What Happens with SBA if the Government Shuts Down Today?

Bad news from NAGGL (National Association of Government Guaranteed Lenders – the trade association affiliated with SBA 7a lenders) or from the SBA….

Shutdown appears imminent:

News from Congress regarding a possible stopgap funding measure to keep the government open is grim, and the SBA has communicated its shut-down plan to lenders.

While the government is shutdown, SBA will be prohibited from approving any new loans. Unfortunately those hurt most by the shutdown will be the small businesses that are struggling to recover from the economic downturn. Those businesses with time sensitive funding requests, including things such as real estate and change of ownership transactions will be hit the hardest.

NAGGL hopes that the shutdown (if it occurs) will be short lived, but it reflects the 3-week long interruption that occurred in 1995-96.

What happens to SBA lending programs if the federal government shuts down?
As promised, SBA is proactively updating their lending partners about details of what the potential federal government shutdown means in practical terms for the loan programs. In case you did not receive the notification from SBA, here it is in full (emphasis added by NAGGL) –

“It is still possible that the Administration and Congress will reach a compromise that will avoid a lapse in federal government funding. However, prudent management requires that we plan for an orderly shutdown should Congress be unable to pass a funding bill by the end of the day on Friday, April 8th. Please read this message carefully, as it contains several critical pieces of information.

Should Congress be unable to pass a funding bill, the SBA will stop approving all new business loans in the 7(a) and 504 loan programs at 11:59 PM on Friday, April 8. This includes loans submitted under delegated authority. Lenders may continue to submit loans to the SBA, but none will be approved until a funding bill is signed by the President.

In the event of a lapse in appropriations, most SBA servicing and liquidation processing centers will also shut down. (However, liquidation activities related to the 504 loan program and to 7(a) loans that SBA has already purchased will not be shut down.) Previously scheduled lender oversight reviews, including Dealer Floor Plan reviews, will be postponed and re-scheduled as soon as a funding bill is passed.

Certain tools and services that do not require continued appropriations will, however, continue to operate as planned. These include:

The agency’s electronic E-Tran tool will remain operational. Lenders may submit loans for approval with the understanding that SBA will not fund any loans until a funding bill is signed by the President. Lenders may also submit unilateral servicing actions that do not require new funds; any servicing actions that require SBA approval, however, will not be completed.

The agency’s fiscal transfer agent, Colson Services, will continue to operate. Any functions normally handled by Colson Services will continue, including sales on the secondary market and the submission of Form 1502. Any actions, however, that require SBA approval–such as sales on the secondary market in which there are discrepancies between a lender’s data and Colson’s–will not be completed.

In addition, the agency’s microloan program will shut down; SBA microlenders may, however, continue to issue loans to small businesses using previously disbursed funds. Finally, the agency’s surety bond program will shut down for all surety companies in the Prior Approval program (though not those in the preferred program).”

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