Government Shutdown Watch: What a Partial Shutdown Could Mean for SBA Loans and Business Lending

As Washington once again flirts with a potential government shutdown, small business owners, brokers, and lenders are asking a familiar question: Will SBA loans be affected?

According to a recent NPR report, Senate Democrats are preparing to vote against a Department of Homeland Security (DHS) funding bill, setting the stage for a possible partial federal government shutdown if lawmakers fail to reach a broader agreement. While DHS is the focal point of the standoff, the downstream impact could reach far beyond border security and into small business finance.

Understanding This Shutdown Scenario

The keyword in this situation is partial.

A partial shutdown occurs when Congress fails to fund certain federal agencies, while others continue operating under existing appropriations or mandatory funding. DHS would be directly affected in this case, but agencies like the Small Business Administration (SBA) fall into a different category.

That distinction matters.

Would the SBA Shut Down?

Historically, the SBA does not fully shut down during a partial government shutdown—but its operations can slow significantly.

Here’s what typically happens:

SBA Loan Guarantees

• SBA 7(a) and 504 loan guarantees may continue, but only if the SBA has remaining authority and staff deemed “essential.”

• During past shutdowns, loan approvals have slowed or temporarily paused, especially once funding caps are reached.

SBA Processing & Staffing

• Many SBA employees are furloughed during shutdowns.

• Fewer staff means:

  • Slower loan approvals

  • Delays in authorization numbers

  • Backlogs once government reopens

SBA Disaster Loans

• Disaster loan programs are often hit hardest, as they rely on discretionary funding.

• If funding lapses, new disaster loan approvals may stop entirely.

What Brokers and Borrowers Should Expect

Even if SBA lending doesn’t fully stop, timing becomes unpredictable.

For brokers and lenders:

• SBA deals in progress may stall unexpectedly

• Closing timelines can stretch by weeks

• Secondary market activity may slow

For small business owners:

• Funding delays could disrupt expansion plans

• Refinances may get stuck mid-process

• Time-sensitive acquisitions become riskier

This is where alternative lending options often step in.

Spillover Effects on Non-SBA Business Lending

Government shutdowns tend to have a psychological impact on markets as well as a practical one.

When SBA loans slow:

• Banks may tighten underwriting temporarily

• Borrowers look to non-bank lenders, revenue-based financing, and short-term products

• Demand for bridge capital and interim financing increases

Ironically, shutdowns often lead to increased activity in parts of the alternative lending ecosystem, even as traditional programs hesitate.

The Bigger Picture: SBA Dependence on Political Stability

This latest standoff highlights a recurring vulnerability in the SBA loan program: its reliance on congressional funding cycles.

While SBA loans remain one of the most powerful tools for small business financing in the U.S., every shutdown reminder reinforces why:

• Brokers diversify product offerings

• Lenders build hybrid SBA + non-SBA strategies

• Borrowers seek faster, tech-driven alternatives

In an environment where government funding battles are increasingly common, flexibility becomes a competitive advantage.

Bottom Line

A potential partial government shutdown tied to DHS funding would not automatically shut down SBA lending, but it could slow approvals, create uncertainty, and delay funding, especially if the standoff drags on.

For anyone relying on SBA loans, the takeaway is simple: don’t wait until Washington decides. Having backup financing options and contingency plans is no longer optional; it’s part of doing business in today’s lending environment.