Technically speaking, there will be a government shutdown. The question is whether it will be just over the weekend, in which case the government has the ability to remain open if an impending deal is imminent, or whether the shutdown could last longer and become the “real deal.”  NAGGL goes over all of this in detail in the latest NAGGLNow Podcast released this afternoon, but here’s everything you need to know about the latest funding deadline chaos:

What’s the impasse?

The House approved and sent over to the Senate one funding package with 6 full-year funding bills included in it—this includes the Financial Services and General Government (FSGG) bill that houses SBA funding and authorization for the 7(a) Loan Program.  Included in this package is the controversial Department of Homeland Security (DHS) bill that includes funding for ICE. NAGGL describes these dynamics in further detail in an update sent Tuesday, January 27 [link]. Amid the increased tension and focus on ICE over the past several weeks, Democrats are united in not allowing the current full-year funding bill for DHS to pass as is. So while the House passed the package of funding bills two weeks ago, the Senate can not advance the legislation given these current positions.

What is the current state of play?

The Senate voted to move to consideration of the 6 funding bill package this morning—but that procedural vote failed.  Meanwhile, Senate Democrats and the White House are currently negotiating a framework where DHS could be split from the package and go on a short-term Continuing Resolution (CR) to allow for further negotiations on reforms Democrats are asking for on ICE and DHS policies, while the remaining 5 bills (including, notably for the 7(a) Loan Program, FSGG) would remain a full-year funding bill.  If a deal is reached, the Senate would aim to vote on that as soon as possible. Since it would then be an altered funding package than what the House passed, that new deal would have to go back to the House for House passage.  At the time of publication, it is likely that if the Senate passes a deal sometime between now and the weekend, the earliest a House vote could happen is Monday—that is 3 days after the funding deadline has passed.  However, given weather delays impending this weekend, very slim vote margins in the House, and different dynamics among House hardliners on both sides of the aisle, all eyes will be on the actions in the House next week. There are a lot of unknown factors—starting with how the deal with the Senate can come together, though there have been many messages of optimism around this deal emerging. What is not an “if” is that a full-year funding measure will not be passed for these 6 bills, including FSGG, prior to tomorrow’s impending January 30 midnight deadline.

So there will for sure be a shutdown?

Yes, but there is a chance it could just be a shutdown on paper depending on how fast a deal could come together.  What do we mean by this? If the Senate can agree on a deal and if a vote is imminent in the House, the White House (as have past Administrations) is able to keep the government open for a short period of time, which may mean that while there is a shutdown on paper, the government could remain operational over the weekend while the House comes back to vote on the measure. However, this relies on a deal coming together in the very short term, and questions remain about the House dynamics. If there are meaningful delays in either, it is unclear how long the White House would or could keep the government open without an imminent vote on a deal.

If the White House keeps the government operational over the weekend because of an impending deal, it is assumed that SBA and the 7(a) Loan Program would remain operational as well; however, we will be monitoring this carefully and NAGGL will continue to update you on these developments. 

What happens to the 7(a) Loan Program and the Secondary Market if there is a shutdown (that lasts beyond the weekend)?

Key Facts Relating to 7(a) Lending in the Event of a Government Shutdown:

  1. If there is a shutdown, E-Tran processing will not be available, and SBA cannot approve any new 7(a) loans or increases to previously approved 7(a) loans, and new secondary market sales cannot occur. 
  2. E-Tran servicing will be open for routine servicing actions, and essential SBA staff will be available to handle urgent servicing and liquidation issues where there would be a risk of lost to the government if action is not taken.
  3. SBA has already provided guidance on the Secondary Market in an email sent last night stating that:
    • The sale of SBA 7(a) loans into the Secondary Market could continue only for those loans where all required sale documentation was received by the SBA fiscal and transfer agent (FTA) on or before a specific deadline as announced by SBA.  
    • Assignees could continue to present SBA Form 1088, Secondary Market Assignment and Disclosure Form, and its related registered certificate for transfer to the FTA for SBA 7(a) Secondary Market Certificate Transfers, including Confirmation of Originator Fee transfers.
    • SBA 7(a) Pooling would be suspended for the duration of the government shutdown. Upon restoration of appropriations and resumption of orderly operations, an eligible pool formation calendar would be published on the FTA Wiki.