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How the Next Government Shutdown May Affect Your Small Business

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.

When Texas business owners Veronica and Craig Bradley put together an application for a loan from the U.S. Small Business Administration, they detailed the risks big and small that could derail their startup brewery.

The couple filled a page with hypothetical unexpected events that could prevent Vector Brewing from making a profit, going so far as to include their own deaths, according to Veronica Bradley.

“The one thing we didn’t account for was a government shutdown,” she said. “Who thinks that’s going to happen?”

A partial government shutdown started Dec. 22, days before the Bradleys planned to submit an application for a $1 million SBA loan to fund the construction and operation of Vector Brewing in Lake Highlands, Texas. The SBA went dark during the 35-day shutdown, delaying SBA funding for many small business owners like the Bradleys.

The federal government reopened a record 35 days later on Jan. 25 after the House and the Senate passed a stopgap spending bill to restore operations until Feb. 15. If that deadline rolls around without a permanent funding agreement, the government could fall into a second shutdown that would impact small businesses still recovering from the first.

Negotiators in Congress have reached a tentative deal that would evade another shutdown, but it’s not yet set in stone. And although the recent shutdown was the longest in U.S. history, it was far from being the first one. There have been 21 stoppages in government funding since 1976, with three shutdowns occurring in 2018 alone.

The Bradleys aren’t waiting for the other shoe to drop — they have a contingency plan. They learned valuable lessons the first time around and are better prepared for another shutdown. We’ll help you understand the widespread impact of the shutdown and help you make your own plans for any unforeseen circumstances.

Effects of the shutdown

The partial government shutdown directly impacted 21% of business owners, creating delays and interrupting regular operations.

In addition to the suspension of SBA loan approvals, federal data services were inaccessible. The E-Verify system was suspended during the shutdown, which meant business owners could not use the platform to confirm the employment eligibility of new workers. Private-sector entities that experienced business shortages during the shutdown will likely never recoup that lost income; about $3 billion in lost GDP growth will not be recovered either.

Small government contractors were hit hard – 41,000 small business contractors lost $2.3 billion in revenue, according to data from the U.S. Chamber of Commerce. “It is really eye opening, down to the nickel and penny of what some of these small business owners lost,” said Tom Sullivan, vice president of small business policy for the U.S. Chamber of Commerce.

What would a second shutdown mean for small businesses?

Two back-to-back shutdowns could deal a major blow to small business owners who depend on the federal government, not just for data services or the loans it guarantees, but also for important federal permits. The Bradleys are among numerous brewery owners waiting for permits from the Alcohol and Tobacco Tax and Trade Bureau needed to brew and sell beer. The timing of a possible second shutdown would be another huge hit, as it could limit the scope of the IRS as tax season nears.

The threat of a second shutdown is on Bradley’s mind every time she writes a check. Until the SBA loan comes through — she and her husband were finally able to apply in late January — the Bradleys must pay business expenses out of pocket. The brewery isn’t open yet, but the Bradleys’ landlord, attorney, financial advisor, contractors and architects are waiting for payment, Bradley said.

“This has been a very scary balancing game,” she said.

Before the shutdown, her banker told her to expect to receive funding in eight to 12 weeks. Now, the SBA doesn’t know how long it will be until the loan is funded, she said.

The Bradleys’ home state of Texas is second only to California in suffering the effects of the partial government shutdown, according to research from ValuePenguin (ValuePenguin is an affiliate of LendingTree, MagnifyMoney’s parent company). Since 2010, the SBA has issued more than $177 billion in 7(a) loans, the most common SBA loan for small business owners, with the most money going to entrepreneurs in California, Texas, New York, Florida and Ohio, per ValuePenguin. SBA loans typically range in size from $500 to $5 million. The SBA does not loan directly to business owners, instead guaranteeing loans issued by partner lenders such as banks, community development organizations and microlending institutions. Backing from the SBA reduces risk for lenders and helps business owners qualify for financing with favorable interest rates and repayment terms.

