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How a Government Shutdown Hurts Small Businesses

image for Mladen Zivkovic / Getty Images
Mladen Zivkovic / Getty Images
  • Government shutdowns can have a negative impact on small businesses due to lack of funding and decreased profits.
  • Certain processes are also delayed, such as IRS services and small business loans.
  • The industries most impacted by government shutdowns are restaurants, travel and personal services.

Anytime the government shuts down, the public loses access to a wide range of services. The same is true for small businesses, which often rely on government programs intended to encourage entrepreneurship. When the federal government fails to keep the lights on, small businesses suffer alongside furloughed public workers. Here's a look at what to expect anytime the government shuts down.

Any small business owner hoping to get a loan through the U.S. Small Business Administration will have to wait. Processing for most SBA lending programs will be on hold when the agency's employees are on furlough.

According to the National Association of Government Guaranteed Lenders, "routine actions requiring SBA's approval cannot be processed" during government shutdown. Lenders won't be able to submit loans into an approval queue for SBA processing, and they can't receive 7(a) loan numbers during the shutdown. Therefore, they can't approve loans under their delegated authority.

Employers looking to hire new employees during a shutdown could run into problems. One of the casualties of 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. This has serious implications in states that are required to verify employees' legal status via the program before they are hired. Many recruiters hold off on their hiring plans, and many job movers opt to wait until the government shutdown ends.

While at first this might sound like cause for celebration, no, the IRS does not stop fulfilling its duties as Uncle Sam's tax collector during a shutdown. The agency will not, however, be available to answer taxpayers' questions about their tax liabilities. That includes small businesses. Moreover, the IRS will not issue refunds, process 1040-X amended returns or conduct audits.

IRS operations that continue during a shutdown include the enforcement of tax law, and the processing of electronic returns up to the point of refund and paper returns by "batching." However, don't expect any clarification on your tax questions or to receive your refund until the government shutdown ends.

Whenever the government shuts down, legions of federal workers find themselves on furlough. That means no more lunches at nearby restaurants and no quick trips to the store on the way home. Small businesses located around federal buildings, national parks or monuments might find a drop in demand until the government shutdown ends and furloughed workers return. Nowhere is the impact greater than in Washington, D.C., where most federal employees are based.

Small businesses whose employees are planning international work may have to reschedule those trips if they are still waiting to receive their passports when a shutdown starts. While the U.S. Department of State still generally issues passports in times of shutdown, delays are expected, especially in cases where passport offices are located in federal buildings that are closed.

Although it could be easy to conflate government with regulation, the public services small businesses have come to rely on are apparent when they no longer function. Part of weathering the storm of a government shutdown is being prepared for the roadblocks that come with it. While there is little the average entrepreneur can do to affect policy in the nation's capital, there is plenty you can do to keep business running as usual until Washington reopens its doors.

When the government shuts down, some businesses are hit harder than others. Essential businesses that are authorized to stay open will not suffer much negative economic impact in most cases. Some businesses even increase sales during government shutdowns, such as grocery stores and warehouse clubs.

According to the Bureau of Labor Statistics, these industries are impacted the most by government shutdowns:

  • Restaurants and bars
  • Entertainment
  • Travel
  • Personal services

These businesses provide services that are not deemed essential and therefore lose the most income during shutdowns. Small businesses are hit especially hard during government shutdowns, since they have limited resources to rely on compared to corporations. Restaurants may be able to provide food services on a limited basis through takeout and delivery, but some businesses choose to close because revenue is not proportionate to operating costs.

Tourism and the entertainment industry are also affected greatly by government shutdowns. Museums, amusements parks, zoos, and more rely on the income from visitors to cover operating costs and make a profit. Travel restrictions put hotels and airlines at risk for bankruptcy.

The personal services industry typically can't operate during a government shutdown either. Nail salons, barbers, hairstylists and more need to remain closed until a government shutdown is lifted.  

Business News Daily Editor

Business News Daily was founded in 2010 as a resource for small business owners at all stages of their entrepreneurial journey. Our site is focused exclusively on giving small business advice, tutorials and insider insights. Business News Daily is owned by Business.com.

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