The Government Shutdown and the Effect on Small Business Loans
While the government shutdown may be over, the effect that it has had on the small business lending landscape is something that will not easily be forgotten. Small business lending has already gone through many trials over the last few years, as banks raised their requirements in order to remove elements of risk from their portfolios during the economic plummet towards the end of the first decade of the 2000’s. The government shutdown’s effect on the already shaken traditional lending world now compounds on issues that have already existed for small business owners seeking access to credit from banks. For one thing, the SBA shutdown meant that business owners were cut off from an average of $96 million per day in funding that would have been backed by the governmental organization. The backlog of unprocessed loan applications will most likely take months to process and get funded. This sudden loss of a major source of funding has put many small business owners into tight spots, and put others into a position where they have been forced to expand their search for capital in a sensitive economic time. The growth of small businesses is a barometer for the health of the economy at large, but in the past few years, much of the expansion of businesses has been concentrated on the largest corporations, who have been better able to weather economic storms through combinations of stores of capital, more diverse income streams and the ability to tap into previously established consumer networks.
In this turbulent climate, a loss of tax processing and other government functions that one would normally consider less important to the small business lending world had effects that blocked businesses from credit for reasons other than a loss of government backing. Without the appropriate records, small business owners are unable to successfully apply for business loans that require extensive documentation. The application for credit can last weeks, and the loss of important records and revenue streams can throw off the entire process or make it so that once qualified businesses no longer meet criteria. For this reason, the lowered requirements for credit from alternative capital providers has become more attractive to a large portion of entrepreneurs seeking alternatives to bad credit business loans.
Small businesses require capital to grow, and the more that they are able to access this vital resource, the more they can give back to their communities and the country at large through the creation of jobs and the injection of earnings back into the economy. The effects of the shutdown on small business highlights the necessity for strong capital relationships and efficient processes in order for private sector entrepreneurship to flourish.
Photo Credit to Keith Ellison on Flickr