Shutdown clock is ticking on Connecticut’s small businesses

After dreaming for years about opening a ceramics studio, Lucy and Anthony Hernandez of Rocky Hill were closing in on their goal when they learned of the threat of a federal government shutdown.

The Hernandezes managed beat the shutdown deadline, but other small businesses with cash flow problems, equipment needs or expansion plans must wait for the political gridlock to ease on Capitol Hill.

“If this goes on for more than a month, then I think we’re going to have some problems” in the small business community, said Bob Polito, Webster Bank’s senior vice president and director of government guaranteed lending.

And the chief economist for the Connecticut Business & Industry Association, Peter Gioia, said the standoff in D.C. is throwing a wrench into the works for some seasonal small businesses in Connecticut right now

Polito, who helped the Hernandezes get their loan, said the bank did intensive outreach after Labor Day to assist as many customers as possible.

That’s because SBA-backed loans, by their very nature, are aimed to help businesses that are particularly sensitive to the economic ebb and flow.

The Small Business Administration guarantees bank loans for companies worth less than $15 million that can’t afford the financial demands of a more traditional business loan.

For many of these companies, they might be struggling with falling revenues, or — like the Hernandezes — it might involve a new business.

“When I first heard there was a chance for a shutdown, I immediately did some homework,” Lucy Hernandez said. She and her husband needed the loan now to close on property this fall and meet their goal of opening in the first half of 2014.

“If it weren’t for this (loan option) we wouldn’t be closing” on a studio site, Lucy Hernandez added.

With memories of the 1995-96 federal shutdown still fresh, Polito and his colleagues helped process 13 loans with a total value of $5 million in September — almost double the usual numbers.

Polito, who has been with Webster Bank since 1994 and remembers well the shutdown of 1995, said it could take only a few weeks or a month this time around to lead others planning an expansion or new business opening to postpone.

And Gioia said the latest shutdown — today is Day 10 — already is likely causing problems for businesses that rely on SBA loans to handle cash flow problems.

Businesses that must cover significant costs well in advance of major revenues coming in — such as those tied to seasonal trends — often rely on such loans.

For example, Gioia said, a hardware store that provides snow blowers, or a ski supply retailer, might well need a loan now to ensure a successful winter.

“Those people are going to get hit right away,” he said. “This isn’t something that is going to happen several months down the road.”

Certain manufacturers also periodically need larger amounts of component parts or raw materials to make their finished goods. The longer a shutdown, the greater certainty more businesses’ productivity will be affected, he said.

“They’ve got to have that money to buy the stuff they need,” Gioia said. “Believe me, it’s a problem right now.”