The shutdown is already squeezing these businesses

An Alameda, Calif., medical-device company postponed a planned spinoff, unable to pursue regulatory approvals. A Florida marketing company laid off five employees after receiving a stop-work order on a federal contract. A Minnesota subcontractor is trying to keep a half-dozen electricians working while it waits for a stalled government contract.

The shutdown is disrupting business as usual in many ways—and reinforcing just how many private-sector operations depend on a federal bureaucracy humming on all cylinders. Government-backed small-business lending has ground to a halt. Agencies can’t award or make payments on many new contracts. Scheduled workplace-safety inspections are on hold and so are many regulatory reviews.

Small government subcontractors such as Brian Butler’s marketing and communications firm said they are already being hit and don’t know when they will be paid for some work already done or how long the shutdown will last.

“That’s a very scary place to be in as an entrepreneur," said Butler, whose Lutz, Fla., firm, Vistra Communications, employs about 80 people and gets roughly three-quarters of its revenue from the federal government.

Butler laid off five of his 80 employees last week after the shutdown triggered a stop-work order on one of its projects. Butler paid the workers a week of salary and is covering the employees’ share of health-insurance costs for the month.

“If I receive one, two, three more of these, I’m not sure I can do that for that many people," said Butler of the stop-work orders.

Curtailed operations at the Securities and Exchange Commission have delayed some business plans. Vivani Medical, a tiny company developing drug implants, said it had to pause a planned spinoff of its brain-implant subsidiary since it couldn’t continue with registering the spinoff’s shares with the SEC. It had recently set Wednesday as the transaction’s record date—when it would determine which existing shareholders would receive the right to shares in the new company, Cortigent.

Vivani, which has a market capitalization of around $80 million, said it would set a new date once the SEC reopened.

Some economists worry the pain could spread to the broader economy if the stalemate stretches into weeks. The shutdown could cut annual economic growth by as much as 0.2 percentage point for every week it lasts, the consulting firm Oxford Economics estimates.

Much of that should be recovered when the shutdown ends, assuming the government makes good on delayed invoices and back pay for furloughed workers. Still, “the longer it goes on, the more of that hit to growth won’t be recovered," said Nancy Vanden Houten, lead U.S. economist at Oxford Economics.

Vinco, a telecommunications and electrical subcontractor, learned just over a month ago that it was part of the winning bid for a Minneapolis-St. Paul Air Force Reserve building upgrade. But the shutdown has held up the paperwork needed to process the contract, which would employ six to eight skilled electricians at Vinco for about nine months.

Steve Anderson, president of the Forest Lake, Minn., company, said he will put the electricians on other jobs, even if doing so means overstaffing some projects. That will hurt profit margins at the 300-person company, which receives about 5% of its sales from the federal government.

With a brief shutdown, it is hard to find work to fill the gaps. If the shutdown stretches on longer, he added, Vinco might have to lay off workers—or take less-profitable jobs to keep them. “There’s such a demand for the specialty electric trades that, if you lay them off or send them home, you will lose them," Anderson said.

Electricians, plumbers and other field-service professionals frequently count on stable government work to counterbalance less-predictable residential business, said Didi Azaria, chief executive of Workiz, an online platform providing scheduling, invoicing and other services to such disciplines. About 40% of sales for its 127,000 customers are from commercial or government accounts, and shutdown-related delays are mounting.

“Every job is getting delayed, or they’re not getting paid on time," Azaria said. “It creates a cash problem, meaning you cannot buy equipment, you cannot pay your employees."

Fire Starter Studios, a Santa Clarita, Calif., video-production company, typically gets about 50% of its revenue from federal contracts. Just days before the budget impasse, Fire Starter completed the General Services Administration process that allows it to contract with government agencies at preset rates, an effort that took two years and cost roughly $10,000.

“Now we have nothing to show for it," said owner Rachel Klein, who employs anywhere from a dozen to 200 people at a time. “No new business now means no money in two, three or four months."

Some effects from the shutdown might take longer to surface. At the Occupational Safety and Health Administration, which investigates workplace injuries and deaths, about 460 people are still working, without pay, out of a staff of 1,664, the Labor Department said.

Contingency plans for potential shutdowns in the previous administration called for all of OSHA’s inspectors to keep working, said Doug Parker, the OSHA head during the Biden administration.

The current staffing level isn’t “enough to respond to all of the complaints," he said. “It’s going to prevent OSHA from intervening to protect workers, " he added. According to the Labor Department’s shutdown plan, the department will continue to monitor and respond to imminent threats to human life and continue inspections in high-hazard industries.

Businesses that don’t work directly with the federal government are also bracing for a pullback in spending as the shutdown continues.

“We know from past experience that we will see lower sales than we would have as long as the government shutdown lasts," said Mike Roach, co-owner of Paloma Clothing, a 50-year-old women’s clothing retailer in Portland, Ore., with about 20 full- and part-time employees. “When consumers are less confident, they spend less money."

The shutdown’s timing makes things more precarious. Many retailers depend on higher fourth-quarter sales to stay solvent.

“I can guarantee you that every small-time retailer like Paloma is pulling their hair out," Roach said.

Write to Theo Francis at theo.francis@wsj.com, Ruth Simon at Ruth.Simon@wsj.com and Lauren Weber at Lauren.Weber@wsj.com