounding 78% of small business owners believe a government shutdown would negatively impact the economy and small businesses. This concern is notable amid positive economic signs, like record low unemployment and stable inflation rates.
“A government shutdown isn’t just a headline; it’s a hit to the small business bottom line. Halting federal contracts disrupts existing agreements and stops new opportunities in their tracks. Additionally, with the SBA frozen, we would be cut off from crucial small business loans and resources. Every day of a shutdown would be a day where our economic recovery is at risk.” said Walt Rowen, President of Susquehanna Glass Co., a small business based in Columbia, Pennsylvania.
It’s important, now more than ever, for lawmakers to set aside partisan politics and to prioritize the needs of America’s small business owners.
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