Associated Bank Thought Leadership Podcast

WGN: We're on with Duston Detrick, vice president and business banking relationship manager at Associated Bank. Duston, welcome back.

Duston Detrick: Steve, Thanks for having me back

WGN: I'm going to focus in on a couple of things. One of them is the ongoing government shutdown and the impact it's having on small business lending. And this is an area that you are intimately concerned about and interested in and involved in. Talk to us a little about what's going on here and what is the impact of this shutdown on that small business lending.

DD: Yeah, absolutely. As we talked last time, the shutdown unfortunately will stop the SBA from essentially funding or moving any loans forward. And unfortunately, as of today, we just reached the longest government shutdown in history, the last one being in 2019, and so broke that record.

But since the government shutdown, the SBA has essentially stopped all lending, all funding, unfortunately. And so somewhere to the tune of about $2.5 billion is expected to have been lost as far as those loans, at least moving forward, and about 4,800 businesses not being able to participate, and 2025, it was actually a record year so far, even with this shutdown, 84,000 loans funded with $45 billion in capital moving to those small businesses. So a fantastic 2025—unfortunately a bit of a slowdown at the end of the year—but hopefully we can get this thing figured up, turn it back on and start helping those small businesses. You know, those acquisitions, those growth strategies, whether they were onshoring due to some of that tariff stuff, all of it is essentially stopped.

What we're telling people is our SBA department is still open. You know, we're still processing loans all the way up until that point of SBA approval. So, if there's somebody out there has questions, having issues—we're happy to move it forward. And once the government turns back on, we'll get those things in and start to move it forward.

WGN: You know, the size and scope of this is overwhelming, really from some of the data you pulled from that comes from this report I'm reading that says that the agency, the SBA, has stopped delivering about $170 million in SBA-backed loans to 320 small businesses each business day. These are loans that are called core 7(a) and 504 loans. What are those, Duston?

DD: Yeah. 504 is real estate-related, essentially. So those are going to be with anything, if you're buying a business that has a building attached, those are less common, but great loans for the right situation. 7(a) sort of encompasses everything else, whether it's just an acquisition or what we would call collateral shortfall where there's not a building or something attached. So yes, 7(a) and 504 the most common, and there's some other ones, Microloan and SBA Express, but much on a smaller scale.

And so reading through the numbers, I mean, it's insane the amount of money that capital that's put into these small businesses. And we talked a few times ago, it's 50% of, you know, employee employment, 50% of new employee growth, and it's also 45% of GDP for these small businesses. So they they move the economy along. If they're not getting the funding for that acquisition or growth, it's tough. I mean, Illinois in particular, each week, $31 million is not going out to these small businesses, right? So hitting home, that's 60 businesses on a weekly basis that aren't getting this money. And so, I mean, it's tough. But again, what we're saying is SBA shops are open. You know, we're helping push through what we can up until that point. And so whenever these guys can agree to get this thing back open or open it back up and finish off this record year.

WGN: California, Texas, Florida, New York are experiencing the largest amount of delayed SBA loan proceeds. Duston, I'm kind of curious about, you know, what happens here. I mean, I guess everybody thinks, well, the government's going to reopen eventually and perhaps this money will get flowing eventually. But is some of this time-sensitive for these small businesses? And is is it possible that if this thing goes on longer, that these small businesses might be permanently hurt by this?

DD: Time kills deals. I mean, I've said it a few times, I'll say it again. Yeah. I mean, obviously if somebody's selling a business, things happen, time goes on. They're not sure if they're ever going to get funding. Somebody else comes in and buys it with private equity or family money or whatever the case is. I mean, there's a slew of things that can happen. Unfortunately, the economy could go the wrong direction. Tariffs, obviously, which we'll probably talk about, as everybody does. All of these moving variables are unknowns, and that volatility can have its impact. Maybe the seller gets, you know, a little bit scared to do it. Maybe the buyer gets a little bit scared to do it, you know, So lots of things can happen. Unfortunately, it can absolutely stall or even kill the deal. Absolutely.

WGN: I guess I'm also curious as to, you know, is the government good for this? If a company has been approved for one of these small business loans, and somehow it's been stopped now because of this government shutdown, once the government's reopened, does that money start flowing again or is it possible that they won’t get that money at all?

