Until lawmakers hash out a new spending bill, the U.S. Small Business Administration can not process any new loan guarantee applications. (JIM WATSON/AFP/Getty Images)

Congress’s failure to pass a spending bill has brought a halt to the U.S. Small Business Administration’s ability to process new loan requests as part of the broader government shutdown.

In the weeks and days leading up to the shutdown, bankers flooded the agency with loan-guarantee applications, racing to secure funding before the lights went out.

“We could read the tea leaves and see we were heading this way, so lenders have been working overtime to get the applications done and in to the SBA,” Tony Wilkinson, president and chief executive of the National Association of Government Guaranteed Lenders, an organization comprised of roughly 750 small-business lenders, said in an interview late Monday.

Wilkinson said his members have approved and submitted to the SBA $1.2 billion in loans in the past two weeks, which is comparable to the volume for normal month.

He added that SBA sources told him that, as of 2 p.m. Monday, the agency had approved more than $175 million in applications for loan guarantees on that day alone. On an average day, he said, his lenders will only receive around $75 million in approvals. SBA officials would not confirm the numbers.

Still, even at that grueling pace, it will leave many loan applications hanging in limbo, and according to Wilkinson, that could leave many entrepreneurs waiting for the capital they need to start, expand or perhaps salvage their businesses.

“It’s going to be really tough,” he said. “You start looking for where small businesses get long-term loans, and the SBA is it. And the government shutdown turns off that spigot.”

Small business lobbying groups voiced the same concerns. Todd McCracken, president of the National Small Business Association, said the shutdown leaves cash-strapped small firms in “an impossible position.”

“Do they wait a day, a week, a month for the government to re-open and risk losing the opportunity? Or do they cut their losses and move on?” McCracken wrote in an email. “Real jobs and real economic growth hang in the balance.”

Added John Arensmeyer, the president of Small Business Majority, “it’s just going to impede the recovery we have been seeing, and the last thing small businesses need right now is a hiccup in the credit that has been necessary for them to climb out of the recession.”

The SBA ceased much of its operations at midnight, including processing for most of its lending programs, which guarantee tens of billions of dollars in lending to small and new businesses every year. The department’s existing loan guarantees will remain in effect.

“Tonight, that process will stop, and anything that comes in after that will simply go into a queue until federal funding becomes available again,” Wilenson said Monday.

In addition, the department will have to temporarily halt programs designed to help small firms export internationally, obtain government contracts and secure start-up financing, and it will have to furlough more than 2,100 federal employees, representing nearly two-thirds of its workforce, according to the agency’s contingency plan.

Nearly all of the exempt employees work in the department’s Office of Disaster Assistance, which will remain open during the shutdown.

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