Gov't Shutdown Could Cut Federal Loans to Minn.

Updated: 09/27/2013 7:36 AM By: Stephen Tellier

With both parties digging their heels in, the standoff over the budget in the nation's capital will likely go down to the wire. So what happens if October comes and a budget deal isn't done?

The biggest impact for average Minnesotans could be on the financial system.

During the last shutdown, in the mid-1990s, the federal government delayed or stopped writing loans for everything from home mortgages to small businesses. But there's so much uncertainty that no one knows what to expect this time around.

"The exact magnitude of this is unclear. Every agency has to come up with a plan, but needless to say, these agencies aren't sharing their plans with the media right now," said Kathryn Pearson, a political science professor at the University of Minnesota.

5 EYEWITNESS NEWS contacted the Small Business Administration to find out whether they'd stop writing loans to Minnesota businesses if the government shuts down. An official wouldn't tell us anything, referring us to the Office of Management and Budget, which would only issue a statement, which said, in part, "Prudent management requires that the government plan for the possibility of a lapse and OMB is working with agencies to take appropriate action."

If the government cuts off its supply of loans, the consequences could be significant.

Erik Brown, a Realtor with RE/MAX Results in Minneapolis, said the chances of a shutdown crippling the housing market is incredibly small. But he said it could freeze up some lending, especially for first-time home buyers -- almost all of whom rely on federal loans. They'd likely have to wait longer and pay more.

"Higher down payment, different credit rating -- and that would shift the amount of buyers in the marketplace. That would have a detrimental affect on our housing market," Brown said.

A cut in small business loans could be equally problematic. Minnesota's small businesses took out more than $3 billion in loans last year alone.

We also reached out to Wells Fargo, the nation's largest small business lender. A spokeswoman said it's business as usual right now, but they're monitoring the situation -- because no one knows exactly how it will all play out.

In addition to loan issues, a shutdown could freeze many other federal programs, and some entire agencies would be shut down. Non-essential federal workers would be furloughed, national parks and museums would close, and some veterans' benefits could be affected.