DD: Yes. Our last call we had actually, I myself was working on a SBA deal. We got the authorization code, which is essentially to the point of approval with the SBA, September 30th. So essentially right before the shutdown, that one funded. So even though the government was shut down, we had that authorization code. So we were good to go. But that's what's not going out right now because the SBA is not reviewing and approving. And so what a lot of banks are doing is getting all these loans essentially processed and up to that finish line for the authorization code. Once we get that authorization code, funding will flow again. But what's that logjam going to look like, with the government backed up for 35, 36 days now? How much of that's going to get through by the end of the year? And again, even though we've had 35 days of no approval and a delay, it might again continue to be delayed just because of the logjam of those deals. So they're going to be good for it. It's just going to be how fast they can catch up, if you will, from that logjam.

WGN: And also the negative effects. You mentioned the gross domestic product, the GDP impact from all of this. You know, people I think it's it bears repeating that small businesses really are the backbone of the U.S. economy. So talk to us a little bit about what we might see 30 days from now, 60 days from now. We're going to see the show up in the economic reports, aren't we?

DD: Well, once we get the reports, yeah, I mean, obviously with the government being shut down, as we talked about last time, those reports aren't coming out, right? So the labor reports, Consumer Price Index reports, you know, unfortunately, we're not seeing them. The Fed still cut rates. I assume they see some of that. And so we just don't know. Right. I mean, unfortunately, until this thing gets back up and running, essentially we're sort of blind. I think last time I said duration is probably the most important part for this shutdown. And that's exactly what's happening. We're in the longest one ever. And so if in 30 days we reopen, that money will be flowing. I think those deals will start to continue to go through and the GDP will catch up. But if it's still shut down 30 days from now, we don't know because it's never happened before. So it'll be interesting to see how it all plays out.

WGN: Yeah. And as the year comes to a close again, we're we're a couple of months away from the end of the year, if this doesn't get solved by December or if it's delayed past December, this could end up being a bad year for some of these small businesses.

DD: Yeah, you know, there's some hearings going on in the Supreme Court right now with some businesses. They're actually suing the Trump administration over some of these tariffs and some of the volatility that's creating and some of the unknown. And so some businesses that were here and had the right structure are actually doing better. But unfortunately, you know, it's always two sides of the coin. There are businesses who are struggling whether its imports or exports or on shoring, offshoring, sort of structure. And the unknown has been tough. So again, we've never been this far, unfortunately. So we'll see how it plays out.

WGN: Yeah, I want to transition to that story. You just talked about the companies that have been suing the Trump administration. One of them is before the Supreme Court over the tariffs, and it involves a local Chicago-area toy company that says its tax bill has tripled, quadrupled because of these tariffs. And they're one of the companies that are suing over these tariffs.

How do you think this is going to shake out or do you think that these small businesses have a good legal argument here over the legality of tariffs? And where do you think we might see this end up once the Supreme Court rules?

DD: Yeah, I was listening to a bit of it this morning. It was actually a live hearing of of the Supreme Court listening to those arguments. And a lot of it was around, you know, what the Trump administration is using, which is the International Emergency Economic Powers Act—IEPA, as they kept referencing it—and whether or not he's using it correctly to be able to levy these tariffs for imports an essentially looked at as a tax. And so, you know, he's saying that it's an emergency war-like situation for the trade deficit, as well as the fentanyl sort of issue that we're having, unfortunately. And so he says he's using it correctly. There are people who are saying they are not. The Supreme Court is listening to it. I listened to some of it, again, arguments on both sides of why. He's got some other outlets. If this goes against him, there are some other statutes that he feels like he can use.

So I don't think the tariffs are going to go away, in my humble opinion. I think he's going to find other ways to use it. I think adapting and figuring it out is probably going to be the best bet, but yeah, I mean, if you're importing stuff from China, from Canada, from Mexico, those tariffs, they go on, they go off, they’re high, adjusted back to 10%. The volatility is the unfortunate part of it and it's hard for them to predict. And if they're getting stuff from China, that was up to 30%, I think was the high. Now it's back down to 10%. If you can't get it locally for a cheaper price, you really don't have any choice in it. Right. And that's your entire business. So pivoting is not super easy. So I see it playing out as the tariffs will continue. Otherwise, if the Supreme Court rules against this IEPA usage, we could be potentially a trillion dollars in the hole as far as returning some of those tariffs. So I wish I knew the answer.

But, my opinion, tariffs will continue. If it doesn't work out, he's got some other statutes he'll use. And unfortunately, I think business owners just have to find a way to adapt, if at all possible.

