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How Government Shutdowns Affect Small Businesses

Chad Brooks
Chad Brooks
Editor Staff
Jan 11, 2019

A government shutdown hurts small businesses that are looking to expand.

Some 800,000 federal workers are not being paid or are working without pay during the partial government shutdown. And the small businesses that cater to those workers are also feeling the pain. But the impact of any shutdown goes far beyond just that. The public loses access to any number of services, small businesses lose access to things like programs intended to encourage entrepreneurship, and government contractors can’t get paid.

Small businesses can’t get loans

The Small Business Administration (SBA) stopped processing new loans on Dec. 22, 2018. Those loans will not get processed until the government reopens. That means small businesses can’t get the money they need to start or expand their companies. It will likely take months to dig out of the backlog that has already piled up.

According to the National Association of Government Guaranteed Lenders, “routine actions requiring SBA’s approval cannot be processed.” Lenders won’t be able to submit loans into an approval queue for SBA processing, and they can’t receive 7(a) loan numbers during the shutdown. Therefore, they can’t approve loans under their delegated authority.

The access to capital also hits farmers who can’t get access to Agriculture Department loans, or from the tariff relief program that went into effect last fall. Government loans aren’t the only solution, but are often the best rates for small businesses. But, in a pinch, a reliable partner with a proven track record could be the solution.

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Small businesses can’t hire new employees

If there’s ever been an environment when you wanted to be doubly sure your employees are in this country legally, it’s now. But the federal E-verify system is down. This internet-based system allows companies to determine the eligibility of employees to work in the U.S. That means in states where companies are required to verify legal status before hiring, small companies can’t backfill or expand their workforce. 

No help from the IRS

While the IRS won’t stop being the country’s tax collector, it will not be around to answer questions from small businesses. That’s a problem now that the 2017 tax code has a number of ambiguities in the 200 pages of new rules that will likely cause some confusion. Many small businesses will have to decide whether to file for an extension or file a special form stating why they believe they are paying the correct amount.

Moreover, the IRS may not issue refunds, process 1040X amended returns or conduct audits. But some operations will continue unabated, including criminal law enforcement, processing electronic returns up to the point of refund and processing paper returns.

Federal employee business

Whenever the government shuts down, a legion of federal workers finds themselves on furlough. That means no more lunches at nearby restaurants and no quick trips to the store on the way home. Small businesses located around federal buildings, national parks or monuments might find a drop in demand until the government shutdown ends and furloughed workers return. Nowhere is the impact greater than in Washington, D.C., where most federal employees are based.

People can’t renew passports

If you were planning international travel or work, those trips may need to be postponed until the shutdown ends. That’s because the U.S. Department of State expects delays in issuing new or updated passports. That will be especially true in places where the passport office is in a federal building that is shut down. They will still be processing passports, but there’s no guarantee it will be ready when you need it. 

“The Department will continue as many normal operations as possible,” the Guidance on Operations During a Lapse in Appropriations said. “Operating status and available funding will need to be monitored continuously and closely, and planning for a lapse in appropriations must be continued.”

Although it could be easy to conflate government with regulation, the public services small businesses have come to rely on are apparent when they no longer function. Part of weathering the storm of a government shutdown is being prepared for the roadblocks that come with it. While there is little the average entrepreneur can do to affect policy in the nation’s capital, there is plenty that can be done to keep businesses running as usual until Washington reopens its doors.

Niche industries face specialized impacts

The effects of a shutdown unsurprisingly vary from industry to industry, and may come in surprising ways. For instance, craft brewers have to wait for the government to reopen to launch new brews. That’s because they need approval from the Alcohol and Tobacco Tax and Trade Bureau, which is shut down. Hotels and restaurants that cater to visitors to National Parks and Monuments are taking a hit, as those locations remain closed. About one-fifth of home sales are stalled because federal workers can’t pay. And those companies looking at launching an IPO are being pushed back because of the partial closure of the Securities and Exchange Commission.

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Chad Brooks
Chad Brooks Staff
Chad Brooks is a writer and editor with more than 20 years of media of experience. He has been with Business News Daily and for the past decade, having written and edited content focused specifically on small businesses and entrepreneurship. Chad spearheads coverage of small business communication services, including business phone systems, video conferencing services and conference call solutions. His work has appeared on The Huffington Post,,, Live Science, IT Tech News Daily, Tech News Daily, Security News Daily and Laptop Mag. Chad's first book, How to Start a Home-Based App Development Business, was published in 2014.