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Published: Wednesday, 10/9/2013

Firms begin to feel shutdown’s effects

Small businesses squeezed as federal loans are delayed

NEW YORK TIMES
Chris Leh, a business owner in Pennsylvania, says his firm is frozen while it waits for a $1.5 million loan backed by the Small Business Administration which is delayed by the government shutdown. Chris Leh, a business owner in Pennsylvania, says his firm is frozen while it waits for a $1.5 million loan backed by the Small Business Administration which is delayed by the government shutdown.
NEW YORK TIMES Enlarge

EPHRATA, Pa. — Chris Leh, the owner of a fledgling manufacturing company in Ephrata, recently landed the kind of deal that growing companies dream about, with a major client whose order volume will triple his annual sales to around $1.5 million.

Because the new business requires a significant expansion of his production capabilities, Mr. Leh, 46, began hunting for additional employees and lining up financing to buy new equipment for his precision machine components company, TL Technologies. Last week, he was poised to close on a $1.5 million loan backed by the Small Business Administration.

Then the government shut down. Mr. Leh’s lender, Susquehanna Bank in Lititz, Pa., says it is prepared to cut a check — but cannot do it until the SBA and other government agencies reopen and process some final paperwork.

“We just missed the window, and now we’ve come to a complete standstill,” Mr. Leh said. “I have to go back to my customer and tell him I’m dead in the water and can’t fulfill his needs, and I can’t give him an answer when I can. It’s put me in the most horrible position as a business owner that you can be in.”

The Small Business Administration says it backs an average of $96 million in small-business lending each day. Having that financing stream frozen sets off a chain reaction of economic pain, said Anthony R. Wilkinson, who heads the National Association of Government Guaranteed Lenders, a trade group. “There are restaurants that aren’t being opened and contracts that aren’t being fulfilled,” he said. “As this drags on into Week 2, people are getting pretty worried.”

The toll may not be conspicuous yet in the broader economy, but at the local level the ripples are spreading. At many banks, direct small business lending is stalled too, because much of the Internal Revenue Service is closed, preventing lenders from checking tax information provided by applicants. Business owners are also grappling with the absence of other crucial government services, such as E-Verify, the online system companies use to confirm the eligibility of prospective employees to work in the United States.

The uncertainty all of this is the most maddening part, said Chris Mittelstaedt, 44, owner of The FruitGuys, a produce-delivery company in South San Francisco, Calif. Mr. Mittelstaedt spent part of last week fielding phone calls from customers of his company’s school distribution program, which is financed by federal grants.

Temporary funds came through at the end of the week, but he is frustrated by the confusion that he and his customers face. “If businesses are uncertain, they don’t spend,” he said. “That’s really bothersome for us and any growing company.”

Mr. Leh, the manufacturer in Pennsylvania, is quick to trace out the ripple effects of his delayed financing. His prospective new client, of course, is kept waiting. So far, Mr. Leh said, the client is being patient and waiting along with him for the shutdown to be resolved. In addition, Mr. Leh has extended offers to two prospective employees, but he will not be able to bring them on until the loan closes.

Also waiting, he said, are “the guys that I’m buying the machines from, the guys who move the machines, the electricians that come in and wire things up, the insurance company I’m dealing with — all of those people aren’t getting paid right now.”

Last week, he intended to turn over a check for $57,000 to JBM Technologies, a machine-tool distributor based in nearby Ivyland that works with manufacturing companies throughout the mid-Atlantic region.

John Watkins, who owns JBM Technologies, had to redeploy his employees to another project when the deal with Mr. Leh was put on hold.

What irritates Mr. Watkins most about the standoff in Washington is that he sees it as a self-inflicted wound on an economy that was finally beginning to rebound. One of his clients is in negotiations with a Swedish financier about backing the transfer of a major manufacturing line from China to the United States. “We’re on the brink of getting people to invest, and then this,” Mr. Watkins said. “What does this look like? Who wants to invest in a country that goes through this?”

The impact of the shutdown on some small businesses is obvious and direct. For example, Dee Ann Smith, 56, the owner of Discover Yosemite, a company that runs day tours through Yosemite National Park, estimates that she is losing $3,500 in ticket sales every day the park remains closed.



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