As those banks waited for SBA approvals, the money slowed, which has business owners like Bradley wondering if another government shutdown could impact business owners who rely on any type of bank financing, not just SBA loans solely. If SBA loans are off the table, she said competition could increase for other small business loans or lines of credit. A lack of access to capital has long been a complaint of small business owners.

“Everyone who wanted to go the SBA route is going to have to clamor for other sources of income,” or else wait, potentially stifling growth, she said. “This affects everyone.”

Alternative lenders are an option

Bernardo Martinez is U.S. managing director of Funding Circle, one of many online lenders serving as an alternative to brick-and-mortar banks that have long dominated small business lending. Although he is not expecting banks to retract from business lending, a pause would create an opportunity for alternative lenders like Funding Circle to serve more business owners.

When traditional financing is out of reach for any reason, alternative business lenders can provide funding solutions for small business owners. Funding Circle had strong loan originations in January, Martinez said, but the company isn’t crediting the shutdown.

“In January, we saw a good volume month,” he said. “But I do not believe we can pinpoint specifically to the shutdown.”

Like Funding Circle, many online business lenders could provide faster time to funding than traditional banks with less stringent eligibility requirements. These lenders consider factors such as customer reviews and current cash flow when approving borrowers, but rates are typically higher than other types of business loans.

Although Martinez said Funding Circle isn’t planning to target business owners affected by a government shutdown, online small business lender QuickBridge has a video on its homepage discussing the benefits of alternative lenders during unforeseen circumstances, including the government shutdown.

At Funding Circle, “that will create an opportunity, but right now we’re not thinking about it or seeing it in the market,” Martinez said.

How to prepare for the next shutdown – or any business interruption

As the possibility of another shutdown looms, Bradley is weighing her financing options for the brewery. Before deciding to pursue an SBA loan, Bradley and her husband considered bringing on investors or using online crowdfunding platforms to raise money. If their SBA loan is delayed a second time, they might return to their original strategy.

“If it stays shut down for a week, I see it staying shut down for another month,” she said. “If the government shuts down for another 30 days we can’t wait.”

Bradley is putting together materials to present to investors and considering asking her bank for a small business loan to tide them over until more financing comes through, she said. It’s important for small business owners to have a back-up plan if things go wrong, she said, even if it’s not ideal.

How to handle the unexpected

Keep communication open.
Like any relationship, you need open communication with the people you do business with, Bradley said. If you’re facing financial trouble or other issues within your business, you should inform your vendors, advisors and anyone else who interacts with your company.

Vendor relationships became imperative during the shutdown for business owners who needed to catch a break, said Sullivan at the U.S. Chamber of Commerce.

Bradley was able to work out a deal with her landlord and contractors after explaining the delay in SBA funding. Being upfront helps you maintain credibility and trustworthiness as a business owner, she said.

Track your spending.
Keep track of every penny you spend, Bradley said, especially when you’re in distress. You should keep your personal and business finances separate so you can clearly see how much you’re putting into the business. When it’s time to apply for financing, you’ll likely need to explain your business spending to be approved for a loan, she said.

Understand your financial needs.
If you need to apply for business financing to get you through a rough period, you should know the specific expenses that you need to cover, Martinez said. That way, you would be able to borrow the exact amount you need, rather than estimating too high or too low. You would have a better chance of finding the right lender if you know exactly what you need, he said.

Read the fine print.
Keep your financial documents in order so you could apply for financing at a moment’s notice. Be sure to understand each lender’s terms and conditions before applying, Martinez said, especially if you’re looking for financing from an alternative lending institution. Each lender has its own pricing structure, and you may want to talk to the lender directly to understand what’s required of borrowers, Martinez said.

Stash money in an emergency fund.
You should generally have three to six months’ worth of expenses saved in case of emergency — that would give you a financial cushion to fall back on during any kind of business interruption, such as a government shutdown. It could also be a good idea have a line of credit or credit card available as well if you don’t have enough in your emergency account.

