What the Federal Government Shutdown Means for Small Businesses

As of November 7, the government has been shut down for 37 days. The 2025 shutdown has been the longest in U.S. history. And it's hitting small businesses hard.

Businesses are missing out on small business loans and government contracts. Business owners are bracing for reduced customer spending this holiday season as 1.4 million federal workers are without pay. With soaring tariffs already raising operating costs, can businesses survive the shutdown?

Freeze on SBA-backed Small Business Loans

Many small businesses depend on securing loans backed by the U.S. Small Business Administration (SBA). In the 2024 fiscal year, the SBA authorized 103,000 financings to small businesses.

But during a government shutdown, the SBA stops its central lending functions. Specifically, the SBA will not review or authorize any new 7(a) or 504 loans—its most popular financing programs. This pause means businesses will not have access to critical funding.

How Do SBA Loans Work?

The SBA offers a range of financing options for small businesses. The most popular programs are 7(a) loans and 504 loans because businesses can use these loans for a wide variety of purposes.

Generally, you'll need to complete the following steps to secure an SBA loan:

1. Choose which SBA loan to apply for. Consider how much money you need, what you'll use the loan for, and which repayment terms work best.
2. Determine your eligibility. Each loan works off its own eligibility criteria. Typically, you'll need to be a for-profit, creditworthy small business that operates within the U.S.
3. Find a lender. You'll need to locate a lender that services SBA loans. Some lenders are part of the Preferred Lender Program (PLP). PLP lenders can approve loans on their own and avoid a lengthy SBA review.
4. Gather your required documents and submit your application. You'll typically need to provide more documents for an SBA loan than for a conventional loan. These documents often include tax returns, bank statements, profit and loss statements, balance sheets, credit reports, business plans, resumes, and a personal history statement.
5. Provide collateral. Oftentimes, you'll need to provide some kind of collateral to secure the loan.
6. Complete underwriting process. Your lender will review your documentation to determine whether you qualify for the loan. The SBA will complete their own review before authorizing the loan. If you use a PLP lender, you can skip the SBA's comprehensive review process.
7. Secure loan approval and authorization. The lender must approve your loan, and, in most cases, the SBA must authorize the loan. The SBA doesn't need to authorize microloans.
8. Collect your funds. Once your loan has been approved and authorized, your lender will disburse your funds.

Critically, for most loans—including 7(a) and 504 loans—the SBA must authorize these loans. Your loan can't close until you have the SBA's authorization.

SBA Pauses Review of 7(a) and 504 Loans

During the government shutdown, the SBA will not review or authorize 7(a) or 504 loans. Your lender can complete their own underwriting process and approve your loan. But your loan can't close until the SBA does their part.

Lenders will typically complete their review process during the government shutdown. When the government opens back up, lenders will submit your application to the SBA as a final step.

When a shutdown is short, borrowers typically don't even notice a delay or pause in the loan process. The lenders' review process takes place whether or not the government is open. But when a shutdown drags on, like the current shutdown, delays are inevitable. Lender-approved applications sit untouched while borrowers cope with the lapse in financing.

Some smart PLP lenders anticipate the government closure and submit loans to the SBA before the shutdown. The SBA typically approves PLP loans within hours and assigns these loans an SBA number. If your loan has been assigned an SBA number, the SBA has authorized your loan and it can close. Non-PLP lenders don't usually have this option because their loans must go through a lengthier review process with the SBA.

If you apply for a microloan, which doesn't require SBA review, or if your loan has already been authorized and assigned an SBA number, then the government shutdown won't affect your loan. But if your loan requires SBA review and it doesn't have an SBA number yet, you must wait until the government reopens and the SBA starts processing loans again. When the government does reopen, expect delays in your loan review as the SBA works through a backlog that's increasing every day.

If you already have an SBA loan, you'll still need to make timely payments to your lender. The government shutdown doesn't affect your payment obligations.

How the SBA Loan Freeze Hurts Small Businesses

The freeze on SBA loans can put businesses in an extremely vulnerable position. In many instances, businesses apply for SBA loans because they can't qualify for conventional loans. Consequently, these businesses are already limited in their financing options.

As the shutdown continues, these companies are operating businesses without crucial funding. For many businesses, the fourth quarter (October through December) is a make-or-break period. Business owners depend on the holiday season to achieve their financial goals.

