The effects of the 35-day shutdown furloughed government employees, postponed many immigration cases and hindered the daily life of millions of Americans. The Congressional Budget Office (CBO) estimated the global cost to be 11 billion dollars and GDP to fall 0.2 percent this quarter and 0.1 percent lower over the year. Yet, the case of small businesses is barely discussed.
Small Businesses in the U.S. economy
According to the Small Business Administration (SBA), the definition of small businesses varies industry by industry (e.g., Agriculture, Finance and Insurance, Transportation…) and is based on the size standards. The most common standards used to qualify a business as small are $7.5 million in average annual receipts for many nonmanufacturing industries and 500 employees for most manufacturing and mining industries. The following figures illustrate the crucial place held by small businesses in the U.S. economy :
Small businesses drive job’s growth in the U.S.:
How did the shutdown affect small businesses?
The shutdown affects small businesses because of the furloughed workers, the SBA’s closure and the Internal Revenue Service’s closure.
Due to delayed paychecks, federal workers saw their buying power reduced. Small business therefore lost this daily revenue, and their financial bottom line was hurt. Examples include restaurants and coffee shops, movie theaters, corner grocery stores, parking lots, dry cleaners. In addition, the revenue coming from the provision of goods and services intended to federal agencies has been affected as well.
The SBA’s closure is a synonym of delays regarding the regulatory approval for products or services and the granting of loans. This reality was particularly hard-hitting to small businesses that rely on SBA’s flagship loans such as the 7(a) lending program, designed to provide affordable credit to small firms that have trouble securing financing elsewhere. Without the SBA’s backed sources of capital, small, expanding businesses had to absorb the costs of higher interest rates. Considering the fact, that tax season has begun, understanding the new tax code and looking for advocacy was not facilitate with the closure of SBA.
Regarding the IRS, tax returns have been delayed, but the biggest issue for small business was the lack of access to information concerning international sales. The export process to send products internationally is complex and the website export.gov was shut down. Businesses were not able to get help navigating international sales procedures.
According to a CNBC and SurveyMonkey poll conducted from Jan. 28 through Feb. 4, more than one-third of small-business owners said the recent partial government shutdown harmed their firms.
Before drawing early conclusions about the shutdown’s magnitude, we should wait for the reports of SBA and congressional committees. The House Small Business Subcommittee on Investigations, Oversight, and Regulations held by chairwoman Judy Chu (D-CA), is right now trying to evaluate the economic injuries caused to entrepreneurs as they sought capital. Mr. William M. Manger, the Associate Administrator Office of Capital Access at the U.S. Small Business Administration testified in front of the subcommittee. The release of public report and further analysis are forthcoming.
Note: The Small Business Administration was created in 1935 and aims to“aid, counsel, assist and protect the interests of small business concerns, to preserve free competitive enterprise” in its own terms.
Infographic is available: https://www.sba.gov/sites/default/files/advocacy/2018-Small-Business-Profiles-US.pdf
“SBA’s 7(a) Loan Program Explained.” Small Business Administration. Available at : https://www.sba.gov/blogs/sbas-7a-loan-program-explained.
Blake, Brock. “The Real Cost Of The Government Shutdown On Small Business.” Forbes. January 31, 2019. Available at: https://www.forbes.com/sites/brockblake/2019/01/31/the-real-cost-of-the-government-shutdown-on-small-business/#4cf908e1119a.
Wronski, Laura. “A Reality Check on How Small Businesses Were Really Affected by the Government Shutdown: Survey.” CNBC. February 11, 2019. Available at: https://www.cnbc.com/2019/02/11/a-reality-check-on-small-businesses-and-the-federal-shutdown-impact.html.
“Statement of Subcommittee Chairwoman Judy Chu on Shutdown Lessons: SBA Capital Access Programs.” Small Business Committee. February 26, 2019. Available at https://smallbusiness.house.gov/news/documentsingle.aspx?DocumentID=420.
“Economic Effects of Government Shutdowns”. Testimony of Matthew D. Shapiro. Committee on Small Business U.S. House of Representatives. February 6, 2019. Available at : https://smallbusiness.house.gov/uploadedfiles/02-06-19_dr._shapiro_witness_testimony.pdf