Government Shutdown Delays $2 billion in Small Business Loans
Jan 23rd, 2019 @ 10:13 PM by Amber Nelson
As the government shutdown drags into its third week, small businesses are feeling the pinch when it comes to loans.
In the wake of the shutdown, the Small Business Administration has stopped approving SBA-backed small business loans, leaving many U.S. entrepreneurs strapped for cash that otherwise would have been readily available.
Even the though the SBA does not provide the funding for these loans, it does guarantee the lenders against up to 90% of losses, providing banks with the confidence they need to make the loans. Without SBA approval, these vital small business loans are being paused. Mark Zandi, chief economist at Moody’s Analytics estimates that the shutdown has resulted in roughly $2 billion in delayed SBA funding. And he says that number could grow more rapidly the longer the shutdown extends.
Lenders are still able to process and close loans that received their SBA approval before the shutdown but without new applications being approved, many small businesses will have to put plans for repairs or expansion on hold, which in turn will hold back the economy.
The government shutdown – a stand-off between President Donald Trump and congressional Democrats about funding for a Mexican-border wall – has now dragged on for 21 days, the longest shutdown on record. It has pulled economic optimism down to its lowest levels since the end of 2016 when President Trump was elected, according to data from the Wall Street Journal-Vistage Small Business Confidence Index.
The SBA is still processing its 504 loans, which finance small business real estate and equipment purchases, that were submitted and approved before Dec. 22 and is also continuing to provide disaster assistance loans, but the majority of SBA loan applications are not even being accepted at this time. In statements, the SBA has said it hopes to be able to accommodate the backlog of small business applications as soon as the government shutdown ends.
Amber Nelson is a seasoned mortgage industry writer and a regular contributor to Loan.com and Mortgage101.com.