During this time of year, companies often spend more on staffing, inventory, and advertising to capitalize on increased consumer demand. But without timely funding, businesses will have to make some hard decisions that could cost them employees, customers, and their livelihood.

No New Government Contracts for Small Businesses

During the shutdown, the government won't award any new contracts. Small businesses that rely on government contracts as a primary income source will likely take a huge hit. They'll have to look elsewhere for income, and quickly.

For contractors in the middle of contract work, a shutdown can have varying effects.

Fully funded projects might continue without much interruption. If your project has been fully funded prior to the shutdown, then you'll likely be able to finish out the contract without much issue. While payment shouldn't be a problem, your work might still be stalled for other reasons due to the shutdown. For instance, some of your work might need to be inspected or approved by a government worker. But if that government worker has been furloughed, your contract could stall. If you're doing work at federal buildings that are closed or inaccessible, you might also hit a roadblock in completing your contract obligations.

Projects that aren't fully funded can negatively impact contractors. If your contract isn't fully funded, then you could face one of three scenarios:

• The contracting officer issues a stop work order. If you've been given a stop work order, you must stop work. Your project is on pause and no payments will be made. Oftentimes, contractors have planned their work schedule and financial forecast around awarded government contracts. If the contract suddenly stops, the contractor must figure out what to do during this time to keep their business afloat.

• The contractor is obligated to continue work. Depending on the nature of the contract, some contractors might be required to fulfill their contractual obligations. In these cases, you'll likely need to be reimbursed for the work performed without pay. Unfortunately, these contractors, for the time being, are continuing to work without pay and likely with additional costs.

• The contractor chooses to work without guaranteed payment. Some contractors might choose to continue work on a contract without pay. In these instances, the federal government isn't required to reimburse the contractors once the shutdown ends. But the contractor likely has a reasonable expectation that they will eventually be paid.

Businesses will also need to be mindful of their employees' rights during the shutdown. If companies suddenly experience a lack of work, they might cope with this hiatus by furloughing employees. As the shutdown lingers, some contractors could resort to layoffs.

Employers must follow federal and state employment laws, including the Fair Labor Standards Act. Different rules apply to exempt and non-exempt employees. If you decide to furlough an exempt employee, make sure they're furloughed for the full week and that they don't perform any kind of work during that time.

Small Businesses Are Losing Customers

During the shutdown, more than 670,000 employees have been furloughed, and 730,000 employees are working without pay, per the Bipartisan Policy Center. As a result, unpaid federal workers have less money to spend.

Many businesses depend on increased consumer spending during the fourth quarter as the holidays drive demand. But small businesses might be in for reduced profits during what's usually the busiest time of year, as federal workers have to tighten their budgets.

It's hard for businesses to fully evaluate the impact the government shutdown might have on their bottom line. No one knows how long the shutdown will last. This uncertainty can affect business decisions:

• Should a company try to keep as many employees as it can and hope that the shutdown ends before the business runs out of money?
• Should a company spend money on inventory when it'll likely face reduced sales?
• Should a company apply for financing to get it through the end of the year, even if the terms are risky?
• Can the company afford to keep paying rent on its commercial lease if the shutdown continues to eat into profits?

Every business is different and the shutdown will affect companies in different ways and in varying degrees. Some companies could come out the other end unscathed. Other companies might not.

Businesses located near federal attractions are also missing out on money from tourism. Many famous attractions like the Washington Monument in D.C. and Independence Hall in Philadelphia are closed during the shutdown. Other museums, parks, and visitor centers that require staffing have also closed.

With the closure of these tourist attractions, fewer people are traveling to these areas. Fewer people translates to fewer customers for small businesses. Businesses in the Washington D.C. area and in other major cities have been hit especially hard.

Added Economic Strain From Tariffs

In addition to the federal government shutdown, small businesses are weathering soaring tariffs. In April 2025, President Trump implemented a 10% minimum tariff on all countries. Throughout his second presidency, Trump has announced a number of additional tariffs on countries like China, Canada, and Mexico.

