Shutdown yields slowdown: SBA returns to hundreds of small-business loan applications


SBA officials have their work cut out for them following the 16-day government shutdown. (J. Scott Applewhite/AP)
October 18, 2013

Small Business Administration officials returned to work on Thursday to find a backlog of several hundred loan-guarantee applications that were filed during the 16-day government shutdown.

As agency works to catch up, the processing gridlock will delay access to capital for small-business owners whose plans had already been set back by the deadlock in Washington.

During the shutdown, 700 entrepreneurs submitted $140 million worth of applications through the department’ signature lending program, known as the 7(a) program, one of several tools the agency uses to encourage small-business lending by allowing the federal government to shoulder some of the default risk. The applications piled up in a queue while the agency was closed.

Jeanne Hulit, SBA acting administrator, said her team is “working hard to resume normal operation of our programs” but acknowledged that “some things may take a little time to get back up and running.”

“The shutdown had real consequences for America’s families, communities, and small businesses,” Hulit, who took over after former administrator Karen Mills stepped down in August, wrote on the agency’s blog.

Those consequences were not limited to business owners seeking capital.

“During the shutdown, I heard stories from small business owners about contracts cancelled or put on hold, workers they had to furlough, and the potential for shift and staff reductions,” Hulit wrote, adding that “many small businesses are still struggling with how to take care of their employees as they see projects postponed.”

Most federal government operations came to a halt on Oct. 1 when Congress failed to renew the government’s spending authority. SBA officials were force the shut down essentially all operations (with the exception of their disaster loan office) and furlough more than 2,100 employees, representing nearly two-thirds of its workforce.

After a contentious battle over spending cuts, tax rates, the new health care law and the nation’s borrowing limit, lawmakers finally struck a deal to reopen the government late Wednesday, and by Thursday, the agency had resumed full operations of its primary government contracting, exporting and business counseling services.

However, the loan application backlog could mean a prolonged wait for some employers who have been counting on the agency’s support to start or grow their businesses.

In anticipation of the shutdown last month, lenders and SBA officials raced to approve as many applications as possible under the department’s numerous loan-guarantee programs. Tony Wilkinson, president and chief executive of the National Association of Government Guaranteed Lenders, a group of about 750 small-business lenders, said his members submitted about $1.2 billion in loan applications to the agency in the final two weeks of September — comparable to the volume for a typical month.

Still, some were left in limbo when the government went dark.

Preston and Sabrina Starr, for example, were getting ready to open their second pizza franchise this week in the Atlanta area. But those plans have been put on hold because they are still waiting for a final signature on the loan guarantee they applied for through the SBA to help finance the new restaurant.

“It will probably push us back about a month,” Preston Starr said in an interview.

Another one of the 700 is Chris Leh, president of TL Technologies in Lancaster, Pa., who said during a congressional hearing this week that he had to cancel a $600,000 equipment order and rescind two job offers to highly trained machinists because his SBA loan application was not approved before Oct 1.

“We are completely and absolutely in a stall mode at this point,” he told senators on Wednesday.

During the same hearing, Ron Paul, chairman of Bethesda, Md.-based EagleBank, noted that the agency’s closure stalled 30 of his bank’s loan-guarantee applications, holding up a total of $37 million to local business owners.

Hulit says her team is working quickly to get that capital into the hands of those entrepreneurs.

“We know that small businesses are the engine of our economy, and the SBA team is excited to get back to work serving America’s entrepreneurs,” she wrote on the blog.

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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