Arizona’s small businesses are some of the most affected by the government shutdown

The recent government shutdown negatively impacted small businesses when the Small Business Administration (SBA) was unable to continue processing loans.

One of those affected by the shutdown is Bennett Brown, principal at Thunderbird Corporate Finance, who officiates SBA loans for small business owners.

“I’m hired by businesses to find the best SBA loan for them,” he said. “I get compensated when a loan is closed between a borrower and a bank, so in a sense, I don’t get paid by the borrower until the loan closes. So, my compensation is on hold.”

Arizona was ranked sixteenth in states with small businesses most affected by the government shutdown by ValuePenguin, a personal finance website that conducts in-depth research and analysis on a variety of topics.

To create the list, Senior Research Analyst, Justin Song analyzed SBA data dating back to 2010.

“We compiled the data to kind of illustrate how dependent small businesses in varying states are on [SBA loans],” Song said.

According to ValuePenguin, the SBA is “best known for its 7(a) small-business loans” and since 2010 has seen more than $177 billion in loans issued, more than 472,000 loans approved, and 5 million jobs supported by the loans.

According to Brown, roughly 60 to 70 percent of Arizona small businesses have an SBA loan.

While public sector jobs were at the forefront of the news because they are those directly affected, many small businesses across the country rely on services from the SBA.

According to Song, while he focused on loans in his research, the SBA offers a variety of services that help small businesses succeed. They host workshops, webinars, and partner with nonprofits to provide educational resources, all of which were on hold.

However, the government shutdown also harmed small businesses because roughly 800,000 federal employees do not have money to spend.

“Government employees are not spending as much as they were because they don’t have money coming in and those employees support small businesses,” Brown said. So, the income of those small businesses, who may have nothing to do with government agencies, is being reduced.”

In a report on the 2013 shutdown, macroeconomist Matt Labonte wrote: “from [our] survey results [we] extrapolated that the shutdown reduced fourth-quarter GDP by 0.25 percentage points and private employment by 120,000 for the first two weeks in October.”

According to Brown, the complications come from the fact that small businesses had to apply for loans with higher interest rates or borrow money from those around them, causing possible debt.

“They have no revenue coming in, they’re not able to pay their payroll for their employees,” he said. “They’re not able to pay their rent at their offices. Obviously, that’s significant for those small businesses.”

“You could look at businesses potentially shutting their doors. Any businesses that were waiting on refinancing or anything that required some kind of manual action from the government or SBA to help save some money or to get their business moving forward, [were] severely hindered from a revenue perspective and potential cost perspective from this shutdown.”

It is unknown if SBA loan paperwork will continue being processed where it was left off or if it will need to be resubmitted by small businesses now that the government has temporarily re-opened.

“A loan typically is based on the financial performance of the business. So, when I’m submitting a loan to a bank and the SBA, I do that with the profit and loss statement and balance sheet of the previous several months,” Brown said. “[Now that the SBA is re-opened], they may look at a business’s application from 30 or even 60 days ago and they may say ‘gee, now we need updated financials.’ So, now we have to submit updated financial. Which, quite honestly, might not look as good because of the government shutdown.”

The 2018-2019 government shutdown lasted 35 days, making it the longest shutdown in history.

President Donald Trump announced Jan. 25 that the government would be reopening for three weeks with a temporary budget deal.

“It’s a tragedy that this lasted so long and the economic impact to small businesses will be felt for many months to come,” Brown said.