How the Government Shutdown Affects Small Businesses in the U.S.

While there were two government shutdown periods in 2018, luckily they were too short for the U.S. population to feel an impact on everyday life. However, the current shutdown, which started on December 21, 2018 and is dragging for over three weeks, is threatening the functioning of hundreds of thousands of small businesses across the country. According to J.P. Morgan, the economy is losing $1.5 billion per week.

While the budget impasse between President Trump and the Congress continues, government institutions and agencies have to remain closed or partially dysfunctional because they have not received their budgets. This has left 800,000 federal employees without salaries. It’s only natural to conclude that the small businesses serving them are currently out of work due to the furloughed employees’ absence.

Besides the lack of funds for public workers and their reduced spending, the repercussions of the shutdown are already visible in a large number of industries. The public has no access to a multitude of government services required for the smooth functioning of businesses.

One of the most apparent blockages is for startups that want to launch their operations. Due to the shutdown, budding companies are not able to obtain an Employer Identification Number (EIN) from the IRS. This means that businesses that have to hire employees cannot start functioning because they are not able to create bank accounts and payrolls without the EIN. The IRS has not shut down completely, but it cannot answer queries of small businesses regarding tax liabilities, process refunds, or run audits.

In addition, the E-Verify system for checking employees’ immigration status has also been halted. This prevents employers in states where E-Verify is obligatory from verifying their employee information within the legally required timeframe. As a result, hiring is slower, and in many places both recruiters and job seekers are on hold until the shutdown ends.

The Small Business Administration (SBA) has also been affected by the shutdown. Companies looking for loans cannot apply currently, and the ones that were about to receive a loan are put on hold. Thousands of businesses have to wait while missing precious development opportunities. The payments they have not received from the SBA, on the other hand, had to be forwarded to other businesses for their services or for purchases. This means the effect is multifold and goes beyond SBA loan beneficiaries.

The SBA is not paying grants to recipients either, nor is the SBA Surety Bond Program functioning. The Program guarantees for small contractors in front of surety underwriters, so that these businesses can obtain the bonding they need. Construction companies that rely on it for the contract surety bonds required for bidding on public and private contracts are out of luck. Without the bonding, they cannot participate in the projects. 

Federal contracts awarded to small businesses are not being paid out since the shutdown as well. This means that companies that won the contracts are not receiving the due payments, which may be vital for their operational finances. In general, business owners who make a living by providing services and products to government agencies are facing a tough situation.

The activities of the Alcohol and Tobacco Tax and Trade Bureau (TTB) are also paused. Launching businesses that want to obtain permits or get approval on labels have to wait until the TTB gets back on track.

The same goes for the Agricultural Department, Securities and Exchange Commission, Commerce Department, and the Federal Housing Administration, among many others. Businesses from small to large have their eyes on impasse with the hope that it would not last too long, causing irreversible damage to their yearly operations.

How has your business been affected by the government shutdown? Please share your experience in the comments below.

About the author

Vic Lance is the founder and president of Lance Surety Bond Associates. He is a surety bond expert who helps business owners get licensed and bonded. Vic graduated from Villanova University with a degree in Business Administration and holds a Masters in Business Administration (MBA) from the University of Michigan’s Ross School of Business.

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