Navigating the Economic Ripple Effects of a Government Shutdown on Small Businesses

While government shutdowns can present challenges for small businesses, history shows the economic impact is usually temporary, and businesses often bounce back quickly once normal operations resume. By staying informed and proactive, you can take meaningful steps to keep your business strong through periods of uncertainty.

Shutdowns tend to disrupt federal services, pause new  Small Business Administration (SBA) loan originations, and delay government contracts. According to Bryn Mawr Trust data, each week of shutdown reduces GDP growth by an estimated 0.1-0.2%, but most of the economic effects are recouped when operations restart. Past shutdowns have been likened to a hurricane—activity comes to a stop during the storm, but rebounds once the skies clear.

SBA Lending and Cash Flow Impacts

During a shutdown, all new SBA loans that have not yet been authorized are halted due to paused government funding. This includes the 7(a) and 504 loans which limits access to capital for purchases, investments, and expansion. Other loans that are not part of the SBA could see delays for Clients part way through the process because of the due diligence steps required, such as taxpayer verification through the IRS, which can be delayed or halted.

Here’s what you can do:

• Visit the SBA website for the latest information on loan programs and access to capital.
• Talk with your WSFS SBA or Business Banking Relationship Manager to understand where your application status currently stands, and what you can do to keep it moving forward during the shutdown.

Keep in mind that this does not impact loans that are currently authorized with the SBA.

Disruption of Government Contracts

Small businesses that work as federal contractors are on the front lines of the shutdown’s impact.

• Suspended New Contracts: Federal agencies cannot award new contracts, preventing small businesses from bidding on and securing new work.
• Delayed Payments: Businesses with existing federal contracts or that receive income from federal services often experience significant delays in payment for work already completed.
• Contract Uncertainty: Many ongoing contracts are subject to stop-work orders. Unlike furloughed federal employees, contractors and their subcontractors are not guaranteed retroactive pay.

During lengthy shutdowns, businesses in this situation should document completed work and outstanding payments to allow for a quick return to business as usual after the shutdown.

Temporary Main Street & Market Disruption

Economic uncertainty can lead to a decline in business, especially for those who rely on foot traffic around federal offices, national parks, and museums. During the 2018-19 shutdown which lasted 35 days, the U.S. saw a reduced GDP by roughly $11 billion, but the majority of that came back once everything was reopened.

During this time, it’s important to monitor the new trend of spending patterns and adapt accordingly. This is also a great time to connect with your customers via email or social media to offer special promotions tailored to these new spending patterns.

History shows these conditions are temporary, and according to Bryn Mawr Trust,  consumer confidence tends to come back quickly as stocks are often higher three months after the government reopens.  However, there could be cash flow needs that have longer implications for small business owners who are impacted by the shutdown.

How WSFS Can Help

WSFS is here to support your business. As a Preferred Lender with the SBA, we continue to take loan applications and underwrite along with preparing loans for closing, so you’re ready as soon as federal funding resumes. Our experienced Associates can help you strategize, manage your cash flow, and access alternative credit options to keep your business stable. We have navigated previous shutdowns and are here to provide a steady hand. You can contact us through our website or by reaching out to your relationship manager.