Government shutdown shuts off loans to restaurants and other businesses

Hold the pepperoni, hold the onions and the peppers, hold the whole darned pizza – there will be no baking at a Hungry Howie’s in Smyrna until the government goes back to work.

Preston Starr, owner of the franchise restaurant, has already spent $69,000 buying equipment and renovating a building on Village Green Circle. To complete the work, he is counting on a $300,000 loan from the Small Business Administration – a loan he cannot get until so long as the SBA is shut down.

The backlog of companies looking for SBA money grows with each day. And loans are to a new business what    tomato sauce is to a pizza joint: essential.

In Georgia, there’s nearly $1 billion in SBA-backed loans each year. They pay employees, fund operations and make expansion possible.

Banks often use the SBA to cut risk for the loans that the banks provide. Without the SBA, they might still make the loan, but the borrower would face less favorable terms and pay a higher interest rate.

“There’s lots of money out there, just not the SBA guarantee,” said Peter Rassel, business consultant Georgia State Small Business Development Center, part of a network that provides training, consulting and analysis to small companies.

The wait for the shutdown to end has proved frustrating, said Starr. If his timetable is delayed much longer, he could be in a painful position of paying rent before he can start selling pizzas.

“We’ve got contractors ready,” Starr said. “We’ve got planning approvals and permits. We are waiting with our shovels ready.

No one knows how long the shutdown will continue.

And some companies simply cannot take a number and wait until the SBA take-out window opens again. So owners of cash-starved businesses find themselves taking loans at higher interest ranks. And banks find themselves making those loans without the government guarantee.

“We’ve got to take care of our clients whether the government is open or closed,” said Mike Chaffin, senior vice president at Fifth Third Bank in Atlanta. “So we’ll bridge the gap until the SBA ‘capline’ is available again.”

Requests for that help have poured in, he said: Those bridge loans account for roughly 40 percent of loan closings planned at the bank for the next three months. Adding to the challenge is the need to treat most of those loans as new, even though much of the documentation had been done for the SBA, he said.

“Banks have to scramble because we are starting over on things that they might have been 90 days into,” Chaffin said.

Anything that slows down lending – or the will to borrow – can likewise slow growth. And the current impasse in Washington stirs fears among lenders and entrepreneurs alike.

The longer and deeper the crisis, the more likely that credit will stop flowing so freely, said Drew Tonsmeire, area director at Kennesaw State’s Small Business Development Center.

“Small business is just frustrated,” he said. “It upsets the market and everybody becomes more cautious. If it goes a long time, it will seriously impact credit availability.”

And when the shutdown ends, there will be a longer wait for loans, he said. “The longer the line in the queue, the more time it could take.”

The Georgia Certified Development Corp. in Buckhead, an agency that helps administer SBA programs, has client companies whose plans have been frozen by the shutdown.

CEO Tony Christopher declined to provide details, but said that among the stymied plans is a large redevelopment project on the north side of town and a smaller auto repair business in south Atlanta

“They are just stuck,” said Christopher. “Their plans are approved (by local officials) and they are just waiting to get going. With the government shutdown, we can’t process loans to get approved. They have to sit and wait and there is no recourse.”

Another agency, Georgia Resource Capital, also has client projects on hold, said Tim Souther, executive director.

“The slowdown is not just an inconvenience,” he said. “It is a major problem.”

He has a queue of 30 borrowers waiting to apply for SBA loans and the line is lengthening, he said.

Grace Fricks, president of Access to Capital for Entrepreneurs, a not-for-profit group that specializes in small-business loans, said her agency is still able to lend money.

ACE makes loans with money it borrows money from the government – mainly the SBA and Treasury Department, she said. “It’s not affecting our ability to loan because we have money for the next four months. If this goes longer, that would affect us.”

Even when the shutdown ends and the SBA money starts flowing, the challenges to small companies continue.

Having access to capital is necessary for success, but it’s not enough, said Connie Evans, CEO of the Association for Enterprise Opportunity, a national organization that includes many local lenders. “From the café owner to the taxi driver, we are concerned that small businesses are lacking for customers,” Evans said.

There is some reason to worry, according to Sageworks, a North Carolina-based financial information company. Sales growth has slowed at small businesses in the past year, from 8 percent to 2 percent, according to Sageworks.

Yet for many business people, retreat is simply not on the menu.

“We’re in deep,” said Starr. “We are committed.”