The Effects of a Government Shutdown on SBA Hotel Loans
By Russ Rivard, Managing Partner, U.S. Hotel Appraisals
A government shutdown halts SBA loan programs, disrupting hotel financing, delaying transactions, and straining liquidity for economy and midscale operators. During this period, hotel owners should prepare documentation and stay ready to act quickly when SBA systems reopen.
Overview
A government shutdown has broad economic consequences, but its impact on economy and midscale hotel owners and operators can be particularly sharp. This end of the hospitality industry depends on access to credit, consistent travel demand, and stability in federal programs. When the Small Business Administration (SBA) suspends operations, hotel transactions and expansion projects often slow considerably.
As Managing Partner of U.S. Hotel Appraisals, I’ve seen how closely hotel performance and values depend on liquidity. SBA loan programs—especially the 7(a) and 504—provide essential financing for independent and franchise hotel operators. When these programs pause, growth plans stall, and confidence erodes across the economy and midscale transactions market.
Why SBA Loans Matter to Hotels
SBA programs remain a cornerstone of hospitality financing, particularly the following:
• 7(a) Loans: Commonly used for acquisitions, property improvements, or refinancing, offering flexible terms and lower equity requirements.
• 504 Loans: Designed for long-term real estate or equipment financing, ideal for hotel construction or ownership.
When these programs stop, smaller operators lose access to affordable capital, forcing them to delay property purchases, upgrades, or brand conversions.
How the Shutdown Affects Hotel Financing
During a shutdown, the SBA closes its systems (E-Tran and CAFS) to new 7(a) and 504 loan submissions and stops approvals for hotel purchases, refinances, or renovations already in motion. Key impacts can include the following:
• Delayed closings and added costs—Deals stall while interest and carrying expenses rise.
• Cash-flow strain—Projects under construction may require costly bridge loans to continue.
• Lost opportunities—Sellers and lenders move on to other buyers.
• Reduced confidence—Underwriting tightens, and investor caution increases.
According to Forbes, the shutdown is already slowing small-business lending dramatically, creating a backlog that will take weeks to clear once operations resume.
What Hotel Operators Can Do
• Prepare loan documentation now so applications can be submitted immediately when SBA systems reopen.
• Evaluate bridge or interim financing to keep projects on schedule.
• Prioritize liquidity and defer non-essential capital expenditures.
• Stay in communication with lenders, investors, and franchise partners.
• Monitor market trends (occupancy, ADR, and RevPAR) to adjust forecasts and valuations accordingly.
Industry advisors such as Mercadien and CDC Small Business Finance recommend that borrowers continue preparing underwriting packages during the pause so that they are first in line when SBA funding restarts.
Looking Ahead
Once federal operations resume and the backlogged SBA applications begin to be processed, borrowers ready with complete financial documentation will move fastest. At U.S. Hotel Appraisals, we anticipate an eventual rebound in transaction activity and a return to the pre-closure confidence within the marketplace. Interest rate decreases that are most likely on the horizon will also help.
As a leader in economy and midscale hotel consulting, I encourage hotel owners and investors to stay proactive, protect liquidity, and prepare now so they can move quickly once SBA lending resumes. Contact me at [email protected] to discuss how we can help.
Sources
https://www.mercadien.com/resource/how-federal-government-shutdowns-affect-sba-lending
https://www.forbes.com/sites/rohitarora/2025/10/14/three-reasons-why-the-government-shutdown-is-hurting-small-businesses
https://cdcloans.com/government-shutdown-update
https://jonathanjackson.house.gov/sites/evo-subsites/jonathanjackson.house.gov/files/evo-media-document/House%20Small%20Business%20Committee_Shutdown%20Impacts_December%202024.pdf