“Whether it’s a wildfire, a flood or a government shutdown, there’s an opportunity there for small business owners to rethink their cash flow and think very seriously about creating reserve funds,” Sullivan said.

If the federal government shuts down again, even if the closure lasts a few days, the repercussions for small business owners could be monumental. You should prepare as best you can to minimize the impact on your operation.

“Those 35 days it was shut down put us at least three months behind,” Bradley said. “It’s crazy.”

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Melissa Wylie
Melissa Wylie |

Melissa Wylie is a writer at MagnifyMoney. You can email Melissa at [email protected]

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How to Prepare Yourself for the Next Recession

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.

Anyone who lived through a recession knows that it can cause financial pain, no matter your level of wealth or employment status. This means that preparing for a recession is always the right move for your financial well-being.

It’s been more than 10 years since the Great Recession ended, which marked the close of the longest economic contraction since the Great Depression of the 1930s. Over the past decade, we have seen the longest economic expansion in U.S. history.

Many people wonder how much longer the current economic expansion will last and when the next recession might arrive. It’s impossible to know, so you should start to prepare for the next recession today.

How to prepare for a recession

The best way to prepare for a recession is to monitor and improve your financial health while the economic outlook remains positive. The list of things you should do to improve your finances isn’t long, and making solid financial plans isn’t a complicated formula.

“It’s the same advice you should generally always be following,” said Tendayi Kapfidze, chief economist at LendingTree, MagnifyMoney’s parent company. “The world is a risky place, and income is not always guaranteed. You should always be doing things to shore up your finances.”

8 things you can do to prepare for a recession

1. Build up your emergency fund

“The main challenge a recession creates is it could create some interruption to your income,” Kapfidze said. To protect yourself from a decline in income or a job loss, you should have enough money to pay at least three months of expenses stashed in your emergency fund — six if you have children.

Wherever you keep your emergency fund — in a savings account with a bricks-and-mortar bank, an online savings account or even a money market account — the most important thing is to keep the fund liquid. You don’t want to be forced to pull money out of the stock market during a recession.

According to Dennis Nolte, a certified financial planner who works for commission and fees in Winter Park, Fla., if you’re young and financially secure, you might consider investing part of your emergency fund in a Roth IRA. You can withdraw contributions from a Roth IRA at any time without paying tax penalties. You have to leave earned interest in the account, however, because withdrawing interest would trigger penalties.

2. Pay down debt

As a recession looms, one key strategy to protect yourself is to pay down debt. This helps to increase the amount of extra liquidity you have on hand when a recession hits.

“This is the best risk management tool,” Nolte said. He suggested that you prioritize paying off high-interest credit card debt.

In addition to directing available funds to pay off debt, consider refinancing or consolidating your debt at lower interest rates. This can reduce how much you pay in interest, decrease your monthly bills and increase the funds available for saving or paying down even more debt.

3. Review your investing strategy

It’s important not to let a looming recession dictate your investing decisions. In other words, don’t try to time the stock market. Instead, prepare for a recession by maintaining good habits at all times: Build a deliberate investing strategy, and stick with it.

“The best thing people can do now is verify that their portfolio is appropriate for them,” said Angela Dorsey, a fee-only certified financial planner based in Torrance, Calif. “If it’s too risky, you should make changes now.”

Determine that you have the right investment mix

Over the past few years, many people invested aggressively in equities as the stock market climbed higher and higher. Now, it’s time to ask yourself how you would feel if the market fell 20% in one year.

Be honest: If you believe that you can tolerate a loss of this magnitude, stick to your plan when the market falls, and stay on course. You should hold on to your investments particularly if you’re young, because time is on your side, and you’ll have lots of time to recover losses in a stock-heavy portfolio.

Dorsey recommends that you rebalance your portfolio if it strays too far from your strategic allocation, or mix of stocks, bonds and other securities.

Kapfidze agrees. “You want to have a balanced portfolio that meets your long-term goals,” he advised. That should be the goal regardless of where we are in the economic cycle.

