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Shutdown stops popular SBA loan programs

The partial government shutdown entered its record 24th day on Monday, and among those in limbo are small-business entrepreneurs waiting for Small Business Administration loans.

SBA offices have been closed because of the budget impasse over funding for a border wall, suspending several popular loan programs designed for business owners that may struggle to get conventional bank financing.

sba(1)Affected programs include the popular SBA 7(a) and 504 loan programs that make commercial loans available for various purposes for small businesses, including purchasing land, buildings and equipment. SBA also runs a microloan program that provides technical assistance for startups and small-balance loans.

All the SBA programs tend to be designed for entrepreneurs who may struggle to get a long-term fixed-rate loans at a reasonable rate, such as a startup or a business located in a rural or inner-city area.The ultimate goal of SBA loan programs is to create jobs.

SBA’s office closings also will cause a backlog of loans. This could significantly delay closings once the government reopens. The Washington Post reported last week that at least 300 loans per day have been disrupted.

The shutdown is now the longest in U.S. history, with no clear path to a resolution. President Donald Trump is demanding funding for a southern border wall. Democrats want Trump to agree to reopen the government, then negotiate on border security.  

“The only thing you can do is sit and wait,” said Charles Green, an SBA loan originator based in Wisconsin. Green said he has been telling his borrowers to demand an end to the shutdown.

“I tell them I will do it as quick as I can, but in the meantime they should call the White House every day and leave a message as to how this is hurting jobs, slowing down the economy, damaging our GDP [gross domestic product] on a daily basis,” he said.   

Green also noted that borrowers run a significant financial risk if their deals fall through.

“You hope that it does not interfere with the commercial contract pending, where a seller is entitled to a closing date agreement, and that gets pushed to the side,” Green said. “The seller could, very easily, just say that the contract was canceled and they would keep the escrow money and go look for another buyer. So, it does put the small-business owner at risk in that situation.”

A spokesman for the National Association of Realtors said that their commercial Realtor members have not yet reported any deals falling through as a result of the SBA shutdown.

The Mortgage Bankers Association (MBA) is still gathering information on the impact of the government closings on commercial lending generally. On the residential side, the shutdown has entirely stopped the United States Department of Agriculture (USDA) program, and the reverse mortgage program backed by the Federal Housing Administration (FHA). The FHA and other mainline forward-loan programs also are expected to experience processing delays if the shutdown drags on.

An MBA spokesman said the commercial lending space has seen less impact from the government closures. Multifamily projects and health-care lenders could be affected through the FHA program, according to the trade group.  

“We are able to confirm multifamily and health-care lenders who use FHA are already dealing with the uncertainty of how, or if, they are able to submit loans to HUD [FHA’s overseer, the U.S. Department of Housing and Urban Development], particularly the inability to schedule closings and handling normal asset-management or servicing functions,” the MBA spokesman said.

MBA also noted that multifamily deals that were rate locked prior to the shutdown could be penalized with extension fees starting on Jan. 31 if the loans don’t close by then.


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