As of today, the United States government has been partially shut down for 25 days. Most federal agencies are either short-staffed or almost completely inactive. Among the latter is the Small Business Administration (SBA), which usually distributes approximately 200 business loans and 120 commercial property loans per day. That comes out to around $200 million worth of SBA loans for small to mid-sized businesses. But on the first day of the shutdown (December 22nd), the SBA was forced to halt its loan programs for businesses and commercial properties.
According to the Washington Post, the only SBA loans currently being distributed are for businesses affected by extreme natural disasters. All other businesses that were approved for SBA loans will not receive them until the shutdown ends.
A Massive Backlog of SBA Loans
Thousands of small businesses across the US are reportedly waiting for funds from the SBA. If that number seems high, it might be because in the last month before the shutdown began (November 2018), the approval rate for small business loans from regional and community banks was more than 50%.
SBA loans are highly sought after for their affordable interest rates and long terms. They are often easier to qualify for than traditional bank loans, largely because the SBA guarantees up to 85 percent of loans up to $150,000 and up to 75 percent of loans over that amount but no more than $500,000. Applicants can therefore still be approved despite a lack of collateral or readily-available capital.
Many smaller businesses use SBA loans for significant, growth-related investments, like securing additional property. Adding physical space is a particularly stressful endeavor because it is time-sensitive. If funds are distributed later than expected, the business owner could lose out on the opportunity to buy the property. And any experienced business owner understands the importance of location for new businesses.
Small Business Owners Share Their Frustrations
The Washington Post recently spoke to several business owners who were approved for SBA Loans to buy property before the shutdown. One of them owns a small IT company in Charlotte, North Carolina. He was planning on using his $550,000 SBA loan to buy an acre of property on a very busy road. But if he can’t come up with the money within the next few days, the seller might take another offer from a big business that is able to pay cash. All the money he’s spent on appraisals, environmental assessments and other fees would go to waste.
He told the Washington Post:
“We were 99 percent done. We were at the finish line, and now it’s like they pulled me back.”
The two owners of an ice cream shop in Santa Cruz, California are in a similar situation. They’ve spent the past few months working with an architect and filling out paperwork for what is supposed to be their third location. But without the $900,000 SBA loan they were approved for, the deal could be ruined by the end of the month.
What Happens If The Shutdown Continues?
An estimate from JPMorgan states that the US economy is currently losing more than $1.5 billion a week. This is just a tiny piece of the $20 trillion economy, so the economy as a whole has remained largely unaffected thus far. But economists have warned that if the shutdown drags well into February, the private sector could take a noticeable hit. And once the SBA reopens, it’s not as if all the borrowers will just immediately receive their funds.
Lynn Ozer, president of small-business lending at Fulton Bank, told the Washington Post:
“I’ve been doing SBA lending for 40 years. I know how disruptive it’s been in the past. It takes weeks to get out of it.”
Linda McMahon, head of the Small Business Administration, has reportedly said that the agency will expedite loans as soon as the shutdown ends. It’s unclear, however, if that plan applies only to applicants who have already been approved or also the applicants who filed applications shortly before or during the shutdown.
Other Options For Affordable Business Funding
As advantageous as SBA Loans can be, they are not the only way smaller or under-capitalized businesses can access affordable funding without having to provide collateral. At United Capital Source, we’ve worked with myriad businesses that were actually declined for SBA Loans due to uncontrollable cash flow circumstances. Low interest rates aren’t always the answer for businesses facing these dilemmas. In our experience, their cash flow benefits much more from innovative repayment structures and the ability to customize terms based on uncontrollable setbacks, like a massive influx of funding from a bank suddenly being delayed until further notice.
Small business owners who need funding quickly (and in amounts smaller, larger, or around the same as the aforementioned business owners) should at least look into contacting alternative business financing companies like United Capital Source. We typically approve and distribute funding in 24-48 hours, with very little paperwork involved. And no, we don’t use tragedies like government shutdowns as an opportunity to force desperate borrowers into unfair agreements. Every day counts for small businesses. One of our top priorities is helping businesses stay on schedule with monthly bills and growth-related initiatives, regardless of what’s happening in the realm of traditional financing institutions.