Small Business Borrowers Lose if Uncle Sam Defaults

By Charles H. Green

We’re 4 days from exhausting the federal government’s borrowing limit when it’s projected to be fully used on the 17th. Remember the advantage that low long term bond rates gave 504 lenders?

The looming credit default has already meant short term borrowing costs has been rising on Treasury bonds, impacting SBAother capital instruments and a global list of stock indexes. An actual default would spike rates upward immediately, casting a long shadow over 504 loans.

Wall Street’s confidence should be reassuring, but Main Street is feeling the shutdown pain, which one month ago was also reasoned to be a minor risk. It’s likely that even if the shutdown ends this week, the October 504 debenture auction will be postponed or perhaps scrapped all together.

A U.S. sovereign debt default would penalize all lenders, to be sure, with cascading effects of the higher rates and lower Treasury credit ratings, which would require a selloff by many pension funds and mutual funds, which would devalue the bonds further and … Get the picture?

Potential borrowers will be paying higher rates while their retirement portfolio takes a serious blow, both of which makes it more difficult to borrow from a bank with more debt service costs projected for a borrower with a lower net worth.

Talks opened between the House leadership and White House on Friday and are expected to continue through the weekend. Washington should end this threat now.

Read more at New York Times.

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