The shutdown, the longest in US history, is over. On January 25, 2019, President Trump and lawmakers reached a deal to reopen the government, and 800,000 federal employees were able to return to work and receive back pay.
But it’s not so easy for small businesses to recover. And future shutdowns loom as legislators and the White House continue to disagree.
How the 2018 government shutdown affected small businesses
Here’s a recap of where the shutdown hurt most for small businesses:
- Small businesses lost more than $2 billion in opportunities due to delayed Small Business Administration (SBA) loans. “If the government [had been] open, these business owners would have had their funds [weeks ago],” says Priyanka Prakash, a small business expert with online loan broker Fundera.
- Small businesses with federal contracts missed their paychecks. Almost 10,000 companies provided $200 million worth of work a week to agencies touched by the shutdown, and many won’t get back pay—even with the government reopened.
- Employee verification stalled. The US Department of Homeland Security’s E-Verify site was down—so employers couldn’t determine if new hires were able to work in the United States.
- Business plummeted for companies that serve federal workers. In Washington, DC, Restaurant Association Metropolitan Washington extended its Winter Restaurant Week after restaurant operators reported between 20 and 60 percent declines in business during the shutdown.
- Imports and exports faced extreme delays. Meanwhile, Dmitriy Shibarshin of West Coast Shipping, an importer and exporter of high-end cars, says it took double or triple the time to get paperwork approved from US Customs and Border Patrol for each car it shipped or received during the shutdown. “We’re affected in terms of the wait times and getting approval for anything we’re doing,” Shibarshin says.
5 ways to protect your small business during a government shutdown.
With the shutdown over, it may be impossible for restaurants to quickly recover after more weeks of empty tables or for a federal contractor to recoup lost wages or payments. But it is possible to protect yourself against the negative impacts of another shutdown. Here are five things business owners can do now:
1. Prepare alternative loan options.
If you’re working toward an SBA loan application but are concerned about another shutdown, Prakash recommends researching your other options.
If the SBA closes again, you could consider either:
- A conventional loan from your bank, or
- A short-term loan from an online lender
Those short-term loans are generally more expensive, Prakash says—but once the government reopens, you could attempt to refinance to an SBA loan.
“This definitely adds additional work and time down the line, but if you need money right away, this lets you access capital now [and] get the benefits of an SBA loan when the government reopens,” she says.
2. Get a business line of credit.
Banks, online lenders, and the Small Business Administration all offer business lines of credit, which can be the safety net a company needs to survive the next shutdown or other unexpected emergency, says Prakash. Bonus: There is no cost to you until you actually start using the money.
“You only pay interest on a business line of credit when you withdraw funds,” she says. “This can be a critical lifeline to pay for inventory or supplies or to pay your employees when other sources of funding are blocked off.”
3. Diversify your business or its offerings.
As the shutdown continued, some small business owners launched their Plan B or found new ways to earn money. Rachel Stewart, a North Carolina-based jewelry maker and artist, focused more on her paintings and made plans to reach out to shops to carry her jewelry when a national museum stalled her orders due to the shutdown.
Steve Silberberg, owner of Fitpacking, a backpacking excursions business, has considered expanding to international trips amid national park closures—but he also fell back on his other skill: software consulting.
Lacey Banks McGill, a business advisor at the University of Hartford Entrepreneurial Center, says a government shutdown can be the signal small business owners need that it’s time to diversify because they’re relying too much on a single revenue stream.
“It can be a wake up call for small businesses just to say, ‘How can I try to balance where I’m getting my business from so I’m not totally reliant on one particular source?” she says.
For some businesses that work exclusively with the federal government, diversifying can seem tricky at first, according to P. Kent Hill, director of the Center for Innovation & Entrepreneurship at Fayetteville Technical Community College in North Carolina.
But, he says, it’s possible. A cybersecurity contractor, for instance, could start seeking private sector contracts. A cafe that’s surrounded by government office buildings could begin marketing delivery services to the corporate workers with offices a mile down the road.
“If they look at their core skills, not their current output, and look at the attributes that allow them to do what they do currently, they can find something in the private sector where those attributes and skills will transfer,” Hill says.
4. Maintain an emergency account for your business.
Just like the emergency fund you should keep for home expenses, experts also recommend maintaining an emergency account for your business.
According to SCORE, a nonprofit organization dedicated to helping small businesses, that account should cover three to six months of operating expenses. The total will depend on whether you’re a startup or a longtime successful business, if you have other sources for cash, and how long it will take before you get the money you need.
It also will depend on the nature of your business, McGill says. A shutdown, for instance, might cost a restaurant less because wait staff can be sent home. At the same time, highly skilled and sought after employees at a software company will start looking for a new job if their employer can’t pay them.
5. Finally, stay on top of your tax obligations.
Even if the federal government is shut down, that does not mean tax obligations have gone away. Deadlines will not change, and you do not want to incur any additional interest or penalties by failing to pay on time. Continue working with your tax advisors to plan for filing and paying your taxes—despite the previous shutdown or another one.
The IRS’s contingency plan is a good resource for understanding how the IRS will function during another potential government shutdown. The IRS Twitter account is also handy for updates on how to handle your taxes this year.
If your small business lost work or revenue during the last shutdown, make sure you stay tuned to the news from Washington as lawmakers hash out potential plans and compromises—and take steps now to protect yourself for the next one.