10127346206_a53f11e692

The reaction of one small business owner

I have to think that Congress would go back in time to the beginning of 2013 if they could. Then they were dealing with the debt ceiling issue for the first time. I bet, were they to go back, they would take the time to fully deal with the situation instead of just propping it up for a few months. Then again, perhaps they still wouldn’t be able to reach an agreement. Fantasy aside, the government shutdown will dramatically worsen if Congress is also unable to raise the debt ceiling again before Thursday, October 17th.

The government has about $30 billion cash on hand, but that will run out quickly. If the debt ceiling is not raised by Thursday, that cash will be all that stands in the way of our government’s default. And I don’t have to tell you that it won’t last long. The Washington Post put together a video that describes the debt ceiling crisis in less than two minutes. HIghly recommended.

If the government does hit the ceiling, it’s going to impact small business lending in a big way. Expect the stock market to react, which besides hurting investments, will drive up interest rates on borrowing. Home, house, business, and other loans will most likely see interest rate jumps, making it will be even harder to acquire money right when it’s needed most because, odd as it sounds, it’ll be hard to afford it. This paints what admittedly is a pretty drab picture. Unfortunately, it’s one that could well be realized sooner than later. And with the 1-2 combo effect of first the shutdown and then the debt ceiling, many small businesses that rely on government contracts could well be sunk.

There aren’t many options available, but there are some.

  • Businesses that need a relatively small influx of cash may fare best by turning to micro-lenders or other community lending organizations that are not tied too heavily to the government. It will likely be harder to eek any extra cash from friends and family, as investment portfolios are bound to take a hit and cause many people to be more conservative with their spending.
  • Another option is to enact a partial shutdown as well. This is far from optimal, since the effects will be felt by your employees, and ripple up and down supply chains. Avoid this scenario if you can.
  • Have a conversation with your business partners and creditors. Hopefully they’re aware of the situation. Explain to them your predicament, and ask for extended payment terms if Congress does not reach a resolution. Depending on your relationship with them, they may be lenient.

So, who does our government owe money too? Here’s an interesting image that shows just that.

Wonder why the government shutdown has lasted so long? One reason is that the House recently (on October 1st, 2013) passed a rule that restricts just any representative from bringing up the bill the Senate sent over to reopen the government. This restriction applies to all but the Speaker or his direct representative. This means that only the House majority (from which the Speaker is chosen) can bring up a vote on the bill to reopen the government. So, while members of the House may want to vote to reopen the government, many are unable to even bring the bill to the floor for a vote.

How are you dealing with the government shutdown? What further steps do you have in place in case Congress does not raise the debt ceiling in time?

[CC photo credit to Mike Licht]