Increased tariffs can financially impact small businesses in multiple ways:

• U.S. importers have to pay the tariff.
• The cost of goods increases.
• Other countries might impose their own increased tariffs in response, which directly affects U.S. exporters.
• Small businesses might try to recoup some of the loss by charging consumers more, which can hurt sales.
• Small businesses could decide to absorb the costs themselves, which cuts into profits.
• Larger businesses can withstand tariff increases more easily. These larger companies can afford to keep prices stable, which could lead customers to opt to buy from larger companies rather than smaller ones.

A group of small businesses and states has challenged Trump's tariffs. The U.S. Supreme Court is currently reviewing the legality of these tariffs.

Starting in February 2025, President Trump imposed two types of tariffs:

• "Trafficking" tariffs: Trump implemented these tariffs against China, Canada, and Mexico. Trump argued that these countries were contributing to a fentanyl crisis in the U.S.
• Reciprocal tariffs: Trump imposed a baseline tariff on all countries. The president argued that trade deficits are an extraordinary threat to national security and the economy.

President Trump invoked the International Emergency Economic Powers Act (IEEPA) as the legal basis for the tariffs. The IEEPA gives the president the power to regulate importation "to deal with any unusual and extraordinary threat… to the national security, foreign policy, or economy of the United States…" (50 U.S.C. § 1701 (2025).)

On November 5, 2025, the Supreme Court had a hearing on the tariffs.

Neal Katyal, the lawyer representing the group of small businesses, argued that the tariffs are a tax and only Congress, not the president, has the power to tax. Katyal further argued that the sweeping tariffs go beyond the power of the IEEPA.

U.S. Solicitor General D. John Sauer, representing the Trump administration, defended the tariffs. He argued that the tariffs were regulatory and not a tax. Sauer added that the fact that the tariffs raise revenue is incidental. Sauer contends that because the tariffs are regulatory, they're within the powers granted by the IEEPA. But the IEEPA has never been used as a justification for tariffs imposed by a president.

During the hearing, some justices seemed hesitant to give a broad interpretation of the IEEPA, as the Trump administration would prefer.

While the Supreme Court doesn't usually hand down rulings until the summer, the Supreme Court will likely expedite this ruling. If the Supreme Court rules against the Trump administration, the government could have to refund the tariffs paid. While the refund is speculative before a ruling has even been made, small businesses could recover some of their losses with that outcome.

What Small Businesses Can Do About the Shutdown

While small businesses have certainly experienced losses during the federal government shutdown, they can explore some options to cut business costs and alleviate the negative effects.

Look at alternative financing options. Some businesses might not be able to afford to wait for their SBA loan to be approved. Companies can explore business lines of credit, merchant cash advances, microloans, invoice financing and factoring, specific-use loans, and personal loans. These financing alternatives could get you the money you need quicker. But the terms might be riskier. Think about what your business needs and can afford.

Eliminate discretionary spending. Determine what your business can go without. If you don't need certain machinery or equipment, you can try to sell it (if you own it) or cancel the lease (if you don't own it). You can also cut back on furniture, unnecessary supplies, marketing, and travel.

Renegotiate your lease. If you're leasing a commercial space and don't believe you can afford the rent payments for much longer, try talking with your landlord. They might be willing to renegotiate the lease in an attempt to keep you as a tenant.

Ask for debt forgiveness. If you have business debt piling up that's threatening the life of your business, you should address it sooner rather than later. Creditors are likely aware of the tough economic times. You can ask your creditors to forgive a portion of your debt. They might be willing to agree if they believe their debt might be discharged in bankruptcy or they're otherwise unlikely to see the debt repaid.

Make an appeal to customers. If you've built up a positive relationship with the community, consider asking for their support. Encourage your loyal customer base to buy local. Consumers are hurting during the shutdown too. But they might be willing to spend what money they do have to keep their favorite business alive.

Be honest with and fair to employees. You should keep a clear line of communication with your employees. If you have to conduct layoffs, tell the affected employees in person if possible. If you can afford a small severance package, it can be a great gesture. Make sure remaining employees feel supported and motivated.

It's important to remember that the government shutdown is only temporary. Though that concept is hardly encouraging to struggling businesses. If you need particular legal advice on a topic, consider speaking with a business or employment lawyer. If you need to crunch numbers with an extra set of eyes, you can work with an accountant or bookkeeper.