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Franchisees Suffer as Shutdown Hurts Sales, Expansion Plans

As the government shutdown stretches on, some franchisees find themselves lacking customers and in need of frozen SBA loans.
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As the government shutdown drags on, some franchise owners have struggled with sales while others have been forced to put their expansion plans on ice.

Last Thursday, Ron Putman was ready to serve 35,000 estimated attendees at the Miramar Air Show in San Diego. Putman, who owns a Maui Wowi, was in the process of setting up two mobile carts stocked with fresh fruit smoothies and coffee when he received a call from a friend who told him to turn on his television. The news was reporting that the airshow was cancelled due to the government shutdown. "I said, 'You've got to be joking me,'" Putman recalls.

The Miramar Air Show, held at the Marine Corps Air Station, normally pumps about $1.5 million into the local economy. According to the Festivities Catering and Special Events in San Diego, the event caused $25,000 in unrecoverable food costs, not to mention $100,000 in lost revenues. For Putman, the air show typically represents 20% of his business's annual revenue, as it draws nearly 500,000 visitors to the area. Putman was forced to dispose of 640 pounds of ripe bananas and 20 gallons of coffee.

Other franchisees, such as Hungry Howie's owners Preston and Sabrina Starr, have found themselves paralyzed by the partial shutdown of the Small Business Administration.

The Franchise Registry recently approved the Starrs' franchise disclosure document, allowing the pair to be approved for funding by the SBA to open a second Hungry Howie's in Smyrna, Georgia (the first is located nearby in Douglasville). However, due to the furlough, the restaurant will not receive funding until the shutdown concludes. The store was initially set to open on November 6. Unfortunately, with an estimated additional six to eight-week wait for the SBA to process loans after the shutdown is over, the Starrs will likely be paying rent on a restaurant they won't be able to operate for some time.

Related: Government Shutdown Would Close Pipelines of Credit to Main Street Businesses

"We've already invested over $70,000 personally into the venture," says Preston Starr. "If the government were to open tomorrow we would incur another $25,000 in delay costs. If the store does not open before the end of the year, there will also be significant tax implications."

According to The Wall Street Journal, the SBA approves about 250 loans totaling roughly $93 million on a typical day. With the closure of all major SBA lending programs, the shutdown has deprived small business owners of hundreds of millions of dollars.

Franchise industry groups fear that the lack of lending approval will become more serious as the shutdown continues, especially if the U.S. fails to raise the debt ceiling.

"Franchise business owners want their elected officials on both sides of the aisle to put aside the partisan rancor and negative rhetoric so we can get this economy moving again," said Steve Caldiera, president of the International Franchise Association, in a  public letter delivered to all congressional leaders. "Failure to raise the debt ceiling would almost certainly plunge the economy back into deep recession and fiscal calamity."

For franchisees, the effects of the shutdown promise to be long lasting, not only in economic losses but also in decreased confidence in the government.

"I think I, like most people, assume the government will always be 'open' like the sun comes up every day," says Starr. "This has certainly changed my frame of thought moving forward to consider these types of risks."

Related: Restaurants in Federal Spaces Force to Close Doors Amid Government Shutdown