The Government May Shut Down: How a Potential Shutdown May Affect Small Business (and What You Can Do)
Update: On November 17, 2023, President Biden signed a temporary spending bill that pushed any thread of a government shutdown into 2024. Stay tuned for more information . . .
With a possible federal government shutdown looming in 2024, you may be wondering how (or if) this development will affect your business—and if there’s anything you can do to prepare or reduce the impact. Keep reading . . .
PLEASE NOTE: As of this writing, the government has not shut down. The following post is meant to help business owners prepare in the event a federal government shutdown occurs.
First, let’s note a few key facts:
- Government shutdowns have a relatively short history: the first government shutdown was in 1976.
- The last government shutdown was in December 2018 and lasted 34 days. However, that was an unusually long shutdown period (the longest in history, in fact).
- Within the last four decades, the typical government shutdown has lasted one to three days.
We hope this shutdown will be swift—but in the meantime, this is what business owners and employers should know:
Access to capital
A government shutdown will likely limit access to capital for business owners—and make access more expensive. The longer the shutdown lasts, the more business owners may feel this impact. If you need funding for your business during the shutdown, here are actions you should consider:
Look to your state and local governments
The shutdown will not affect state-specific or local loans. We’ve got a state-by-state guide to funding, so check out this State Funding Hub for grants and loans that are available where you live.
Research corporate grants
Consider corporate grants; these are grants provided by private corporations like:
Practice patience
We know this is easier said than done, but if you can wait for funding, do it. The shutdown will raise interest rates, and getting locked into a high rate may put you in a tricky position down the road. Discover if you have the ability to wait by forecasting your business cash flow with this series that will show you how to build a cash flow forecasting model, step-by-step.
How access to capital for your business may be limited during the shutdown
SBA loans: The SBA provides billions of dollars in loans to small businesses across the country each year. A government shutdown will make SBA funds more difficult to obtain by either significantly delaying the processing of these loans or halting access entirely. Any SBA loans that are obtained will likely be costlier than they are now. (While SBA loans tend to be less expensive than private loans, they still reflect market conditions, so rising interest rates will affect these loans, as well.)
Private loans: These loans tend to have higher Interest rates than government-issued loans (like SBA loans), making them more expensive for business owners. If interest rates increase during the government shutdown, these loans will become even more costly for business owners.
Credit cards: It’s no secret that business owners often use personal credit cards to cover expenses. Interest rates on personal credit cards are generally higher than on other credit lines available to business owners. Increased credit card spend will put more pressure on business owners as their debt may increase.
Consumer spending
A government shutdown may cause consumer spending to fall, which could affect your business. Here’s what you should do:
Conduct an audit of your business
Spend some time conducting a spending self-audit, understand your cash flow, and be precise (and ruthless) about where and how you spend money. Reduce expenses and conserve capital where you can.
Don’t forget to assess your inventory and negotiate with suppliers.
Understand customer behavior
Have a keen understanding of your customer segments and how each segment will change behavior during an economic downturn. Read through the chart in this excellent article.
Invest in automation
Automation can save your business in precious capital. Looking into tasks, workflows, and processes that can be automated.
How consumer spending may be affected by the shutdown
Rising interest rates: When interest rates rise, consumers feel the squeeze and may adjust their personal spending habits and budgets.
Furloughs for federal government workers: The federal government employs about 20 million Americans, and if these folks are temporarily out of work, it’s possible they will tighten their belts, too.
Less money flowing into the economy: The above results in less money flowing into the economy—and to your business.
Federal contracts and oversight
The federal government is a valuable customer to U.S. businesses—and the shutdown may stymie that relationship for the duration of the shutdown period. Here’s what you can do as a business owner:
Review your contracts
If you are a government contractor, review your contract in detail to understand what is expected with regard to stopping work; contract work may be expected to continue even in the event of a shutdown.
Make sure you review the payment terms in the contract; while contractors are often not paid during a government shutdown, there may be language in your contract that obligates the government to pay interest on any late payments.
If you work with federal contractors or with federal government bodies, pull out those contracts and read through them to understand what you can expect.
Forecast cash flow
Forecast the potential costs of a shutdown to your business and plan ahead. Don’t know how to forecast cash flow? We’ve got a comprehensive cash flow forecasting guide for business owners.
How the government shutdown may affect contracts and contractors
Independent contractors and small business contracts: The federal government employs more than 4 million independent contractors and is an enormously lucrative customer for small businesses throughout the nation. A shutdown will either slow or stop this business. In almost all cases, contracts with government bodies and/or workers can’t be awarded or modified during a government shutdown.
Federal oversight: Certain businesses (like certain food and beverage suppliers, for example) require government oversight when it comes to formulas and labels. If the government is shut down, this may halt or delay approvals and production.
Loss of insight and expertise
Business owners will have more limited access to guidance and educational resources in the event of a government shutdown. Here’s what you can do as a business owner:
Stay educated
Leverage the Talk Shop blog to stay educated and in-the-know on how to start and run your business.
How the government shutdown may affect support and expertise
IRS call sites: These call sites are designed to answer taxpayer questions and offer instruction and support will be closed during a government shutdown.
SBA operations: As mentioned above, when the government shuts down, SBA operations either halt or slow significantly. In addition to providing businesses with loans, the SBA also provides guidance and expertise to small business owners throughout the country.
Business travel
When the government shuts down transportation may slow. Here’s what you can do as a business owner:
Control what you can
Check your flight status continually to stay up to date on any scheduling changes. Expect long lines so give yourself plenty of time
If it’s cost-effective (and possible), drive.
How the government shutdown may affect travel
Absenteeism among government workers: When the government shuts down, employees like airport security and air traffic controllers are expected to show up for work but they are not paid until the shutdown ends. This means these employees go without pay for an unknown period of time. In the past, this has led to higher rates of absenteeism.
Longer lines: In the past government shutdowns have caused longer wait times in airports and bus or train stations.
Expect cancelations and delays: These happen more frequently during a shutdown.
