Impacts of the Federal Government Shutdown on Commercial Real Estate and Small Business Lending

By: StephenHeavener, Capital Regional Development Council

The federal government shutdown effective October 1, 2013, will have a major negative impact on commercial real estate and small business lending in New Hampshire. Many commercial real estate and small business loans are financed with U.S. Small Business Administration 7A loan  guarantees or SBA 504 certified development company loans. The SBA has terminated processing both types of loans under the current shutdown.

To put SBA lending in New Hampshire in perspective, as of August 31, 2013 (the initial eleven months of the Federal fiscal year) a total of 441 SBA loans were approved for a total of $89.5 million, of which 83 loans totaling $32.5 million were SBA 504 loans. The SBA 504 program is specifically targeted to end-user commercial real estate purchases and provides up to 40 percent of the purchase price at a 20-year fixed interest rate. Many 7A loan guarantees are also used to finance commercial real estate.

The Capital Regional Development Council, CRDC, is one of the five SBA certified development companies in New Hampshire, none of which can secure approval of an SBA 504 loan during the shutdown. They accounted for the 83 SBA 504 loans approved to August 31, 2013.

Fortunately, the Capital Regional Development Council, also manages various small business direct loan programs that can be deployed throughout New Hampshire to assist growing small businesses without Federal government approval. We work closely with most commercial lenders in NH to provide up to $200,000 to enhance the bank’s loan when a financing gap has been identified. Although this program is important to the evolving small business community, CRDC only approved eleven direct loans totaling $1.5 million since October 1, 2012. These loan funds remain available for commercial real estate and small business lending, but the program falls far short of the much needed loan funds provided under SBA programs.

CRDC has experienced an increase in loan demand since the summer as businesses begin to emerge from the uncertainty of past years and re-engage in capital investing. We fear that the Federal government shutdown will substantially dampen this emerging momentum. For those concerned about servicing of existing SBA loans, CRDC states that there will not be any change to existing loans because local CDC’s service the loans. However any routine loan modifications will be effected.