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What the government shutdown might mean for alternative financial services

Oct 08, 2013 Sean Albert

The government shutdown has been in effect for several days, and has already had a monumental impact on those who work for the public sector. Estimates place the number affected directly by the decision to close down operations at 800,000, though economists are warning that those who count on the government for other types of support are going to be at even greater risk down the road.

One of the clearest examples is the complete lack of small business support coming from the federal government's various agencies in light of the shutdown. Millions of entrepreneurs rely on the U.S. Small Business Administration (SBA) for loans every year, while the agency has been essentially taken out of play in the past week, meaning owners will need to look elsewhere for financing and other support.

Just as was the case during the Great Recession, alternative financial services providers will likely experience an increase in demand for loan products as the result of no access to SBA loans. Entrepreneurs in need of financing should consider these options even when the SBA is back up and running once the shutdown comes to an end.

Small businesses and more
ABC News recently reported that the government shutdown has tied the hands of the SBA, the U.S. Department of Agriculture and the Federal Housing Administration, meaning that consumers, farmers and entrepreneurs are all out of luck when looking to take advantage of these agencies' programs. Though the immediate effects have been somewhat concerning, analysts are more worried about what the shutdown will create months down the road.

For example, demand for loans one month tends to paint a clearer picture of what economic conditions will look like four to six months down the road. If entrepreneurs cannot access loans for more than a month, growth in a quarter or two in the future might be hindered. According to the news provider, the SBA issued a statement that explained some of its concerns.

"Due to the government shutdown, America's 28 million small businesses will be unable to access an average of $96 million in capital supported by the SBA per day, as well as an average of $1.9 billion in capital per month," officials stated, according to the news provider. "SBA lending is a critical resource for small businesses and in anticipation of a government shutdown, the last day of the fiscal year saw a significant increase in SBA lending - more than six times the agency's daily average - to support more than $570 million in capital through our flagship 7(a) and 504 loan programs."

Alternative financial services still around
The government shutdown has no effect on the ability of alternative lenders to disburse loans to small businesses, farmers or households. Any entity that has been cut off from traditional loan acquisition methods should look into alternative sources of financing in the coming weeks and months, as these opportunities often come with other benefits as well, including quicker turnarounds on applications and more flexible repayment schedules.