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Small Businesses Feel Sting of Government Shutdown

16 November, 2010

After a week of all but the most essential government services being shutdown, small businesses are already beginning to feel the financial effects, especially when it comes to financing.

Small businesses, unlike larger companies, don’t typically have large reserves to fall back on in emergencies like this one. Their margins are a lot smaller and their cash flow is slimmer, so any type of delay is going to put them into jeopardy, says Elizabeth Hyman, vice president for public advocacy at CompTIA in a Boston Herald article.

With no end in sight to the government shutdown, small firms in need of loans are either scrambling for funds or at a complete standstill. The Small Business Administration, the agency that processes government-backed loans has scaled back its work force to a skeleton crew of 178 out of 586 regular employees and has halted all major lending programs indefinitely, according to its website.

Before the shutdown, the SBA was approving an average of 250 loans each day totaling roughly $95 million. As of today, that makes 1,750 loans that have not been made in the past week, and a setback of more than $166 billion in funding for small businesses.

In the meantime, desperate small company owners may have to turn to high-cost financing alternatives, like merchant cash advances and pay day loans with astronomically high interest rates. Many others, whose cash needs are much higher than what small-time lenders can offer, may simply have to halt operations altogether.

And when the government does resume work again, those seeking SBA loans could face a major backlog. The typical turnaround time for a small business approval is two weeks, but after the shutdown that time could stretch out to six weeks or longer. That means businesses will suffer pain from the shutdown long after it is over.

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by Ethan Leak

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