September 25, 2023

The following answers are provided based on statute and past precedence. However, SBA has not released its shutdown plan as of publication of this FAQ and some details are subject to change.


Q:  What is a government shutdown? 
A:  Annual funding and many authorizations for ongoing Federal government operations and programs expire at the end of each Fiscal Year (FY). By October 1 of each year, Congress and the President must either pass the next FY’s full-year funding bill into law OR pass a Continuing Resolution (CR) that extends the last FY’s funding for a period of time, meant to bridge any gap as negotiations towards a full funding bill continue. If neither action occurs, the Federal government’s operations, functions, and programs are unfunded and/or unauthorized, and must shut down until funding and/or authorization is passed into law.

Q: How is a government shutdown different from the other debt ceiling shutdown we just avoided earlier in the year?
A: The debt ceiling legally caps how much the Federal government can borrow, and it is set by Congress. When the Federal government hits that cap, Congress needs to either increase or suspend the debt ceiling. If Congress does not increase or suspend the debt ceiling in time, the Federal government breaches the debt ceiling and Treasury defaults on its obligations. By contrast, a government shutdown is an annual risk if Congress and the President cannot enact annual funding legislation.

Q: Are we sure a government shutdown will happen?
A: No! Congress has a week until the end of the FY and there is no way to know whether Congress will come to an agreement and pass a CR which the President will sign into law. We can only prepare you for the likely possibility of a shutdown. 

Q: How is 7(a) lending impacted by a shutdown? 
A:  New 7(a) obligations cannot be made during a shutdown and functions of 7(a) lending effectively stop.  Most critically, no new loans and no loan increases can be approved by SBA. In the event of a shutdown, the 7(a) Loan Program’s FY23 authorization and authorization cap expire after 9/30/23, and non-essential operations and other internal functions necessary to support 7(a) lending are not funded past that date.

Q: Is the secondary market impacted by a shutdown, too?
A: New individual and pooled sales on the secondary market stop during a shutdown. The Secondary Market Guarantee Program’s FY23 authorization and authorization cap expire after 9/30/23, and non-essential operations and other internal functions necessary to support secondary market sales are not funded past that date. 

Q: Are there any other aspects of the program that would be impacted that I need to know about?
A: Only “essential” functions, as defined by statute, can occur during a shutdown. Non-essential functions and operations of SBA must cease because staff and operational functions no longer have funding. During past shutdowns, this has meant that very few actions can be maintained in 7(a) lending or secondary market activities. However, SBA’s shutdown plan has not been released which will further define what is essential.

Q: Since no funding is required for 7(a) lending for this current FY (FY 23) and there is no funding required for FY24 (i.e, a zero subsidy rate, because the fees collected by the lenders and borrowers cover the cost of lending), why would 7(a) lending be caught up in a shutdown over funding negotiations for FY24? 
A:  First, the 7(a) Loan Program AND Secondary Market Guarantee Program each have individual authorization and that authorization is capped, all of which is negotiated and passed into law every year as a part of a given FY’s funding package — without new authorization and their respective caps either passed into a full-year FY24 funding package or extended in a CR, neither program can continue. In addition, SBA staff salaries and other overhead and general expenses necessary for the agency to operate and to support lending and sales also need to be funded. So, all non-essential functions and operations must cease without funding passed in a full-year FY24 funding package or extended in a CR. In years where there is a program subsidy (i.e., the cost of making or selling loans that exceeds fee income), funding levels must also be passed into law.  While program subsidy is not required in FY24, the other factors still cause the cessation of SBA operations.

Q: What makes this shutdown unique compared to past shutdowns? 
A: The new SBA eligibility platform has changed the timing of approvals for PLP lenders. Previous to the start of the new eligibility platform, a PLP lender processing a loan under its delegated authority per the Small Business Act reviewed the loan for eligibility and fraud, and if it found the loan to be creditworthy, approved the loan subject only to SBA’s issuance of a loan number. This meant that when the loan was submitted to ETran, the PLP lender was able to receive instantaneous approval. Now, the PLP lender still reviews the loan for eligibility and fraud and for creditworthiness, but SBA also reviews for eligibility, which can take 24 hours (at best) and up to days or weeks, if compliance issues are found. Given these delays, if there is a shutdown, there will be loans submitted before 10/1/23 under lenders’ PLP authority which are eligible, but which will not receive SBA approval before the government shutdown through no fault of the borrowers or their lenders. 

Q: How much 7(a) lending authorization remains available for FY23 to draw upon over the last week of FY23?
A: Roughly $9.245 billion remains in 7(a) loan authorization as of September 23, 2023, which will be available through the end of the FY, which ends at the completion of Saturday, September 30, 2023. 

Q: Could 7(a) lending get an exemption from the shutdown since it is private-sector lenders that make these loans with our own capital?
A: No, for all the reasons noted above.

Q: Will there be a queue that SBA allows in ETran during a shutdown to “hold my place in line”? 
A: In the past, in situations such as the one that we are facing, i.e., a shutdown because no budget has been passed, SBA has not created a queue, presumably because that would incur operational costs. However, we are waiting for SBA’s shutdown plan to determine how this situation will be addressed.

Q: Can I make my loan conventionally during a shutdown and then refinance it as a 7(a) loan after the shutdown ends? 
A: Lenders can refinance same institution debt following current SOP guidance [see SOP 50 10 7 for each of the loan delivery methods]. However, lenders that have questions about specific loan situations should reach out to SBA directly prior to the shutdown. 

Q: In the event of a shutdown, will SBA have a plan that it communicates to lenders explaining how it will handle the backlog of loans that would be created during the shutdown, or how other actions such as any backlog of servicing and liquidation actions, loan purchases, and charge-offs, etc., that require SBA’s prior approval will be handled?  
A: Prior to any shutdown, SBA is expected to provide a shutdown plan that will address many lender concerns. Then once any shutdown has ended, based on past actions, SBA can be expected to provide additional guidance. Until then, lenders may not know how the backlogs will be cleared or how other activities will be handled. Lenders should watch for SBA’s shutdown plan for additional information.

Q: What if Congress passes a Continuing Resolution (CR) to avoid a shutdown — how does that impact 7(a) lending? 
A: In the event of a CR, 7(a) lending, secondary market sales, and other SBA functions would be able to continue based on FY23’s authorization and/or funding levels while Congress negotiates a full FY24 funding package.

Q: During a CR, can lenders submit loans for approval through both the current eligibility approval process and the LGPC?
A: Yes, lenders would be able to submit loans for approval on a delegated basis through the new SBA eligibility process AND on a nondelegated basis through the Loan Guaranty Processing Center.  

Q: During a CR, will SBA approve loans and will lenders be permitted to disburse those loans? 
A: Yes, it would be business as usual, with lenders receiving SBA loan approvals and being able to disburse funds on the approved loans. 

Q: During a CR, are we drawing on what was left unused in authorization from FY23 or are we drawing on new authorization? 
A: All FY23 authorizations expire at the end of the FY regardless of a CR. During a potential CR, FY23 authorization levels will be used as the basis for determining available authorization for the length of the CR by prorating FY23 authorization by the number of days of the CR. However, an apportionment anomaly in the CR exempts 7(a) lending and the secondary market from any such caps on authorization, allowing for lending based on demand. In other words, both 7(a) lending and the secondary market program do not experience the same interruptions other portfolios do during CRs.

If you have any questions or concerns, please reach out to [email protected].