GO
Loading...

'Damage already done' as Main Street picks up shutdown pieces

San Diego-based Ron Putman, regional developer for Maui Wowi Hawaiian, a franchise of cart-based smoothies and coffee, has been hit by the partial shutdown.
Source: Maui Wowi Hawaiian
San Diego-based Ron Putman, regional developer for Maui Wowi Hawaiian, a franchise of cart-based smoothies and coffee, has been hit by the partial shutdown.

As the government reopened after a 16-day partial shutdown, small-business owners have a message for Washington: "Thanks. Sort of."

"The damage has already been done," said Ron Putman, an entrepreneur in San Diego. While the government was shuttered for more than two weeks, the region's annual Miramar Air Show was nixed.

The cancellation left Putman—operator of a franchise cart business that sells coffee and smoothies—standing idle. He had 16 cases of perishable bananas ready to go, 20 gallons of brewed coffee and no customers to serve. "I found out the air show had been canceled from my friend, who saw it on the news," Putman said. "I thought he was joking."

The air show had brought in as much as 20 percent of his annual revenue, when the economy was pumping five years ago before the 2008 recession hit. "It was just a shock for all the vendors there, setting up tents" this year, said Putman, regional developer for Maui Wowi Hawaiian.

For businesses across the nation, a deal to reopen the government and extend its borrowing authority is getting scant cheers from Main Street. While the agreement brings relief for furloughed workers, many smaller merchants are wondering what's fundamentally changed with the fiscal deal. A reopened government doesn't mean business owners will pocket refunds for lost revenue, or other costs incurred during the stalemate.

So while the stock market showed flickers of optimism about the fiscal deal, many small-business owners are muted—and bracing for more government-related uncertainty including Obamacare deadlines.

"You're constantly trying to stay ahead of what the government is going to do, but nobody knows, so we just push forward," said Bryan Scott, owner of Barn Light Electric. The Titusville, Fla.-based manufacturer of porcelain lighting includes online customers in the Northeast. On Oct. 1, Day One of the shutdown, its online orders tumbled 70 percent before eventually recovering.

"The mood has been up, then down," Scott said. "It has just been a roller coaster."

(Read more: States hurt the most by the government shutdown)

Mounting costs

During the partial shutdown, there's been an absence of government statistics to gauge the economy. But other data pieces already suggest a growing tab related to the shutdown.

While small-business owner sentiment dipped in September, there was a "drop in outlook for future economic conditions," according to the National Federation of Independent Business. That suggests many owners are keeping an eye on Washington, said NFIB's chief economist, Bill Dunkelberg.

The September reading also showed owners expecting business conditions to improve in six months tumbled a net 10 percent compared with August. That pessimism about future business conditions was the largest factor contributing to September's optimism reading.

Beyond Main Street, consumers already have been curbing spending because of the partial government closure, according to two new surveys. And the National Retail Federation, which represents large and small retailers, has been especially vocal about the shutdown's effect.

"As we head into the holiday shopping season, retailers and consumers need stability and certainty from policymakers in Washington and assurance that the economy will not implode due to their actions or more important, lack thereof," according to the NRF statement. "This new norm of legislating from crisis to crisis is no way to govern."

American taxpayers ultimately may have to foot the bill for rebooting a partially closed government, a tricky and pricey proposition. Plus the shutdown could also have lingering consequences on the U.S. government's ability to borrow money.

Marie Cavanaugh, Standard & Poor's lead analyst on U.S. sovereign ratings, told CNBC on Thursday morning that unless the political "brinkmanship" stops, the U.S. will not earn back its AAA rating.

On Tuesday, Fitch Ratings—one of the three major credit rating agencies along with S&P and Moody's—put the U.S. government's AAA credit rating on "rating watch negative," saying the standstill had risked the effectiveness of the country's government and political institutions. Riskier credit ratings can mean higher borrowing costs.

(Read more: Debt default damage already unfolding)

Bryan and Donna Scott are owners of Barn Light Electric. Located in Titusville, Fla., near the Kennedy Space Center, they've been affected by the shutdown.
Source: Barn Light Electric
Bryan and Donna Scott are owners of Barn Light Electric. Located in Titusville, Fla., near the Kennedy Space Center, they've been affected by the shutdown.

Silver linings

Despite the uncertainty, leave it to nimble entrepreneurs to pivot—with or without the government's help.

CrackedMacScreen is a Washington, D.C., small business run by brothers Trevor and Colin Lyman. They offer affordable screen repair for Apple Mac, iPhone and related products. They recently moved business operations from their cars to a permanent space near the Dupont Circle subway stop.

When the partial shutdown hit, idle furloughed workers began tackling errands—including fixing mobile devices. Business has been brisk. "They have time to get it done," Trevor Lyman said.

But the brothers aren't resting on their laurels as the nation's capital returns to business. They're ramping up GadgetWraps, a new business that features accessories for smartwatches. Their new online customers are from around the world—not local residents, who may get hit by more furloughs or uncertainty down the line.

"We're just trying to spread out our risk" Trevor Lyman said. "You need to ask, 'What do we need to do now in case this happens again?' " he said. "And you know it will happen again." The new legislation, signed early Thursday by President Barack Obama, funds the government through Jan. 15 and permits borrowing normally through Feb. 7.

Meanwhile, further south in Florida, Barn Light Electric's owner Scott got an unexpected break on contractors because of the shutdown. Scott is building a 10,000-foot addition. His contractor, whom Scott recently booked, had lost seven jobs at the nearby Kennedy Space Center. "They relocated a crew to our site ahead of schedule," he said.

Preston Starr is trying to open a second Hungry Howie's pizza franchise in Georgia, but the closed Small Business Administration has been holding up key loan paperwork.
Source: Hungry Howie's
Preston Starr is trying to open a second Hungry Howie's pizza franchise in Georgia, but the closed Small Business Administration has been holding up key loan paperwork.

Shutdown's continuing trickle-down effect

The bottom line is drawn-out uncertainty, including the shutdown, continues to reverberate on Main Street. October's small-business optimism reading is expected to reveal the full effect of the partial shutdown on small businesses, which have remained cautious throughout the recovery.

Entrepreneurs have been reigning in costs and wrestling with the Affordable Care Act, also known as Obamacare—not creating Main Street jobs in droves. That missing trend has been a traditional driver of past economic recoveries.

Just ask Preston Starr.

Starr owns a Hungry Howie's pizza franchise in Douglasville, Ga., and he is trying to open a second outlet in Smyrna, closer to Atlanta. That second location has been selected, equipment has been purchased and permits are in place. A management team is on standby and Starr wants to hire up to 25 workers.

The only thing holding him back has been the Small Business Administration, which had been closed. Starr needs key loan-related signatures. Even with the government restarting, Starr said he will not open his second outlet by Halloween—one of the most popular days for pizza orders, along with the Super Bowl.

Between the signed lease and other holding costs including delayed construction, Starr said the partial shutdown has cost him roughly $25,000 so far. "I can't get that back," Starr said. That loss figure does not include lost revenue he could have been earning.

The delayed opening also means Starr will be donating less to breast cancer awareness efforts this month—a tradition for the franchise. "There's a trickle-down effect that's still happening," Starr said. "The government talks about freeing up small-business owners to do what they do—and look what's going on."

(Read more: The Wall Street-Main Street disconnect 5 years after the crash)

By CNBC's Heesun Wee. Follow her on Twitter @heesunwee

Contact Small Business

  • CNBC NEWSLETTERS

    Get the best of CNBC in your inbox

    › Learn More*