How the Federal Government Shutdown Affects SBA Loan Borrowers and Guarantors
Book a Consultation CallThe federal government shutdown that began on October 1, 2025, has significantly impacted small businesses nationwide as the U.S. Small Business Administration (SBA) suspended most of its core lending and contracting programs. According to the SBA’s contingency plan, nearly 23% of the agency’s workforce was furloughed. While 4,745 of 6,201 employees were retained, key divisions—including Capital Access, Field Operations, and the Office of General Counsel—experienced sharp reductions.
When headlines announce a federal government shutdown, small business owners and guarantors with SBA loans often ask: “Does this pause my payments or stop collections?” The short answer is no. A shutdown creates administrative delays, but it does not suspend your legal obligations as a borrower or guarantor. At Protect Law Group, we guide clients nationwide through these high-risk situations.
The U.S. Small Business Administration (SBA) relies on annual appropriations for most of its programs. During a lapse in funding:
The Bureau of the Fiscal Service (BFS), part of the U.S. Treasury, is responsible for government-wide debt collection. Its shutdown plan treats debt collection and the Treasury Offset Program (TOP) as “excepted” activities. That means federal loan debts referred to Treasury can still trigger:
Even while SBA is scaled back, Treasury’s enforcement mechanisms remain operational.
For borrowers and personal guarantors, a shutdown means:
If you are a borrower or guarantor:
Q: Do I still have to make my SBA loan payments during a shutdown?
Yes. A government shutdown does not suspend your repayment obligations. Interest and penalties continue to accrue even if SBA staff are furloughed.
Q: Can I apply for a new SBA loan during a shutdown?
No. New 7(a) and 504 loan applications are paused until Congress restores SBA funding. Even lenders with delegated authority cannot approve new loans during the lapse.
Q: What about disaster loans?
SBA disaster loans usually continue, since they are funded separately. However, you may face slower processing times.
Q: Can I request a loan modification, deferment, or reinstatement?
You can submit requests, but most require SBA review. These are considered “non-excepted” functions and will not be processed until the shutdown ends.
Q: Does the government stop collecting on SBA debts during a shutdown?
Not entirely. If your loan has been referred to the Treasury’s Bureau of the Fiscal Service, collections—including tax refund offsets, Social Security offsets, and cross-servicing—will continue.
Q: Will foreclosure or liquidation stop?
Not completely. The SBA can still approve limited liquidation or collateral protection actions if there is risk of “imminent loss” to government assets.
Q: Could the shutdown help me as a guarantor?
In limited ways. You may get a temporary reprieve from new enforcement or settlement negotiations. But once SBA reopens, expect a backlog-driven surge in activity, including possible acceleration of default cases.
Q: What should I do now if I’m behind on payments?
Led by former Georgia Senator (Republican) and the current SBA Administrator, Kelly Loeffler, the SBA website displays a bright red "Special Announcement" message that provides the following:
Senate Democrats voted to block a clean federal funding bill (H.R. 5371), leading to a government shutdown that is preventing the U.S. Small Business Administration (SBA) from serving America’s 36 million small businesses.
Every day that Senate Democrats continue to oppose a clean funding bill, they are stopping an estimated 320 small businesses from accessing $170 million in SBA-guaranteed funding.
As a result of the shutdown, we wanted to notify you that many of our services supporting small businesses are currently unavailable. The agency is executing its Lapse Plan and as soon as the shutdown is over, we are prepared to immediately return to the record-breaking services we were providing under the leadership of the Trump Administration.
If you need disaster assistance, please visit sba.gov/disaster.
The automatic response emails from several furloughed SBA staffers state the following:
Below is the transcribed text from the furloughed SBA Staffer's email:
“I am out of office for the foreseeable future because Senate Democrats voted to block a clean federal funding bill (H.R. 5371), leading to a government shutdown that is preventing the U.S. Small Business Administration (SBA) from serving America’s 36 million small businesses.”
“Every day that Senate Democrats continue (to) oppose a clean funding bill, they are stopping an estimated 320 small businesses from accessing $170 million in SBA-guaranteed funding.”
