Downtown Fresno SBA district office via interiorintervention.blogspot.com

As the federal government shutdown enters its 28th day – the longest in history – uncertainty looms for federal agencies, furloughed workers and those working without pay.

While the status of tax refunds and missed federal worker paychecks has garnered much media attention, the shutdown is also having an impact on the small business front.

The U.S. Small Business Administration (SBA) is a federal government agency that provides support to entrepreneurs and small businesses. It also had to close its doors due to the shutdown.

Because of the SBA’s closure, there is a backlog of organizations, businesses and individuals awaiting funding and loan processing, primarily from small banks.

Those in the process of trying to obtain an SBA loan to start a business or existing business owners looking to expand or cover operating expenses will either have to wait or search for money from alternative lenders, which are likely to come with higher interest rates.

 

“Businesses that may have been thinking about investing in expansion might be looking at this and say ‘I’m going to hold off a little bit,’” said Rich Mostert, director of the Central Valley Small Businesses Development Center (SBDC). “We don’t want to slow that down either. There are a lot of effects it could have if this keeps going on.”

Mostert is also concerned about the impact on the economy. With more federal workers furloughed and unsure of their next payday, he fears less people will be spending money at local businesses.

In fact, the White House’s own economic advisors estimate the shutdown will reduce quarterly economic growth by 0.13 percent for every week that it goes on.

The SBDC is a lending program funded by the SBA that covers four local regions and provides free or low cost counseling, technical assistance and educational services to anyone wishing to start, grow or expand a business.

Clovis Community College matches operating funds provided by the SBA, and other small local banks and lending institutions also provide funding.

The yearly regional goal for the SBDC to help businesses get financing – the capital infusion goal – is set at a minimum of $ 13 million, to help at least 40 startup businesses.

“The SBA guarantee program is vital to getting a lot of loans processed through small businesses who wouldn’t normally qualify for that type of loan,” Mostert said.

For many beginning entrepreneurs, it can be extremely difficult to qualify for business loans from national banks like Bank of America, Citibank and Chase due to credit issues and trepidation to loan large amounts of money to those with no financial history in business, leaving the SBA and other lending programs as the only option.

Access Plus Capital is an affordable small business lender also funded by the SBA that provides capital, business coaching and training to small businesses in the Central Valley.

Since the SBA is frozen during the shutdown, Access Plus Capital is focusing on other programs to help businesses with financing, including state and city lending programs, as well as conventional financing options. Though state-level guarantees are not as good as the federal guarantees that are the SBA’s specialty, it is still a helpful option.

“Right now, that’s our main goal – making sure that funding is still going out to the customer,” said Mari Kroigaard, credit director for Access Plus Capital. “We can’t stop our business because the government is shutdown.”

Tate Hill, senior manager of administration for Access Plus Capital, said the shutdown has ripple effects on businesses that could affect their starting up, expansion and payments to other vendors, creating an air of uncertainty.

Access Plus Capital also gets funding from the Department of Treasury, and since it is also a shuttered federal agency, there is a grant of $750,000 for small business lending that cannot be used. Entrepreneurs that are involved in federal contracting or vendor services are also impacted.

“One of the things that we know on a general, practical sense is that people will start making choices on who they pay as an individual or as a business,” Hill said. “That could have impacts on their credit, and that has longer term impacts on that businesses’ ability to access capital or credit in the future.”

For Talene Kasparian-Cleveland, owner of Fowler Floral, who took over the business 14 years ago, help from the SBA was the only viable option for a 19-year old wanting to start a business.

Though it wasn’t a quick process – with much documentation required, as well as help from her father and a lien against a home and a car – an SBA-backed loan allowed Kasparian-Cleveland to buy her business.

“No bank wanted to lend me as much money as I needed,” said Kasparian-Cleveland. “The SBA basically gave this 19-year-old college kid a chance, and 14 and 1/2 years later I’m still running the same business. I’ve never had to take out another loan. I paid my fees on time. I weathered the recession and went through the bounce-back point.”

Consumer researcher website ValuePenguin.com analyzed SBA data back to 2010 to see which states would be impacted the most by the absence of SBA loans.

Since 2010, over $177 billion in SBA loans have been issued, more than 472,000 loans were approved and 5 million jobs have been supported due to the loans.

California, Texas, New York, Florida, and Ohio topped the ranking of states whose small business communities will be most negatively impacted by the shutdown.

On the other end, Wyoming, South Dakota, West Virginia, Delaware, and Arkansas will be the least affected, due to the small number of small businesses who rely on SBA assistance.

California is one of the states that the analysis predicts will have the highest job losses because of number of people employed by small businesses depending on SBA funding.

In the last several years, the local SBA office in Fresno has been on a record track of lending activity. The office, which covers a 15-county region in the Valley and Central Coast, guaranteed more than $425.5 million in loans in fiscal 2017, up $6 million over the previous year.

A total of $340 million 7(a) loans were guaranteed out of the Fresno district – an increase of $4 million from the previous year. There were also $86 million in 504 loans – up $2 million.

The 7(a) loan program can be used to purchase new land and fund construction costs, repair existing capital, purchase or expand an existing business, refinance debt and purchase machinery and other supplies.

The 504 program is geared toward the purchase of existing buildings, land and land improvements.

In Fresno County alone in fiscal 2017, there were 151 7(a) loans for a total of $77 million, and 21 504 loans worth $15.8 million.

Tulare County had 52 7(a) loans worth $30.5 million, and 13 504 loans worth $9.5 million.

Madera County had 21 7(a) loans for a total of $9.6 million, and two 504 loans worth just shy of $1 million.

Kings County had eight 7(a) loans totaling $3.2 million.

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This story was originally published in the Jan. 11 edition of The Business Journal. Don’t receive important local business news a week late. Subscribe today.