For example, your plan might be to have 70% of your investments in stocks and 30% in bonds. The market has gone up, so a larger percentage of your portfolio now might be in stocks, say 75%. So, you should rebalance your portfolio — sell stocks and buy bonds — to reach your goal of 70% stocks and 30% bonds.

Change your strategy for peace of mind

Your portfolio should be appropriate for your risk tolerance. If you’re nervous about an economic downturn and believe that big losses in your retirement savings would keep you up at night, the time to reallocate is now.

Consider the strategy above: 70% in stocks and 30% in bonds. If you believe that you couldn’t endure a huge drop in the equity markets, now might be the time to change your allocation to, say, 50% stocks and 50% bonds. Just don’t wait for the market to tank to change it up, though.

“When you’re not emotional about it, when it’s not free falling like it did in 2008 or in 2001, 2002, you can make some adjustments,” said Scott Bishop, a fee-only certified financial planner in Houston. That’s because now “you can see if there [are] some flaws in your portfolio that might be subject to market risk by lack of diversification.”

4. Diversify your income with a side gig

When we think of diversification, we tend to focus on our investment allocation, but the idea can and should be applied to sources of income as well. Because a loss of income is one of the biggest threats during a recession, having multiple income streams can help to lessen the effect from a reduction in income or a job loss.

Millions of Americans have a side gig. If you don’t, now could be an excellent time to consider one. Do some research and identify a side gig you can pick up now to protect yourself against potential income reductions later.

5. Reduce your living expenses

Don’t wait for a recession. Now is the time to trim the fat in your spending. Review your recurring fixed monthly payments as well as your discretionary spending. See what you can eliminate, and reduce or downgrade services that aren’t vital to your household. Consider becoming conservative with your discretionary spending in favor of stocking up cash and paying down debt.

6. Assess your current job and employer

When you prepare for a recession, don’t monitor only national economic conditions: Take a closer look at circumstances close to home.

“Understand how well your employer is doing financially, because that may help you better assess your risk,” Kapfidze said. Trends in your company and your industry affect you more directly than what happens on a national level.

Employees of public businesses can stay abreast of company and industry happenings by listening to their company’s earnings calls.

In addition to knowing the state of your company, employees should find ways to insulate themselves against a potential job loss. Kapfidze suggested taking steps to increase your value to your company in your current role, such as increasing your knowledge and skills and taking on additional responsibilities.

7. Set aside cash for short-term goals

If you have money invested in the market for short-term goals, such as repairing your roof or buying a car, it’s time to shift gears. That money should be kept in an interest-bearing account, so it won’t be influenced by the stock market.

“[This] should be the case anyway,” Dorsey said. “But over the last few years, people have gotten a little too ambitious and say, ‘Oh gosh, I want to buy a house in five years, so let’s be super aggressive and put it all in stock, so it can grow.’ They can grow, but they can also go down.”

8. Don’t let fear drive your decisions

Recessions can be difficult, frightening times. A common pattern that financial planners see is that people act based on emotions and fears.

“When they are emotional, people tend to buy on greed when the market’s going high and sell on fear when the market’s going down,” Bishop said. “If you’re buying high and selling low, you’re doing exactly the opposite of what you need to do to make money in the market.”

A recession is a normal part of economic life. With your retirement savings, you have to keep a long-term perspective, because another economic expansion will arrive after a recession ends.

The bottom line: Don’t panic or allow your emotions to get in the way when the next recession hits. Instead, prepare for it now, and you’ll breathe easy later.

Recession FAQs

A recession is when the economy contracts, or gets smaller, for an extended period. Recessions are part of the economic cycle, and they’re followed by a period of economic expansion.

One marker of a recession is six consecutive months of negative gross domestic product (GDP). GDP measures the market value of all goods and services produced by the U.S. economy. However, six months of negative GDP isn’t the only determining factor for a recession.

The National Bureau of Economic Research (NBER), which designates recessions, also looks at real income, employment, industrial production and wholesale-retail sales.

