Government Shutdown Puts Federal Lending Programs on Hold

“Due to the lapse of government funding, SBA will remain inactive until further notice.” 

As we all settle back into work in the New Year,  be aware that the partial federal government shutdown that began at midnight on December 21st drags on–with implications for agency lending programs, including the U.S. Small Business Administration 7(a) program. Here’s the latest.

“Due to the lapse of government funding, SBA will remain inactive until further notice. We apologize for any inconveniences and we look forward to assisting you when we return.” ~SBA’s official Facebook page

With many SBA workers on furlough, the review of current loan applications under the 7(a) program is on hold. This means that anyone waiting for an SBA loan approval could be in for a long wait as no new loans will be approved during the shutdown. Likewise, new loan applications will not be accepted until government funding is made available again. Small businesses were hurt during a 16-day government shutdown in 2013 when former President Barack Obama was in the White House. Forbes reported that small business loan approval rates dropped from 50 percent to 44.3 percent at small banks, and by nearly 20 percent at large institutions during the previous shutdown.

According to the National Association of Government Guaranteed Lenders (NAGGL), lenders may not able to fully access E-Tran for loan origination functions for as long as the shutdown is in effect. The SBA is retaining only very limited staff to maintain critical operations during the shutdown. Emails to your SBA contacts may get returned as undeliverable  based on the notice on the SBA’s website:

“Beginning at noon the day of the shutdown, non-excepted employees will no longer be permitted to utilize SBA email or other federal resources. Please know that use of Federal resources while on furlough status is prohibited by law and is considered a criminal offense.” ~notice on the SBA’s website

99% of lenders still processing SBA loans, awaiting agency to reopen

I attended a Coleman Report webinar today with Lance Sexton, a former SBA Deputy Director. The event started with a question that asked attendees how the 2019 SBA shutdown furlough was affecting their institutions. Nearly all of them, or 99%, are still “processing SBA 7(a) and 504 loans, waiting for the administration to re-open.”

The shutdown could extend for a long period of time, but when the SBA is back to business, Sexton warned lenders to be patient and expect loan processing times to be slower as well as approval of servicing actions.

“There will be a backlog. In the past, the agency developed a queue for processing approvals. A normal wait time of less than two weeks could extend as long as three, four or five weeks, depending on the length of this shutdown.”  ~Lance Sexton, former US SBA Deputy Director in a Coleman Report webinar today

Government-sponsored enterprises Fannie Mae and Freddie Mac are still up and running since GSEs are not dependent on government funding to run. The U.S. Department of Housing and Urban Development will reportedly still close on single-family loans during the shutdown, but HUD will not be endorsing new loans for its multifamily program.

“Anyone who depends on FHA loan for either new mortgages of refinances are going to be put on hold. Some loans to public housing and housing agencies across the country could potentially be delayed.” ~ Heidi Learner,  chief economist at Savills Studley

For the broader market, if the shutdown stretches on, there could be an adverse impact on investor confidence:

“All the fluctuations that’s going on puts a pause on companies deciding what long-term investments to make. Do they actively purchase a commercial property knowing there could be further disruption in the future? They could be more hesitant or go on a more [smaller] scale.” ~Lawrence Yun, a chief economist at the National Association of Realtors (NAR)

According to the latest statistics from the SBA, as of December 14, 2018, there were 10,545 SBA 7(a) loans in FY19, which began on October 1st, a decline of 17 percent from 12,772 in the corresponding period of FY18. These statistics continue the trend for last FY18 when 7(a) lending volume was down three percent below FY17 according to the latest brief from EDR Insight. It is reasonable to expect that the volume for the January-March quarter will be impacted by the shutdown.