“As a result of the shutdown, we wanted to notify you that many of our services supporting small businesses are currently unavailable. The Agency is executing its Lapse Plan and as soon as the shutdown is over, we are prepared to immediately return to the record-breaking services we are providing under the leadership of the Trump Administration.”
The government shutdown does not cancel SBA debt. It creates delays for new loans and discretionary relief, while Treasury’s collection authority remains live. At Protect Law Group, we help business owners and guarantors use this window strategically—preparing defenses and settlement packages so they are ready the moment SBA reopens.
Contact an experienced SBA loan defense attorney immediately.
Our SBA Attorneys have guided thousands of small businesses through reviews, contested or negotiated debts assessed against owners, officers and guarantors, and litigated cases at the SBA Office of Hearings & Appeals (OHA) Court before presiding Administrative Law Judges (ALJs).
Schedule a confidential strategy session today → keep your success story from becoming the next SBA nightmare tale. Contact us at SBA-Attorneys.com for a confidential Case Evaluation.
Sources and links:
SBA employee information for shutdown and furlough
This article is provided for informational purposes only and does not constitute legal advice. Consult a qualified SBA-Attorney for advice regarding your individual situation.
Millions of Dollars in SBA Debts Resolved via Offer in Compromise and Negotiated Repayment Agreements without our Clients filing for Bankruptcy or Facing Home Foreclosure
Millions of Dollars in Treasury Debts Defended Against via AWG Hearings, Treasury Offset Program Resolution, Cross-servicing Disputes, Private Collection Agency Representation, Compromise Offers and Negotiated Repayment Agreements
Our Attorneys are Authorized by the Agency Practice Act to Represent Federal Debtors Nationwide before the SBA, The SBA Office of Hearings and Appeals, the Treasury Department, and the Bureau of Fiscal Service.
Our firm successfully resolved an SBA 7(a) loan default in the amount of $212,000 on behalf of an individual guarantor. The borrower’s business experienced a significant downturn in revenue and was unable to sustain operations, ultimately leading to closure and a remaining personal guaranty obligation.
After conducting a thorough financial review and preparing a comprehensive SBA Offer in Compromise (SBA OIC) submission, we negotiated directly with the SBA and lender to achieve a settlement of $50,000—approximately 24% of the outstanding balance. This favorable resolution released the guarantor from further personal liability and provided the opportunity to move forward free from the burden of enforced collection.
Client's small business obtained an SBA COVID EIDL for $301,000 pledging collateral by executing the Note, Unconditional Guarantee and Security Agreement. The business defaulted on the loan and the SBA CESC called the Note and Guarantee, accelerated the principal balance due, accrued interest and retracted the 30-year term schedule.
The loan was transferred to the Treasury's Bureau of Fiscal Service which resulted in the statutory addition of $90,000+ in administrative fees, costs, penalties and interest with the total debt now at $391.000+. Treasury also initiated a Treasury Offset Program (TOP) levy against the client's federal contractor payments for the full amount each month - intercepting all of its revenue and pushing the business to the brink of bankruptcy.
The Firm was hired to investigate and find an alternate solution to the bankruptcy option. After submitting formal production requests for all government records, it was discovered that the SBA failed to send the required Official 60-Day Pre-Referral Notice to the borrower and guarantor prior to referring the debt to Treasury. This procedural due process violation served as the basis to submit a Cross-Servicing Dispute to recall the debt from Treasury back to the SBA and to negotiate a reinstatement of the original 30-year maturity date, a modified workout, cessation of the TOP levy against the federal contractor payments and removal of the $90,000+ Treasury-based collection fees, interest and penalties.
Client personally guaranteed an SBA 7(a) loan to help with a relative’s new business venture. After the business failed, Treasury was able to secure a recurring Treasury Offset Program (TOP) levy against his monthly Social Security Benefits based on the claim that he owed over $1.2 million dollars. We initially submitted a Cross-Servicing Dispute, but then, prepared and filed an Appeals Petition with the SBA Office of Hearings and Appeals (SBA OHA). As a result of our efforts, we were able to convince the SBA to not only terminate the claimed debt of $1.2 million dollars against our client (without him having to file bankruptcy) but also refund the past recurring amounts that were offset from his Social Security Benefits in connection with the TOP levy.
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