The government shutdown is throwing a wrench into efforts by some small businesses to get government-backed loans from the U.S. Small Business Administration.
Lenders said they continue to process and submit loans to the SBA, but borrowers will have to wait for approvals. Other borrowers are facing shutdown-related paperwork snafus that are slowing loan fundings.
Charlotte Calmels has been planning to use a $150,000 SBA loan to open her second French restaurant in Philadelphia, next month. But before the loan can close, her lender, Susquehanna Bank, in Lititz, Pa., must confirm her legal immigration status, a process that begins by contacting the SBA. The federal immigration agency, which remains open, stopped receiving requests from SBA officials to verify borrowers’ immigration status last Tuesday, according to a spokesman.
While Susquehanna is looking for a way around the problem, Ms. Calmels worries that the mid-October closing could be delayed. “I have the keys to the restaurant,” she said. “But that could prevent me from opening and hiring any employees.”
Rohit Arora , the chief executive of Biz2Credit, a New York small-business lending broker, said he fears many business owners who rely on government-backed loans for working capital will turn to alternative lenders, such as merchant cash advances, which charge interest rates of up to 100% with short terms of just six to eight months.
Interest rates for the agency’s flagship loans can range from 5.5% to 6.5%, compared with up to 8% charged by traditional banks for nongovernment-backed loans, Mr. Arora said, though for many borrowers, the value of the government guarantee is that banks are willing to deal with them at all, he said.
Even if the government gets back to work this week, the SBA will face a backlog that could delay some loan approvals by six weeks or longer, compared with a normal wait time of about two weeks, said Lynn Ozer , president of SBA/government guaranteed lending at Susquehanna. The biggest waits are likely to be for loans that have to go through the standard approval process, either because they weren’t made by a “preferred lender” that can unilaterally underwrite loans or require SBA approval to waive a specific loan requirement, she said. Under the standard process, banks and other lenders must submit loans to the SBA for review and approval before they can be funded.