The federal shutdown has not hurt Jeffrey Satterly's unit at Bank of Georgetown that lends to government contractors — yet.

But if the standoff between Democrats and Republicans drags on much longer, all bets are off, Satterly says.

The $934 million-asset Bank of Georgetown hired Satterly on Sept. 30 to help the Washington bank launch a new business line of making loans to government contractors. Satterly had been at Virginia Commerce Bancorp (VCBI), in Arlington, Va., which is being acquired by United Bankshares (UBSI).

When the Virginia Commerce acquisition was announced, Bank of Georgetown felt comfortable approaching him, Satterly says.

Lending to federal government contractors is somewhat tricky, and if a bank does not watch its loan book closely it "can go south," Satterly says.

"If you do this kind of loan on an ad hoc basis, you're not going to be successful," Satterly says.

The rules for collateral are quirky. Lending to contractors is collateralized by receivables. But receivables due from the U.S. government cannot be utilized. A bank must know the other ways to identify collateral for these types of loans, he says.

"There are subtleties to it, but if you do your homework and do the underwriting properly, it's quality business," Satterly says.

The Washington, D.C., area is crawling with federal government contractors, ranging from giant firms like Northrup Grumman and SAIC, to scores of tiny firms. The giants do their borrowing from huge banks. Bank of Georgetown, like other community banks in the D.C. region, will focus on the small contractors, many of which get started in an entrepreneur's personal residence.

These types of business have fairly simple financial needs — they are typically working capital and lines of credit, Satterly says. Overhead and startup costs are fairly low.

"Constantly new government contractors are being founded," Satterly says. "The cost to establish one of these [companies] is minimal, but the growth can be exponential if they get the contracts."

A federal government shutdown throws a wrench in the whole process, Satterly says. During the last shutdown, many government contractors stopped getting paid.

"They had done the work and invoiced the government, but they weren't being processed," he says.

If the current shutdown extends much longer, federal government contractors could find themselves in similar, undesirable circumstances. Satterly said he'll be able to offer some solutions.

"We'll work with them, possibly providing a pass on those receivables that go over 90 days," he says.

"It hasn't been long enough yet for this shutdown, so we haven't seen that yet" where contractors don't get paid, Satterly says. "But the threat is always out there."

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