The threat of another government shutdown looms despite the U.S. economy avoiding a massive default crisis over the summer. Federal agencies are anticipated to shut down on September 30 without a funding agreement from Congress. While the Senate is moving forward, far-right House members, including Speaker Kevin McCarthy (R-Calif), threaten to use a government shutdown as a negotiation tactic.
Although Rep. Bob Good (R-VA), a member of the Freedom Caucus, claims: “We should not fear a government shutdown, most Americans won’t even notice.” However, a shutdown, brief or not, would be catastrophic for small businesses. Moreover, American workers and small-business owners will pay the price if the government can’t pass a budget. There are more than 33 million small businesses across the country. Many of them depend on federal loans, contracts, and support.
According to the data from the Federal Reserve, it shows that minority-owned companies are far more capital-conscious. Black and Hispanic business owners are two to three times less likely to receive all their financing than white-owned enterprises. Nearly half had no funding at all.
If businesses cannot obtain loans from the SBA, owners may resort to drastic measures to survive. For example, Michael Pearce, owner of a restaurant and retail establishment in Fairfax, Virginia, was one of many who had to turn to a pricey, short-term lender since he could not obtain an SBA line of credit to support his second site during the previous government shutdown. As a result, he was forced to pay $23,000 in interest and fees on the $50,000 loan he took out to cover payroll.
Beyond immediate financial hardships, the impacts of a government shutdown on small businesses can have lasting consequences. Layoffs and downsizing may occur if the situation is prolonged, significantly negatively influencing the local economy. The unpredictable nature of the business environment may cause entrepreneurs to hesitate to launch new businesses. The unpredictable nature of the business environment may cause entrepreneurs to hesitate to launch new businesses.
However, losing new businesses means less intergenerational wealth, jobs, and community opportunities.