When the federal government shuts down, businesses across the nation feel the effects, especially for those that rely on federal programs, work directly with federal agencies, or operate near government properties. This article explains how government shutdowns affect small businesses, from contracts to SBA loans, so you can be prepared for the next one.
Contractors On Hold
Many small businesses have contracts with federal agencies. These include:
- Construction
- Landscaping
- Facilities maintenance
- IT and cybersecurity
- Environmental assessments
- Logistics
- Financial audits
- Biotech and defense R&D
- HR consulting and administrative support
When a shutdown happens, payments for these contracts often stop. While some government employees might receive back pay once the government reopens and normal operations resume, small businesses may not get reimbursed for delayed work. All of this leads to paused projects, lost revenue, and tough decisions regarding payroll, such as delaying paychecks, cutting hours, or even laying off employees until payments resume.
Even a short shutdown disrupts cash flow. And if your margins are already thin, it can be crushing.
Local Businesses Take a Hit Too
A government shutdown also hurts the businesses that support government workers and tourists. When federal offices close, surrounding businesses like restaurants, hotels, retail stores, and coffee shops see fewer customers. These businesses depend on the consistent weekday foot traffic from government employees.
Likewise, when museums and national parks are closed or limiting services, surrounding businesses take a hit.
SBA Loan Applications Freeze
The SBA’s Capital Access Financial System (CAFS) and E-Tran system go offline during a shutdown. Lenders can’t submit new applications, and business owners can’t get approved for new loans. So, each day the government is shut down, approximately 320 small businesses are blocked from accessing about $170 million in SBA-guaranteed loans. That includes loans under key programs like 7(a) and 504. And once the government reopens, the backlog of applications typically leads to long delays.
What Small Business Owners Should Know
First and foremost, build cash reserves so your business is prepared for a future government shutdown. If you’re applying for SBA loans when a shutdown occurs, prepare your documentation fully, so when the government reopens, you’re ready to go and less likely to fall behind in the backlog.
If you’re a service or retail business that depends on tourism and traffic from parks or federal buildings, start thinking now about how you can diversify your customer base. As we just witnessed, the duration of shutdowns is unpredictable, and having a broader customer reach can help offset the loss of foot traffic.
Government Shutdown Q&A
Q1: How does a government shutdown affect small businesses?
A government shutdown impacts small businesses through delayed federal contract payments, reduced foot traffic near government buildings, and halted SBA loan applications.
Q2: Do SBA loans get processed during a government shutdown?
No. SBA’s CAFS and E-Tran systems go offline during a shutdown, preventing lenders from submitting applications and creating a backlog when government operations resume.
Q3: How can small businesses prepare for a government shutdown?
Small businesses should build cash reserves, diversify their customer base, and prepare SBA loan documentation in advance to avoid delays once systems reopen.
