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US Debt Ceiling Bill
Contents
Executive Summary………………………………………………………………………………………………………… 3
Background……………………………………………………………………………………………………………………. 4
Current State of Debt Obligations and Past Debt Limit Increases………………………………………. 4
House Republican’ Debt Default Plan – Limit, Save, Grow Act (Default on America Act)……….. 4
House Democrats’ Discharge Petition Plan……………………………………………………………………… 5
President Biden’s FY2024 Budget/Deficit Reduction Plan…………………………………………………. 5
The Federal Debt……………………………………………………………………………………………………………. 6
Impact of Tax Cuts on the Debt……………………………………………………………………………………… 6
COVID-19 Legislation……………………………………………………………………………………………………. 7
The Inflation Reduction Act of 2022 ………………………………………………………………………………. 7
The 2011 Debt Ceiling Crisis…………………………………………………………………………………………….. 8
Brinkmanship and Financial Impacts from the 2011 Debt Ceiling Crisis ……………………………… 8
Impact of Budget Cuts on Small Businesses…………………………………………………………………….. 10
Letter from Administrator Guzman to Ranking Member DeLauro……………………………………. 10
Report from the SBA Office of the Inspector General …………………………………………………….. 11
Macroeconomic Impacts of Default ……………………………………………………………………………….. 11
Small Business Impacts of Default………………………………………………………………………………….. 12
Small Business Sentiments on Default……………………………………………………………………………. 14
Conclusion……………………………………………………………………………….………………………………………………15
Small Business Effects of Default
Small businesses will be on the front lines of loan defaults, just as they were during the COVID-19 pandemic. They are already an economically vulnerable community during the best of times.
The stock has been exhausted to avoid the epidemic.
With very low-profit margins and business slowly beginning to return to normal, America’s Main Streets will essentially feel the effects of the default overnight.
The macroeconomic effects of default, such as low consumer confidence and job losses, will hit small businesses in a big way.
Their customer base is being affected. On a more specific level, small businesses will face significant challenges in both the short and long term, particularly with access to capital.
Many of the consequences most directly felt by small businesses will be the effects of higher interest rates. The debt market will shrink and loans will become very expensive.
A federal default would trigger an automatic downgrade of the US government’s credit rating, raising interest rates overnight.
As their risk appetite diminishes, loans from private lenders will become more expensive, and new loans will be made primarily to “safe” entities, possibly those with preexisting relationships with larger companies. SBA-guaranteed loans, usually a more accessible option, still reflect market conditions and will become more accessible as well.
As interest rates rise and loans become more expensive, it is likely that significantly more people will be forced to default, including SBA 7(a) and 504 loans. The SBA would be forced to meet its guarantee and make more payments on more of these loans, typically over budget, while also bringing in less revenue than usual from things like loan administration fees.
The longer the breach of the potential credit limit continues, the more significant the consequences
Will belong to this.
If the SBA begins to run short of funds to pay off defaulted loans, they will not be able to rely on Congress to provide additional appropriations as they did during the Great Recession and the COVID-19 pandemic.
The inability to pay back increasingly expensive loans, especially if it becomes an extended problem, creates long-term problems for lenders and the credit market more broadly.
In an extended loan delinquency scenario, and perhaps in a shorter-term one as well, depending on how quickly financial conditions change, lenders can suffer significant losses from defaulted loans, especially local and/or underbanked Small companies serving underserved communities.
They will have to cover their losses and will remain risk-averse until they have to do so.
This will contribute to tighter credit markets in the long run, posing a threat to both aspiring entrepreneurs and existing small businesses alike.
The impact of loan defaults on small businesses goes well beyond access to capital problems. It is estimated that the fall in stock prices after the default will result in a loss of $10 trillion in the US.
household wealth. Small business owners and entrepreneurs, who are already facing challenges building retirement options, will likely see a lot of their savings disappear.
They will also lose business from clients who are cutting back on spending and dealing with the loss of their own retirement funds.
Government payments will also be affected by the default. Among other things, paychecks for active-duty personnel would be delayed, as well as some veterans’ benefits like disability payments.
For veterans who own small businesses, any delay in disability benefits or pensions is another financial burden on an already difficult situation.
Federal government contractors, especially those that are not mission-critical, will also see payment delays. For small businesses whose primary income streams are federal contracts, this would be a devastating blow.
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US Debt Ceiling Bill PDF Free Download