Federal Shutdown Freezes SBA Lending, Hurting Central Valley Businesses

The ongoing federal government shutdown has significantly disrupted lending operations of the Small Business Administration (SBA), causing delays in loan approvals and reviews critical for small businesses in the Central Valley. As a result of the shutdown, approximately 1,456 SBA employees out of a total of 6,201 have been furloughed, severely impacting the agency’s ability to function, according to the SBA’s plan for a “Lapse in Appropriations.”

SBA offices are mandated to inform grantees, lenders, and co-sponsors about the funding lapse, further deepening the uncertainty for local businesses. The Cen Cal Business Finance Group, a non-profit organization based in Fresno that assists banks and other lenders, is among the SBA lenders feeling the strain. Executive Director Frank Gallegos stated that small business owners are increasingly anxious due to the unavailability of advisory services, including those provided by the SBA’s SCORE program.

“Even loans that have received approval cannot be funded,” Gallegos explained. He noted that while loans for November are currently in the pipeline, the lack of SBA staff to process them could lead to delays. “If the shutdown lasts just a couple of days, we might be okay for November. However, anything longer than that will push deals back by at least another month,” he added.

The ramifications of this freeze extend beyond mere delays; borrowers may incur additional costs. Gallegos pointed out that funding delays could force business owners to pay extension fees to their lenders or seek bridge loans from banks, which can be financially burdensome. For loans that rely solely on bank processing, such as those under the SBA’s 7(a) program, lenders are unable to access critical loan information, further complicating the situation.

Concerns are mounting among clients and banking partners alike. They face the prospect of having to provide extensions for shared customers, which could strain resources. Gallegos highlighted that while interest rates fell by around 25 basis points last month, small businesses cannot capitalize on these lower rates due to the ongoing shutdown. He advises business owners to reach out to their congressional representatives and the White House to advocate for a swift resolution.

In a somewhat contrasting situation, Rich Mostert, executive director of the Valley Community Small Business Development Center, noted that his program operates on a calendar year and is not currently affected by the shutdown. “We must act as responsible stewards for those SBA employees and continue our work within the agency’s guidelines,” Mostert stated. He expressed sympathy for the federal employees impacted by the shutdown, emphasizing the toll it takes on their families.

Mostert added that while federally backed SBA loan programs, like 504 loans, are not being approved during the shutdown, many lenders are still processing applications. They are preparing to resubmit these applications once the impasse is resolved, ensuring that businesses can access necessary funding as soon as possible.

As the situation continues to evolve, the Central Valley’s small businesses face an uncertain future, dependent on the resolution of the federal shutdown. The financial implications stretch across communities, affecting not just individual businesses but the broader economic landscape as well.