Since 1945, recessions lasted 11 months on average. However, they can extend significantly longer. The Great Recession, for instance, lasted 18 months. History shows that the United States experiences a recession roughly every six years.

Although recent recessions last 11 months on average, consumers and businesses feel a recession’s effects for years or even decades afterward. Long-term unemployment or reduced wages can affect individuals and families in multiple ways.

For example, if a family no longer can afford to send their kids to college because of a job loss or depleted savings, the missed educational opportunity for that child can affect their earning potential and their future family.

In the last recession, many people lost their home to foreclosure, a blow to their personal finances that can take years to recover from. Long-term unemployment not only has a financial effect, but also an emotional one as well.

Plus, reduced earnings mean reduced buying and fewer dollars rotating in our economy, which results in further lost opportunities for consumers and businesses alike.

Trying to time a recession isn’t something the average person should try to do, Kapfidze said. “Professionals try to do that, and they lose money every day.”

Nevertheless, a recession can provide an excellent opportunity to buy assets at “discounted” prices. Kapfidze suggested waiting until the economy shows signs of recovery before you take the plunge, because trying to predict the bottom of the market also is risky.

“Don’t try to catch a falling knife, because you might grab it by the blade instead of the handle,” he warned.

“There are various things you can look at to assess the risk of recession,” Kapfidze said. One is the yield curve, which measures the difference between long-term and short-term interest rates. A lot of discussion about the risk of a recession in 2019 centered on the yield curve, but that chatter has died down.

“[That] doesn’t mean the recession risk is materially lower,” Kapfidze explained. “It’s probably a bit lower, but it could still happen within six to 18 months. That’s a pretty wide window.” Of course, there’s no guarantee that a recession will happen in that time frame. “Recently, the economy has looked a little bit better than it did a few months ago.”

Things can change rapidly. Earlier this year, the sentiment was negative, Kapfidze pointed out. “It can turn positive pretty quickly, and it can turn a little more negative pretty quickly.”

Again, Kapfidze stressed that instead of focusing on the timing of the next recession, consumers should take prudent steps to firm up their finances. “That increases the odds of success and certainly is way less stressful than trying to figure out where I am in the business cycle and what are the odds of a recession.”

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Alaya Linton
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Alaya Linton is a writer at MagnifyMoney. You can email Alaya here

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Survey: Consumers Hate ATM Fees Above All Others

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.

Paying an ATM fee can feel like a punch to the stomach. There’s nothing worse than having to spend money in order to access your money. With ATM fees typically running between $2.50 to $3, they can add up fast if you’re not paying attention to where you withdraw money.

A new survey of over 1,000 Americans by MagnifyMoney, a LendingTree company, found that Americans hate ATM fees even more than such widely despised charges as airline fees and shipping surcharges.

Despite ATM fees being America’s most hated fee, they are completely avoidable—it just takes a little legwork. We’ll even show you how easy it can be to skip out on your least favorite fee.

Key findings

  • Nearly 27% of respondents said they hate ATM fees more than any other fee—earning them the title as the most hated fee in the land.
  • The second most hated fee is the dreaded bank overdraft fee (22%), followed by credit card annual fees (7%).
  • Unsurprisingly, ATM fees are also the most commonly paid fees, with 37% of respondents having paid one or more in the last year.
  • Millennials and Midwesterners are most likely to fork over money to pay an ATM fee.
  • The second most commonly paid fee was a bank overdraft fee (18%), followed by shipping fees (15%).
  • Most people(76%) are willing to drive further out of their way to skip ATM fees. Nearly one in 10 would drive more than 10 miles out of their way to find an in-network ATM. However, most would only go one to five miles (48%) or six to 10 miles (19%) out of the way.

The top three most hated fees: ATM, overdraft and credit card fees

Out of all the annoying fees Americans get slapped with—from shipping fees to baggage fees to convenience fees for event tickets—people have the most aversion to ATMs fees.

