The last government shut down lasted 21 days from December 15, 1995 to January 6, 1996. This was the longest government shutdown to date.
Fast forward to today. Another government shutdown, but this time is different. The economy is just rebounding from the financial crisis and the Great Recession which decimated the economy.
A shutdown has a ripple effect throughout the economy as many federal services come to a grinding halt. One such service is the U.S. Small Business Administration, also known as the SBA. The SBA provides loans and many black businesses access these loans and other services. Just earlier this year the SBA business loans budget was cut by 5 percent, or by $24 million, from the sequester.
Many small businesses are also government contractors; therefore, they will feel the impact from delayed loans and work stoppage.
Representative Donald Payne, Jr. (D-NJ) who serves on the Small Business Committee in Congress said small businesses are very concerned about a shutdown. “The shutdown could reverse work being done to improve access to capital.”
He warned a shutdown will prevent some small businesses, which are already struggling, from getting their businesses off the ground. “Black businesses are impacted at a higher number than the general population,” he explained.
Staci Redmon, president and CEO of Strategy and Management Services based in Springfield, Virginia, said her firm has six new federal contracts scheduled to start on October 1st. The 95-employee firm generates 100 percent of its revenue from federal contracts. Her firm receives SBA loans and participates in other programs under the SBA.
Today, 90 percent of her employees are reporting to work awaiting further guidance while 10 percent are in a possible temporary layoff position.
Redmon was hopeful a shutdown would not last long. “Within 10 days [we] will have to make some serious decisions” regarding staffing levels. “I cannot afford the overhead,” she warned.
A shutdown puts pressure on revenue and lending opportunities from banks.
Redmon said due diligence by banks, especially for small businesses, have become more thorough. “They say let me see the contract, details of the contract, scenario analysis. It has really put a damper on funding,” she explained.
Marjorie Perry, president and CEO of MZM Construction & Management based in Newark, New Jersey, has also witnessed changes in the lending environment. She said her line of credit with her bank is tied to her federal contracts. She said banks need to assess how her federal contracts are performing before extending any loans.
This comes as small businesses feel the impact of the automatic spending cuts, also known as the sequester, which took effect early this year.
“We’re still dealing with work being held up with the sequester,” explained Perry. She said her firm paid off its SBA loan in 2012, however, still participates in SBA programs such as 8(A) business development.
Her firm cut its workforce from 15 to nine employees this year. She faces the challenge of trimming staffing levels while retaining critical talent.
“We’ve cut and cut people and their hours.” Her firm had three administrators, but now has one part-time. “We have to keep senior project managers, must keep the tacit knowledge,” she explained.
A shutdown may cost her firm millions of dollars. Perry said her firm was on track to generate $8 million to $9 million in revenue from federal contracts by year-end. She estimated about 80 percent of this revenue is at risk.
She cautioned a shutdown will be painful and have residual issues for everyone.
“This may force small, small business out of business.”