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Loans, Contracts and Jobs: How Federal Spending Cuts Could Affect You If Congress can't come to a deal over how to reduce the budget, numerous small businesses could be affected.

By Catherine Clifford

entrepreneur daily

Opinions expressed by Entrepreneur contributors are their own.

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A slew of imminent automatic federal spending cuts is hanging like the sword of Damocles over Washington right now. But if this series of U.S. government spending cuts, called a sequester in political-speak, actually happens, there could be ramifications to your business.

Republicans and Democrats in Congress are deadlocked over how to increase U.S. federal government revenue. Their failure to agree to a deal by March 1 could trigger a number of spending cuts, and that pullback could hurt your business. Here's how.

Related: Entrepreneurs Like Obama's Call for Tax Reform, Immigration Overhaul and Deficit Accord -- Minimum-Wage Hike, Not So Much

Fewer government-backed loans: If sequestration happens, the Small Business Administration's fund to back loans will shrink, resulting in $902 million less in SBA-guaranteed loans, according to a blog from the White House's website.

Fewer small-business federal contracts: Many small-business owners rely on Uncle Sam as their largest customer. A dramatic decrease in federal spending would mean fewer contracts. What's more many of the prime contractors will have to pull back on the contracts they dole out to small businesses as subcontractors. If a prime contractor receives a bid to make fighter jets for the U.S. government, then that prime contractor might need to buy nuts and bolts from a smaller manufacturer.

"Sequestration is really kind of a double kick to the shins for small-business contractors," says Molly Brogan, the vice president of public affairs, the National Small Business Association, a Washington, D.C.-based nonpartisan organization that advocates for entrepreneurs.

Related: Small Business to Washington: Reduce the Debt

Slowdown in the economy: For those small businesses that don't work directly for Uncle Sam, the sequester could have an impact on their business indirectly as it chips away at consumer confidence. If sequestration goes into effect, the U.S. economy could see any progress it has made toward recovery erased, causing consumers to slam their wallets shut. Gross domestic product could decrease by $215 billion, personal earnings of the work force could fall by $109.4 billion and the U.S. economy could lose 2.14 million jobs, according to a report on the economic impact of a potential sequester released last year by George Mason University professor Stephen S. Fuller. Professor Fuller testified before the House Small Business Committee on his findings in September.

Related: Entrepreneurs Could Benefit from New Research and Development Tax Credit

Is your business doing anything to prepare for the possibility of sequestration? Leave a note below and let us know.

Catherine Clifford

Senior Entrepreneurship Writer at CNBC

Catherine Clifford is senior entrepreneurship writer at CNBC. She was formerly a senior writer at Entrepreneur.com, the small business reporter at CNNMoney and an assistant in the New York bureau for CNN. Clifford attended Columbia University where she earned a bachelor's degree. She lives in Brooklyn, N.Y. You can follow her on Twitter at @CatClifford.

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