Shutdown strain: Small US businesses reel under halted contracts; firms weigh layoffs as Congress moves to end deadlock

Small businesses across the United States that rely on federal contracts and funding are facing a severe cash crunch as the country’s longest-ever government shutdown stretches into its seventh week, forcing owners to cut costs, delay payments, and even consider layoffs, according to AP report.Lawmakers are returning to Washington to vote on a stopgap funding bill that would reopen the government through January 30. While the measure is expected to pass the Republican-controlled House despite opposition from most Democrats, small business owners say the shutdown has already caused deep disruptions that will take months to recover from.For entrepreneurs like Jackson Dalton, owner of Black Box Safety, a California-based maker of protective gear, the shutdown’s effects have been immediate. Dalton had secured a $1.9 million federal contract just a day before the shutdown began on October 1, requiring an initial $1 million outlay. “It’s had a major impact on our cash flow and operations,” he told AP, adding that suppliers had been “freaking out” as they awaited new orders.For some business owners, the uncertainty has led to difficult choices. Eric Veal, founder of Interactive Knowledge in North Carolina — which develops digital exhibits for museums and cultural institutions — said 60% of his business depends on the Smithsonian Institution, which operates under partial federal funding. With federal staff unable to work, “projects are at a complete halt,” he said.Veal has cut expenses and may be forced to consider layoffs if the shutdown extends beyond mid-November. “Our cash flow is affected, and we’ve marked November 15 on the calendar as the date to start considering those steps,” he said, noting that the crisis had made him rethink his company’s reliance on federal projects.The prolonged shutdown has also overshadowed other business priorities. At a recent Goldman Sachs 10,000 Small Businesses summit in Washington, attended by around 2,000 entrepreneurs, participants said their planned discussions on access to capital, AI adoption, and workforce policies were derailed by uncertainty around government operations.Joe Gelardi, CEO of Virginia-based Vectrona, which provides technology and training to defence clients, said his firm had not received payments for ongoing contracts. “We keep working because we don’t want to harm the relationship with our government customers,” he said. “But it’s really unfortunate that the burden is being transferred to us to fund and manage work the government can’t process.”Some businesses are facing outright cancellations. Karen Jenkins, founder of KRJ Consulting in South Carolina, said a major management consulting contract that was supposed to be renewed this year was scrapped amid the shutdown. “It’s affected us almost as badly as the pandemic,” she said. “We’re just trying to hold on and hope we can be a resource again when the government reopens.”Economists warn that small contractors are among the hardest hit by the impasse since they typically lack the reserves that large corporations can rely on during prolonged funding freezes. Even after the shutdown ends, many may face months of backlog, delayed payments, and lost business opportunities as federal agencies scramble to restart operations.As one small business owner put it: “We’ve survived on resilience before — but this time, even resilience is starting to run out.”