The Government Shutdown's Impact on SBA Lending

Here we are again, another year, another Congress, and another government shutdown. I really wish Congress could get their act together and pass a real budget like the rest of us need to in the real world. I am already getting a lot of questions about the impact of the government shutdown on SBA lending, so I want to clarify the effect to anyone that might be impacted. To help understand the impact of the shut down, I want to provide some details up front about how SBA lending works. The majority of SBA 7A lenders are what are referred to as Preferred Lender Providers ("PLP"), which means in just about all cases (with just a few exceptions), when a PLP Bank approves an SBA 7A loan, the loan is automatically approved with the SBA. However, even PLP lenders need to pull a final authorization from the SBA E-Tran system prior to closing. That authorization verifies ownership, eligibility, and provides the final verification of the SBA guarantee. Most lenders pull that verification about a week before closing and usually the authorization takes 24 to 48 hours to get back from the SBA. Lenders will not close on an SBA 7A loan without that authorization as they will not have a valid government guarantee on the loan without that authorization. Now, if you are doing an SBA 504 loan, the Certified Development Corporation ("CDC") that manages the SBA 504 program on behalf of the SBA must submit all of the final ownership paperwork, bank approval, and third party reports to the SBA for final approval of the SBA 504 loan prior to loan closing. It usually takes one to two weeks to get the final approval from the SBA for an SBA 504 loan, and lenders will not close until they receive that approval from the SBA because without that approval there is no guarantee the SBA will take out the SBA portion of the 504 loan at a later date. Due to the government shutdown, the SBA lending programs are not currently operating. The government needs to be funded for the SBA loan programs to have the budget to support the guarantees provided by the SBA on their loan programs. This does not however mean you can slide on making your payments on your existing loans. If you have existing SBA loan you must still make your payments or risk default fees, interest and collection action. If you already had an SBA loan approved and the Bank that approved it pulled your SBA authorization prior to midnight on September 30th, you are in great shape. The Bank can still close your loan despite the government shutdown because your loan has already been authorized. This also applies to CDC's that have received the SBA approval for your SBA 504 loan. This does assume there are no material changes to your loan prior to closing, because any major changes (like an increase in the loan amount requiring an increase in the SBA guarantee exposure) would need to be resubmitted through the E-Tran system and an amended authorization pulled. If you need an amended authorization to close, you will not be able to get that until the government is funded again. If your loan is approved by the Bank and your authorization has not been pulled yet or the SBA has not approved your 504 loan directly, unfortunately you are in a waiting pattern until the government reopens. I would encourage you to continue to work on your closing paperwork so as soon as the government opens back up the Bank can request the authorization or SBA 504 approval and then close your loan. If your loan is not yet approved and you are in underwriting or maybe just at the application process, I would encourage you to continue with that process. Banks can continue to process SBA loans on their side and approve those loans, as well as order third party reports and work towards closing. They just cannot get the final authorization to close until the government is funded. As soon as the government is funded you want to be in a position where the Bank can pull the authorization on your loan so you can close quickly. Most lenders do not pull authorizations until the week prior to closing, so if you are not approved yet or are early in the process, waiting on the SBA authorization likely will not slow down your ability to close unless the government shutdown goes on for an extended period of time. For what it is worth, the longest government shut down ever was in###-###-#### and lasted 35 days. Prior to that, there has never been a government shut down that has gone beyond 21 days. With a standard SBA process taking at best 45 days and often 60 days or more, any deals early in the process should not be materially impacted by this shutdown. So I would continue to move forward as if the shut down did not exist, and I would not worry about it. The government should open up so you can get your SBA 7A authorization or 504 approval so you can close However, if you are further along in the process and the government shutdown persists, you may need to let your sellers know what is going on if you are using SBA financing as it could delay your closing. Just keep in mind, unless changed, the current Continuing Resolution ("CR") to keep the government funded only goes through November 21st, 2025. So we could be back to a government shutdown again just in time for Thanksgiving. When the government does open back up, if you have a Bank loan approved awaiting an SBA authorization or an SBA 504 loan approval from the SBA, be sure to get your lender what you need to get your authorization pulled prior to November 21st (assuming that date does not get pushed) to be sure you can close your loan. I hope this helps to provide some clarification. If you have any questions or need anything further, please do not hesitate to contact me at any time here or at redacted