Heading into week three, shutdown paralyzing small businesses around the country


The shutdown is having a paralyzing effect on a number of small firms around the country. (Jim Lo Scalzo/EPA)
October 15, 2013

Today was supposed to be a big day for Preston and Sabrina Starr.

The couple, who two years ago opened their first Hungry Howie’s Pizza franchise just outside Atlanta, Ga., are in the process of opening their second location in nearby Smyrna. In the last few months, they hired a manager, secured a general contractor and signed a lease for the new store, and they were getting ready to start hiring about 25 kitchen and delivery workers.

The only thing they still needed was a final signature from the U.S. Small Business Administration, which was working with their bank to guarantee a $300,000 loan to help finance the expansion.

It appeared everything would be ready for the grand opening the couple had scheduled for Oct. 15—right up until the federal government shut down. Now, all those plans are on hold.

“We were a couple days away from breaking ground, and suddenly, the final authorization from the SBA ground to a halt because there’s no one home,” Preston Starr said in an interview, noting that the closure forced the department to furlough most its workers, including the team that handles loan-guarantee applications. The guarantees are intended to encourage small-business lending by alleviating some of the risk for banks.

The Starrs now have no idea when they will be able to access that line of credit, and until then, they are left paying rent for the new space and a salary to the new general manager, even though there is no store to manage.

“It will probably push us back about a month, and that’s if they were to open the doors back up tomorrow,” he said in an interview last week.

But that still hasn’t happened. Democrats and Republicans in Congress continue to haggle over a new spending plan for the government, now dragging the shutdown into its third week. Meanwhile, disputes over the nation’s borrowing limit appear to be making it all the more difficult for policymakers to strike any kind of deal.

Preston Starr isn’t the only one whose business plans are stuck as a result. In fact, he isn’t even the only one in the company.

“We have franchises in Georgia, Oklahoma and Texas that have signed leases, have the permits in hand to begin construction, and now they’re on hold,” said Jennifer Jackson, director of development for Hungry Howie’s Pizza, which is based in Madison Heights, Mich. The delay is having the most crippling effects on individuals who are waiting to open their first store and do not have revenue coming in from existing locations.

“It could be really devastating for them, depending on how long it takes to reopen the government,” Jackson said.

While SBA officials have been unreachable due to the shutdown, a number of commercial bankers have reported that a backlog of loan-guarantee applications has started to build up in the past two weeks.

“It has come at the worst possible time,” according to Rogit Arora, chief executive for Biz2Credit, an online lending platform that connects small-business borrowers and lenders. In an interview, he said the last three months of the year tend to be busy ones for commercial lenders, as many retailers stock up for the holidays and other small firms start making plans for the coming year.

During each of the past two years, the SBA has backed more than $30 billion in lending. Under its most popular program, known as the 7(a) loan program, the department guarantees anywhere from 50 percent to 85 percent of a loan up to $1.5 million—when the office is up and running.

In addition to the SBA shutdown, the halt to work at the Internal Revenue Service has thrown a wrench in some small-business owners borrowing plans, as bankers rely on the agency to perform certain income verification checks necessary to process loans.

Preston Starr said he has a simple message for elected officials in Washington.

“Get to work,” he said. “Just hurry up and get to work.”

Follow J.D. Harrison and On Small Business on Twitter.

J.D. Harrison covers startups, small business and entrepreneurship, with a focus on public policy, and he runs the On Small Business blog.
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