The Federal Government Shutdown and Its Effect on
Small Business Operations
We are now over a week into the federal government shutdown and many small businesses, including nonprofits, are starting to feel real pain regarding their corporate governance operations. The effects are starting to trickle down from the federal government level and many businesses are suffering from Congress’ decision not to fund the federal government in areas such as employment and federal contracting law and lending and finance operations, as well as other areas.
- E-Verify Checks and I-9 paperwork
E-Verify is currently unavailable due to the shutdown. Federal law requires that
every employer and agricultural recruiter/referrer-for-a-fee hiring, or recruiting/referring for a fee, an individual for employment in the United States complete a Form I-9,
Employment Eligibility Verification Form. Form I-9 helps to verify an employer's identity and employment authorization. To minimize the burden on both employers and employees while E-Verify is unavailable due to the federal shutdown, the following policies have been implemented:
- The ‘three-day rule’ for E-Verify cases is suspended for cases affected by the
shutdown. E-Verify support services will provide additional guidance once E-Verify is operational again. This does NOT affect the Form I-9 requirement?employers must still complete the Form I-9 no later than the third business day after an employee starts work for pay.
- The time period during which employees may resolve TNCs will be extended. Days the federal government is closed will not count towards the eight federal
government workdays the employee has to go to SSA or contact DHS. E-Verify customer support services will provide additional time once it reopens.
- For federal contractors complying with the federal contractor rule, please contact
your contracting officer to inquire about extending deadlines.
- Employers may not take any adverse action against an
employee because of an E-Verify interim case status, including while the employee's case is in an extended interim case status due to a federal government shutdown (consult the E-Verify User Manual for more information on interim case statuses).
Takeaway: For the duration of the shutdown, employers should continue to complete I-9 paperwork, consult with their federal contracting officer concerning compliance with the federal contractor rule and
refrain from taking adverse action against any employee who has an interim E-Verify interim case pending.
- Small Business Loans are Delayed
Small businesses primarily obtain loans from the Small Business Administration (SBA),
which typically approves about 250 loans per day totaling roughly $93 million. Loans that were already approved and in process will be unaffected, as will disaster loans, another type of SBA loan. However, other loans will be delayed until SBA employees return from being furloughed. Even if the federal government gets back to work
quickly, the SBA may still face a backlog regarding loans not made by a preferred lender that can unilaterally underwrite loans. Olney-based Sandy Spring (NASDAQ: SASR) has about $15 million in loan applications awaiting SBA approval. That includes applications from the bank's entire territory, which stretches from the Baltimore area to Northern Virginia. (Source: http://www.bizjournals.com/baltimore/news/2013/10/10/sba-loans-come-to-halt-with-federal.html) Various financing options are available in the meantime; however, business owners should proceed cautiously:
- Conventional loans may be available to those who qualify. Work with your bank to identify these alternative sources of funding and your company's/organization's ability to meet the lending criteria.
- Interim bank loans may also be available depending upon your bank's lending criteria. Banks may be able to refinance certain loans made during the shutdown into loans with SBA guarantees after the government reopens. This process can be more complex and expensive as two closing will be required and guarantee by the SBA is uncertain.
Takeaway: As a planning tool it might be good governance practice when seeking lending from financial institutions to always identify whether your organizations/business qualifies for conventional funding and whether alternative sources of funding are available.