WGN: Yeah, and I think that's part of the next question, is the adaptation of these small businesses. There are some of these small businesses that just can't do that. And this toy company that's involved in this today, said they just can't afford to pay. They were paying $2 million a year in taxes, and that bill is up to $14 million now. I mean, unfortunately, tariffs really are, as you mentioned, taxes. They're paid by American consumers and American companies. So we could see some of these small businesses go out of business because of this, couldn't we?

DD: Yeah. You know, I was thinking this morning about being a politician and how tough the gig can be on both sides. Right? I mean, they have constituents that have concerns and things that they need done for them, for their best interests. But sometimes one person's best interests is not another person's best interests. And unfortunately, it's the other side. And so you're absolutely right, some businesses are being helped by these tariffs and how it's working out.

But there are going to be ones similar to the toy company and how they were structured. And if it's impossible to pivot, and obviously $2 million to $14 million in taxes is not a small number. There are people that are going to go out of business. Go back to the SBA. At times, they're also there for sort of disaster assistance. And maybe in previous times, you could have went to the SBA said, I'm in trouble, I need help. Maybe they would have approved it. But with this government shutdown and where it's at, maybe bad timing as well on top of those loans being sent up, but for those businesses that need assistance as well, like that toy company.

WGN: Well, on top of the SBA situation and the tariff situation, there's also the health insurance situation. And health insurance premiums are rising for small business owners, for employees. And it's looking pretty bad. I mean, the Americans, we're getting sticker shock as we're looking at some of our new fees and some of the new insurance premiums coming. Talk to us a little bit about how this might hit businesses, small businesses especially, these rising health insurance premiums.

DD: Yeah, you know that I guess the reason the government shutdown is in place is potentially one side feels like these Affordable Care Act premium tax credits that are set to expire at the end of this year should be continued, should be negotiated, should be continued again throughout 25.

The other side says let's get a clean CR—continuing resolution—just to reopen the government and then we can negotiate it.

But a lot of it's around this ACA premium tax credit, which was from the Inflation Reduction Act back in 2021. You know, since 2020, premiums have increased 53%, most of which are for small business owners, 120% since 2000. And if this ACA premium credit is not extended after December 31, 2025, it can go up as much as 75%, depending on income. And so huge numbers and second behind payroll. Health care costs are a huge concern for these small business owners, you know, some of which just don't know how they're going to be able to handle it. Some may have to cut benefits for employees to try to keep up. Some may have to ask employees to contribute more. You know, and those are just, you know, situations they don't want to be in.

And again, we go back to small businesses being 45% of our GDP. They used to be 48% of our GDP, you know, a few decades ago. But it continues to shrink. And it’s these employees, they have to make tough choices as their health care is being a cost, and switched to bigger companies where it's a bit cheaper. You know, it's going to make this small business situation even a little bit tougher. But it's a huge expense, a huge increase on the end of this if we don't get it figured out. But whether we get it figured out is, again, unfortunately unknown.

WGN: And the worst-case scenario here is that these small businesses and businesses will have to cut workers’ benefits altogether, and that's a situation I don't think anybody wants to be in.

DD: Again, you know, it's a 75% increase. 84% of business owners say that that's their top three concerns. 25% said they might have said they might have to drop employee coverage. You know, this ACA marketplace, Affordable Care Marketplace, since 2021 when that Inflation Reduction Act went out, saw a 100% increase of enrollees into this marketplace. So about 7% of the population or 24 million are on this. So if you can imagine—and not everybody—but if you've got a 75% increase after getting a 50% increase over the last four years and 120% increase over the last 25 years, it's taking its impact. And again, these employees, if they're faced with that type of increase or reduction, if not loss, in benefits, they make a choice to go to a bigger company. And talent matters across the board. And these small businesses need to fight for it. And typically, you know, they're probably going to lose, if they're getting rid of their benefits.

It's a tough gig for sure, and there's some stuff in the works. Congress and the administration are talking about other alternatives, but the ability to pass it, the ability to get it through and get it passed, with a lot of the infighting going on, may be impossible. But if they extend these credits, it's a $350 billion cost over ten years. So, again, you've got to look at both sides of the coin. We don't want people to lose health care, but we also have to understand the expense of it. Who's going to pay for it? How does it work out? I'm glad I'm not a politician, needless to say.

WGN: Duston, great conversation as always. How can people get a hold of you and have a one on one if they want?

DD: Absolutely. Again, on LinkedIn, a lot. I put out a lot of stuff. If you guys want to comment to that, connect there. Obviously, phone, email Duston.Detrick@AssociatedBank.com, pretty easy to find. Happy to have a conversation.