Small-Business Owners Shaken by Government Shutdown
The trickle-down effect to those relying on SBA loans to tourism operators.
October 18, 2013 - 11:30 pm
WASHINGTON – The 16-day government shutdown’s impact on small business has been “substantial,” a group of small-business owners told the Senate a day before Congress reached an 11th-hour deal on Wednesday to reopen the government and raise the debt ceiling.
Sen. Mary Landrieu (D-La.), chair of the Senate Small Business and Entrepreneurship Committee, convened a panel of small-business owners Tuesday to discuss the impact of the government shutdown on their companies.
The message from every entrepreneur in attendance was the same: the government shutdown had paralyzed their businesses.
“We’re now on Day 15 of a government shutdown, and unfortunately, we’re only two days away of the possibility of the United States signaling to the world that we will not pay our bills,” Landrieu said. She added that the stalemate in Congress, caused by “a small minority from one party” who has decided to “hold the global economy hostage,” was stopping a lot of economic activity in the nation.
A group of small employers representing various sectors, including technology, manufacturing, and tourism, explained to the committee how their companies have been affected by the shutdown.
Chris Leh, president of TL Technologies, told the committee his company was in the process of securing a Small Business Administration (SBA) loan, but missed the window when the government shut down. He said his company, which manufactures small metal parts, had to cancel plans to buy new equipment and had to rescind offers of employment.
“We cannot proceed with the purchasing of our equipment, we had to stop about $600,000 dollars worth of equipment from moving, we idled riggers, electricians and employees,” he said. “We are completely and absolutely in a stall mode at this point.”
Keith Griffall, whose firm operates group travel tours across the western United States, noted the tourism industry has had a difficult decade because of the several natural disasters and the economic recession, and only until recently had businesses started to turn the corner.
“People had confidence. They began to spend their money on travel again,” he said. “And now we have the government shutdown of 2013, which is just one more devastating blow to the small businesses, not just in the western United States, but certainly throughout America.”
It is not just the tour-operating companies, Griffall said, but other businesses have all been hit hard by the closure of the nation’s 59 national parks.
“There are thousands of small businesses that are related to the tourism industry. It is an industry, which is populated mostly by small and very small businesses. And as a tour operator, we use these businesses on every program we operate, everything from hotels, attractions, motels, gift shops, and restaurants,” he said.
The National Tour Association (NTA) has estimated the shutdown cost tourism firms around $152 million per day. According to an NTA survey, 82 percent of respondents said their businesses have been affected by the government shutdown.
“These effects are dramatic, immediate, and unrecoverable, but more importantly, this type of man-made crisis creates immediate effects for small business and all their employees, and it creates long-term effects that can further depress the travel market going into the future,” Griffall said.
The U.S. Export-Import Bank and the SBA were closed as part of the government shutdown. That means the nation’s small businesses could not get a loan from these institutions.
Last year, the SBA approved 53,000 loans, providing through its flagship 7a and 504 loan programs $30.2 billion in loans to small businesses. If these numbers hold, an average of 150 loans or $93 million were not being processed every day the government shutdown continued, Landrieu said.
“Eighty-eight percent of the Export-Import Bank transactions were from small businesses totaling $6.1 billion. Translate that to $16.7 million a day of lost transactions for small businesses all over America,” she added.
Chuck Withee, president of The Provident Bank, said the SBA’s 7a and 504 loan programs are the “backbone” of his company, which offers loans to small businesses and employs 130 people. He said shuttering the SBA crippled many of these small firms who live “day to day,” often wondering how “they’re gonna keep the lights on.”
Sally Robertson, whose company provides SBA 504 loans to small businesses, pointed out many of the ways in which the SBA closure will affect companies. For instance, she said, many firms entering into contracts to buy fixed assets could lose their deposits if they are unable to meet settlement deadlines because they do not have financing secured.
“The conversation has been going on for months about the shutdown and the debt ceiling. CEOs have been taking that into account for months. They have been making quiet cutbacks, layoffs, and furloughs,” she said. “Our economy has been suffering for months. Our lending activity is down 30 percent from last year.”
Ronald Paul, chairman of Eagle Bancorp Inc., said the trickle-down effect of the shutdown is yet to hit the economy, and the economic recovery will be devastated if Congress continues “kicking the can down the road” by reaching a temporary agreement that delays resolving the country’s fiscal problems.
“What’s gonna happen between now and February, I think, is gonna be equally as ugly as what’s happened over the past couple weeks,” he said.
A Gallup poll released Oct. 4 showed consumer confidence had dropped to its lowest since December 2011 and the Standard and Poor’s (S&P) 500 Index was almost at a one-month low on Oct. 8, but has rebounded since then as lawmakers proceeded to negotiate a deal to end the government shutdown.