One reason could be the staggering number of Americans who were forced to pay a surcharge to access their own cash. Our survey found that 37% of Americans have paid an ATM fee — either charged by the bank for out-of-network ATM use or by the ATM owner — in the past year, and 35% have paid one in the past month. Millennials and Midwesterners were the groups that incurred ATM fees the most often.

We found that the second most hated fee was bank overdraft charges, with 22% of Americans saying they hate those fees the most, followed by 7% who despise credit card annual fees the most. Interestingly, a whopping 18% of Americans were charged with an overdraft fee in the past year, while 13% paid a credit card annual fee.

While airline fees tend to get a bad rep, the number of Americans who hate those surcharges the most pales in comparison to those who hate financial fees: Only 7% of Americans hate airline baggage fees the most, 3% airline seat selection fees, and just 1% airline flight change fees.

What people do to avoid fees

Our survey reveals that most people would make a serious effort to avoid paying an ATM fees: Nearly half say they would drive between one to five miles to avoid an ATM fee, while one in 10 would really go the distance and over 10 miles to free themselves of an ATM fee. Not everyone is willing to put in the extra effort, though: A surprising 24% of Americans would not drive any distance to avoid an ATM fee.

Many Americans enroll in overdraft protection to avoid extra bank fees. In many cases, overdraft protection programs are effective shields against overdraft fees. It’s not surprising that since overdraft fees are the second most hated types of fees, nearly half of Americans are enrolled in some sort of protection plan. Other courses of action Americans took to avoid paying a fee included not signing up for a credit card with an annual fee (24%), making a purchase in-store instead of online (19%) and bringing only carry-on luggage (15%).

How to avoid paying ATM fees

While ATM fees are widely disliked, they are also completely avoidable. It might take a little bit of effort and inconvenience, but if you really don’t want to pay to access your own cash, there are simple steps you can take. For example:

  • Utilize your bank’s mobile app. Many of them have tools to help you find nearby in-network ATMs.
  • Next time you are paying with your debit card at a store, ask for cash back instead of using an ATM.
  • Consider a credit union that’s part of the CO-OP network. You’ll get fee-free access to nearly 30,000 ATMs.
  • Explore banks that reimburse you for ATM fees.

The best banks for people that hate ATM fees

A number of banks, particularly online banks, offer incentives that reduce or eliminate out-of-network ATM fees. If ATM fees are the bane of your existence (or if you just want to avoid paying cash to access your own cash), these banks could be a good fit for you.

Bank / account ATM fee policy
E* TRADE Max-Rate Checking AccountUnlimited ATM fee refunds. Must maintain an average monthly balance of $5,000 to waive $15 monthly fee.
Axos Bank Essential Checking accountUnlimited domestic ATM fee reimbursements.
TIAA Bank Yield Pledge Checking accountMonthly reimbursement up to $15 for U.S. ATM fees. Unlimited reimbursement for accounts with an average daily balance of $5,000.
State Farm Bank Checking and Interest Checking accountsUnlimited ATM fee reimbursement if direct deposit has been made to account during statement cycle. Or, if no deposit has been made, up to $10 ATM fee reimbursement per statement cycle.
Radius Bank Rewards Checking, Champion Checking, Superhero Checking and Hybrid Checking accountsUnlimited ATM fee reimbursements.
Schwab Bank High Yield Investor Checking AccountUnlimited ATM fee rebates.
Ally BankUp to $10 ATM fee reimbursement per statement cycle.
First Republic Bank ATM Rebate Checking accountUnlimited ATM fee rebates. Must maintain a minimum average balance of $3,500 to waive $25 monthly service fee.

Fee information is accurate as of November 5, 2019.

Methodology

For this survey, MagnifyMoney commissioned Qualtrics to conduct an online survey of 1,028 Americans. The survey was fielded September 11-13, 2019, with the sample base proportioned to represent the general population.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Sarah Berger
Sarah Berger |

Sarah Berger is a writer at MagnifyMoney. You can email Sarah here