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7 Ways the Government Shutdown Is Hurting Small Businesses

7 Ways the Government Shutdown Is Hurting Small Businesses
The U.S. Capitol building in Washington, D.C. / Credit: gary718 | Shutterstock

With the government shutdown still holding strong, small businesses are starting to worry about its potential impact.

Despite 40 percent of small business owners being in favor of the shutdown, more than 60 percent believe it will have a negative effect on the overall economy before it's over, according to a new Manta poll of 1,000 small business owners.

While federal employees losing out on their paychecks are feeling the brunt of the shutdown, businesses aren't far behind in the pain they could potentially feel. From not having access to loans to not getting paid for government contracts, the impact on small businesses could be significant. Here are seven ways small businesses could be affected by the government shutdown:

Any small business owner who was hoping to get approved for a loan from the U.S. Small Business Administration (SBA) will have to put those plans on hold. With the majority of SBA employees on furlough, processing for most of the SBA's lending programs, including the 7(a) loan program and 504 certified development loans, are on hold.The Washington Post reports that the SBA guarantees tens of billions of dollars in lending to small and new businesses each year.

Tony Wilkinson, president and CEO of the National Association of Government Guaranteed Lenders, an organization comprising roughly 750 small business lenders, told the Washington Post that the shutdown is delaying many small business owners' efforts to launch or expand their business.

"You start looking for where small businesses get long-term loans, and the SBA is it," Wilkinson said in an interview with the Washington Post. "And the government shutdown turns off that spigot."

Each year, thousands of small businesses collect millions of dollars from their contract to provide products or services to the federal government. Although not all of those contractors are small businesses, on average, the U.S. government spends $1.4 billion a day on business with domestic contractors, CBS News reports. However, with the shutdown in effect, those paydays are on hold. It could get tricky for businesses that rely on these payments to manage their finances.

In an interview with CBS, Lisa Papini — vice president of Dante Valve Co., which makes products for the U.S. Navy — said Dante's operations are on standby until the shutdown is over.

With nuclear inspectors and government quality-assurance inspectors unable to check the company's work, it can't ship the $100,000 in valves that it made for the Navy, and the company can't get paid for them, Papini said. 

"When it gets shut down, like today, it has real effects on real people," Papini told CBS.

Employers looking to hire new employees during the shutdown could run into problems. One of the casualties of the shutdown is access to the federal E-verify, an Internet-based system that allows businesses to determine the eligibility of their employees to work in the United States. The issue is having serious implications in states like Georgia and Arizona, which are required to verify employees' legal status via the program before they are hired. Businesses that wish to continue hiring are encouraged to fill out the traditional I-9 paper form in lieu of an E-Verify check. When the system comes back online, employers are expected to complete their checks.

While tourists are missing out on the chance to see the national parks, they won't have the opportunity to spend any money at nearby businesses, either. Most small businesses located in and around the country's national parks rely on tourists to survive. Without these tourists, these businesses could see a significant drop in revenue.

NBC News reports that hundreds of businesses could be affected. One is the Yosemite Miners Inn in Mariposa, Calif., which had 10 cancellations within the first hour of the shutdown announcement. General Manager Ceslie Brandon estimates the hotel has already lost out on thousands of dollars. "If this is any indication of what's to come, we won't survive," Brandon told NBC.

As part of the shutdown, close to 800,000 federal employees are locked out of their job and, therefore, not heading to work each day. Small businesses located near and around federal buildings are already feeling the pain. Nowhere is the impact greater than in Washington, D.C., where the majority of the furloughed employees are based.

Stephen Fuller, director of the Center for Regional Analysis at George Mason University in Washington, D.C., told Fox Business that businesses in and around the capital are losing out on a combined hundreds of millions of dollars a day.

"In the Washington area, the loss of federal payroll and contractor payroll — and the spending that's
supported by those payrolls — add up to $220 million a day," Fuller told Fox Business. "The immediate impact on businesses generally will be the absence of spending from federal workers not coming to work, especially for restaurants, coffee shops — the businesses that wrap around government centers."

Small businesses needing help with workplace safety issues will most likely be on their own for the duration of the shutdown. The U.S. Department of Labor's Occupational Safety and Health Administration (OSHA), which is tasked with ensuring safe and healthy working conditions at U.S. businesses, has furloughed 90 percent of its employees.

Bloomberg BNA reports that only two employees will remain working in each of OSHA's 92 offices. David Michaels, assistant secretary of labor for occupational safety and health, told Bloomberg BNA that with its staff reduced so drastically during the shutdown, OSHA personnel will only be responding to large issues, such as workplace fatalities, catastrophes and situations that pose imminent danger.

"OSHA employees should be able to respond to safety and health complaints or other information when employees are potentially exposed to hazardous conditions that present a high risk of death or serious physical harm," Michaels told Bloomberg. All other issues will be on hold until the furloughed employees return to work.

Small businesses whose employees are planning international work may have to reschedule those trips if they are still waiting to receive their passports. While the U.S. Department of State still plans to issue passports during the shutdown, delays are expected, especially in locations where passport offices are located in federal buildings that have been closed due to the shutdown. Fox News reports that during the last shutdown in 1995, 200,000 U.S. applications for passports went unprocessed. So, although there is a chance travelers could receive their passports during the shutdown, there is also a good possibility they won't, and will have to make alternate travel arrangements.

Chad Brooks

Chad Brooks is a Chicago-based freelance writer who has nearly 15 years experience in the media business. A graduate of Indiana University, he spent nearly a decade as a staff reporter for the Daily Herald in suburban Chicago, covering a wide array of topics including, local and state government, crime, the legal system and education. Following his years at the newspaper Chad worked in public relations, helping promote small businesses throughout the U.S. Follow him on Twitter.

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