The federal government entered a funding lapse on Oct. 1, 2025, after Congress failed to pass appropriations, which has triggered furloughs, delayed federal services, and caused widespread uncertainty. The shutdown can impact franchising, since the Small Business Administration (SBA) is funded by the federal government. This alert, which was written more than a week after the shutdown, explains some of the shutdown’s possible effects on New York franchisors, franchisees and multi-unit operators, and helps prepare for future shutdowns.
Why SBA Lending Matters
Franchise businesses comprise a significant portion of SBA-backed lending. According to the International Franchise Association (IFA), citing FRANdata, franchisees receive nearly 20% of SBA loans, with more than $15 million in daily funding tied to franchise operations. The shutdown puts this money at risk. IFA warns that franchisees will face delays in accessing critical capital for growth, operations, and refinancing.
On Oct. 1, IFA President and CEO Matt Haller stated:
“Federal government shutdowns are helpful to no one, and we encourage members of Congress to vote swiftly to resume government funding. Small businesses rely on certainty to operate, and without a properly functioning government, essential services to current and prospective franchise owners and their employees are slowed. Franchisees, which constitute nearly 20 percent of Small Business Administration-backed loans, will now face delays in essential access to capital and slowdowns in federal contract business and permit approval until there is a federal spending resolution. IFA calls on Congress to act expeditiously to reopen the federal government, rather than leaving hardworking Americans hanging in the balance.”
Practical Impacts to Expect: SBA, Lending Delays and Operations
If you have not yet been affected, be prepared.
SBA processing (7(a), 504, disaster loans) may stall or go idle altogether, impacting new unit signings, expansions, and refinancing. Furthermore, commitments dependent on SBA guarantees may withhold funding until agencies resume full operations.
Franchisees may endure immediate cash flow strain from delayed closings or draws.
But the shutdown does not just impact finances. Practical and necessary items, such as permits, inspections and federal approvals also hang in the balance.
Five Recommended Immediate Actions
1. Audit and flag high-risk transactions: Review all deals reliant on SBA support or federal permits. Notify partners and lenders of contingent risks, preserve cure rights, and document status in writing.
2. Engage lenders proactively: Request extensions for conditional approvals, explore bridge financing backup, and secure written confirmation of any temporary accommodations.
3. Prioritize liquidity: Ensure sufficient capital for franchisees under strain. Consider short-term loans, intra-system support, or vendor renegotiations to ease the pressure.
4. Review federal contract and vendor clauses: Scrutinize performance obligations, force-majeure language, and notice requirements. Prepare to invoke protections if federal disruptions affect deliverables.
5. Communicate transparently: Inform franchisees and lenders about expected delays, mitigation plans, and points of contact. The IFA’s public statement may lend credibility when emailing banking or legislative stakeholders.
A Quick Look Back
Below is a chart highlighting the recent history of government shutdowns:
| Date | Length in Days | Cause |
|---|---|---|
| November 14, 1995 | 5 | Impasse over deficit reduction |
| December 16, 1995 | 21 | Impasse over deficit reduction |
| October 1, 2013 | 16 | Dispute over funding Affordable Care Act |
| January 20, 2018 | 3 | Standoff over protections for young immigrants |
| December 22, 2018 | 35 | Funding for Border Wall |
Preparing for The Next Shutdown
Shutdowns are cyclical in Washington. Franchisors and franchisees can build resilience now:
- Maintain stronger working capital reserves. Given the systemic risk, building a liquidity buffer tied to scale (i.e., a percentage of projected costs or revenue) can reduce strain if SBA capital or federal payments pause.
- Stress-test major capital plans. When modeling new unit expansions or rollouts, run “shutdown scenario” forecasts (about one-to-two months) on opening timelines, funding gaps, and carry costs.
- Maintain legislative & advocacy channels. Leverage the IFA and other industry associations to engage proactively. When shutdowns loom, coordinated lobbying or timely requests to congressional offices may speed relief funding for small business support.
This shutdown is a reminder: federal funding interruptions are recurring risks to the franchising sector. By treating downtime as part of your operational risk planning, New York franchisors and franchisees should consult their NY franchise lawyers to review franchise agreements to address state and federal shutdowns and prepare to resume when the government reopens.
Contact Lusthaus Law
Lusthaus Law’s website is a resource for New York franchisors and franchisees. You can read our consistent coverage of the legal and regulatory updates that impact franchising – see Q3, Q2 and Q1 of 2025.
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Contact us today to learn more about how Lusthaus Law P.C. can help you navigate a clear path for your franchise’s successful future.
