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How the Next Government Shutdown May Affect Your Small Business

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews, statements or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

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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.”

This article contains links to ValuePenguin, which, similar to MagnifyMoney is a subsidiary of LendingTree, our parent company.

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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Here’s Why Single Women Are Buying More Homes Than Single Men

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews, statements or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

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Right after she turned 30, public relations pro Wendy Hsiao put in an offer on a cute brick townhouse in Atlanta. “For a lot of my friends, being an adult started either when you got married or had a baby,” she said. “I chose to buy a house.”

Why did she buy? She felt ready for a major life change, considered buying to be a smart financial decision and wanted a yard for her Pomeranian named Georgia. “I felt like it was time to make a place my home,” Hsiao said.

Her story is one example of a growing trend: the rise of single female homeownership. Single women are far more likely to become homeowners than single men, according to a study on singles owning homes by LendingTree, which owns MagnifyMoney. In fact, single women own 22% of homes on average, while single men own less than 13%.

This “gender gap” stems partly from the fact that single women prioritize homeownership when setting life goals. In fact, 73% of single women list owning a home as a top priority compared with 65% of single men, according to the 2018 Homebuyer Insights Report from Bank of America.

Single women are “skipping the spouse and buying the house,” according to the Bank of America report, which found that single women rank homeownership as a goal above getting married (41%) and having children (31%).

From homemaker to homeowner

While there’s still work to be done, women have taken huge steps toward professional and financial independence. Homeownership in particular contributes to economic stability, so it’s great that more single women are buying homes. There’s no doubt the increase in the number of women in the U.S. workforce, a figure that has more than doubled since 1975, has contributed to the trend. Here are some other driving forces behind the rise of single female homeownership:

Homeownership empowers women. Homeownership offers a place to live, stability and a way to build wealth, so it’s no surprise women view owning a home as empowering. In fact, 31% of single women (vs. 23% of single men) feel empowered when thinking about buying their first home. A licensed real estate agent in Chicago, Martina Smith bought a condo in her dream neighborhood of Streeterville after she broke off an engagement a few years ago. Her budget only allowed her to buy a “fixer-upper,” but she got a great deal and renovated her place. “It’s been very rewarding and empowering,” she said. And she thinks it reflects a bigger national trend. “We’re seeing more women taking charge,” Smith said.

Women are becoming more educated. Over the past few decades, women have become more educated than men. In 2017, 38% of women and 33% of men ages 25 to 64 had a bachelor’s degree. In that age group, 14% of women and 12% of men had an advanced degree. And women are putting off marriage to pursue that education, according to the 2018 Women in the Housing & Real Estate Ecosystem report. Educational attainment has a positive impact on homeownership rates.

Women are done waiting to marry. There’s been a cultural shift where women no longer feel they need to wait until they pair up to embark on certain aspects of “adulting,” said Kelley Long, a CPA and certified financial planner with Financial Finesse. “I will never forget a friend’s dad chastising me for doing ‘nesting’ things like buying nice furniture before I was married because of his perception that you just don’t do things like that until you’re married,” Long said, adding that women are “rejecting that idea because it’s not true.” If you want to marry in the future, the right partner will likely be impressed that you were financially secure enough to buy a home on your own, she said.

Single moms want a home base to raise kids. “Oftentimes, when people buy homes it’s for lifestyles reasons,” said Tendayi Kapfidze, chief economist for LendingTree. Getting married is one big reason, but having children is the other, he said. About 21% of U.S. kids live with single moms, a number that has almost doubled since 1968. In contrast, just 4% of kids live with single dads. “Children prompt people to buy homes,” he said. “So that might be one of the factors at play.” And it’s not just kids. As many as eight in 10 caregivers for elderly parents are women. The median age of a single female buyer is mid-50s, points out Jessica Lautz, vice president of demographics and behavioral insights for the National Association of REALTORS. A single female homebuyer “may be coming from a past relationship and purchasing a new home for herself, her children and her parents,” Lautz said, adding that single females are “willing to make sacrifices” to purchase a home.

So what does the future hold for single women owning homes? If marriage rates among all U.S. adults continue to drop, it’s likely the number of single women purchasing homes will rise even more, Lautz said.

Turn your homeownership dreams into reality

Strict lending standards can make it more difficult to qualify for a mortgage on a single income. Considering women also only make 80% of what their male colleagues earn, getting to a financially secure enough position to afford homeownership may feel daunting. Here are three tips for single women looking to buy a home of their own:

  1. Prep your finances for homebuying. It’s important to check your credit and your debt-to-income ratio before you start the homebuying process. If you spot problems, work on increasing your credit score and paying down your debt before you try to get preapproved for a mortgage. Getting the best possible rate can save you money over the life of the loan, which is especially important when your household depends on a single income. The upside is that single women have complete control and don’t need to worry about anyone else’s shaky credit or loads of debt. “If you’re in a couple, somebody is going to be dragging the other person down,” Kapfidze said.
  2. Build your nest egg before you buy. Forty-eight percent of women say they haven’t purchased a home yet because they haven’t saved enough for a down payment. But that’s not the only savings barrier to breach before taking the leap into homeownership. “Make sure you have a robust emergency fund,” Kapfidze said. Because single homeowners are on their own, they should set aside at least three months of mortgage payments as part of their emergency fund, Kapfidze suggested. “If you’re single, you’re the only one with income coming in to pay the mortgage,” he said.
  3. Pick a home that comes in under budget. Single women have lower household incomes than single men, so they may need to consider buying a smaller home, taking on a house that needs some work or settling in a lower priced neighborhood. The good news is that single women may be doing exactly that. In fact, the average home purchased by a single woman cost $173,000 compared with over $190,000 for a single man. Single women “may need to make price concessions when purchasing to find a home for themselves and their families,” Lautz said. And buying less house than you can afford can help you make your mortgage payment more easily if you hit financial hard times in the future.

Finally, it’s normal to feel stressed when you think of buying a home. In fact, more women (40%) than men (30%) feel overwhelmed by the idea of homeownership. But even though the homebuying process was scary, Hsiao said she has zero regret about buying a home of her own: “If you love the house, it’s 100% worth it.”

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.

Allie Johnson
Allie Johnson |

Allie Johnson is a writer at MagnifyMoney. You can email Allie here

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