How a shutdown delays government-backed loan approvals. What to know.
U.S. Small Business Administration headquarters in Washington, D.C. Credit: Alamy Stock Photo/B Christopher
Small businesses on Long Island that need their applications for government-guaranteed loans processed while Washington is shut down should work with their lender to identify alternative sources of money, experts said.
The U.S. Small Business Administration stopped taking applications for its signature 7(a) loan program last week when Congress repeatedly failed to adopt a spending resolution to keep the SBA and other federal agencies open.
The SBA also isn’t providing the necessary loan guarantee for 7(a) borrowers to close on their loan applications with banks or other private lenders.
The 7(a) program is designed for borrowers who don't qualify for traditional financing. With the program's suspension, borrowers may be forced to postpone the projects that they needed the money for, such as introducing new products, buying a competing business or hiring additional employees.
On Long Island, about 90% of the region's businesses are small, with 20 or fewer employees, according to census data.
“If people are looking for capital, they can try to borrow using a non-SBA product, such as a loan that isn’t guaranteed” by the federal government, said Ree Wackett, a senior business adviser and small business educator at the Small Business Development Center at Stony Brook University.
“But if the loan is large, if the industry is deemed risky or the borrower is just starting out, it’s going to be tough to move forward without the SBA guarantee … The [shutdown] is going to make it hard for some borrowers,” she said.
Newsday asked lenders and small business experts for advice on how entrepreneurs can obtain financing while the SBA remains closed.
How important is the 7(a) loan program to small businesses on Long Island?
More than 900 7(a) loans totaling $315.6 million were made last year in the four congressional districts that cover most of Nassau and Suffolk counties, according to SBA data.
The loans are federally guaranteed and may be used for working capital and to purchase equipment, real estate and other businesses. The maximum loan is $5 million.
What should borrowers do if they hadn’t closed on their loans before the shutdown began?
Key Bank is advising borrowers to contact their banker for "an update" on the status of their SBA loan application, said spokesman Matthew Pitts.
Briana Curran, a spokeswoman for JPMorgan Chase, agreed, adding that Chase “is operating normally, and we’d encourage any customer or client who’s been negatively impacted by the government shutdown or has questions to contact us directly.”
Key and Chase, along with TD Bank, M&T Bank and Webster Bank, were among the top 7(a) lenders in New York State in the fiscal year that ended Sept. 30, based on the number of approved loans, SBA data shows.
How can a borrower ensure that a loan application is quickly processed once SBA reopens?
Continue assembling records about the business’ financial performance, collateral to secure the loan, the owner’s experience and other relevant information.
M&T Bank is “working with [customers] by preparing the documentation and information required to move their loan forward once the government shutdown is resolved,” said Jason Lipiec, the bank’s Long Island regional president. He added that M&T is helping borrowers develop contingency plans should the shutdown become prolonged.
In a statement on its website, the SBA said, “As soon as the shutdown is over, we are prepared to immediately return to the record-breaking services we were providing.”
What other SBA financing programs are impacted by the shutdown?
The agency also isn’t accepting applications for 504 loans, microloans of less than $50,000 and loans to exporters.
In addition, two programs for technology businesses — Small Business Innovation Research and Small Business Technology Transfer — expired on Sept. 30 because the Senate didn’t follow the House of Representatives in reauthorizing them for another year.
“A lapse [in the programs] creates uncertainty for innovators and risks slowing progress at a time when global competition is intensifying,” Reps. Roger Williams (R-Texas) and Nydia M. Velázquez (D-N.Y.), who lead the House Small Business Committee, and Reps. Brian Babin (R-Texas) and Zoe Lofgren (D-Calif.), who lead the House Science, Space and Technology Committee, said in a statement.
James T. Madore writes about Long Island business news including the economy, development, and the relationship between government and business. He previously served as Albany bureau chief.
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