Opinion: the Government Shutdown ‘Caused Irreparable Harm to the Lending Climate For Small Business’

There were very few winners with the U.S. Federal Government shutdown, and plenty of losers.

Among them were entrepreneurs seeking funding for their small businesses.

“Everything just dried up,” said Peter J. Burns, III, the founder and CEO of Burns Funding (https://burnsfunding.com/). “It’s not like it was going gangbusters before that. But the shutdown caused irreparable harm to the lending climate for small business. And it could take a year or more for it to recover.”

Among other things, the shutdown affected small business lending by halting the processing and approval of new Small Business Administration (SBA) loans, creating substantial delays and uncertainty for entrepreneurs, according to Burns.

“Because of this, we saw a tremendous surge in interest in our alternative lending program around shelf corporations,” he said. “Shelf corporations are companies that were legally formed and then put ‘on the shelf’ to age without any business activity. They are then sold to an entity who wants an existing corporation with a history. This is done to gain credibility or access to credit, without having to go through the process of forming a new one from scratch.”

No stranger to shelf corporations, Burns Funding partnered about a year ago with Grace Gillespie of Gillespie Group LLC, the nation’s leading broker of shelf corporations. The partnership has allowed clients of Burns Funding to purchase a shelf corporation for approximately $15,000, and then borrow the necessary capital, leveraging its exemplary credit potential.

Burns Funding makes the deal for entrepreneurs even sweeter by utilizing the Burns Funding Method. With this process, a borrower secure funds through the shelf corporation, then remits 40 percent of those funds back to Burns Funding, which contractually agrees to service the loan for the entire amount.

Burns Funding accomplishes that through innovative partnerships with passive income generators, from eCommerce Store operators to exotic car dealerships. The funds generated by partnerships like the one he has with Elite Automation (generate more than enough revenue to cover the debt servicing.

The popularity of the program will only intensify, thanks to the myriad of ways the traditional lending climate has been impacted, such as:

Halt on New Loan Processing: The SBA is generally not considered an essential agency, so its core lending programs (the flagship 7(a) and 504 loan programs) stop operating during a shutdown. This means new loan applications cannot be accepted or processed.
Significant Delays and Financial Losses: The pause in lending means a substantial amount of capital is inaccessible. During a recent shutdown, the SBA estimated that roughly 320 small businesses were prevented from accessing approximately $170 million in federally backed financing each business day.
Stalled Applications: Even applications that were in the pipeline before the shutdown can be stalled because they require final SBA approval and a loan number to move to closing.
Disruption to Lenders: Private lenders (including Preferred Lenders who can normally make decisions with less SBA oversight) cannot finalize guarantees or access SBA systems like E-Tran, which disrupts their ability to deploy committed capital and manage their pipelines.
Backlogs Post-Shutdown: Once the government reopens, there is often a significant backlog of applications, causing further delays even after operations resume.
Unaffected Loans: Existing SBA loans are generally not affected, and borrowers are still responsible for making their scheduled payments to the private lenders who service the loans. The SBA's disaster loan program may also continue to operate with reduced staff if it has separate funding.

The consequences for small businesses have been significant, causing:

Delayed Growth: Businesses are forced to put expansion plans, new equipment purchases, or hiring on hold.
Cash Flow Issues: Entrepreneurs may face cash flow pressures if they were relying on the loan proceeds for operational needs or payroll.
Missed Opportunities: Delays can mean missing critical deadlines, such as real estate closings or seasonal opportunities, some of which may be lost permanently.
Increased Uncertainty: The overall economic uncertainty caused by a shutdown can lead businesses to postpone investments and slow down economic activity in local communities.

Meanwhile, Burns Funding and its partners are poised to help entrepreneurs emerge from the fog of a depressed lending environment.

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