Federal spending cuts cripple some small businesses with government ties

A Maryland-based technology consulting firm said it cut 20% of its staff when a federal funding freeze left the business unable to pay its bills.

A career-development company in Colorado said it lost out on four of every five dollars in revenue when the federal government canceled all of its contracts.

An Alaska-based logistics firm scrubbed mentions of diversity, equity and inclusion, or DEI, from hundreds of federal documents within 36 hours to salvage millions in government funds, the company said.

A cost-cutting spree carried out by President Donald Trump's administration has put thousands of public employees out of work, but the slash-and-burn approach has also spilled over into the private sector, crippling some small businesses with ties to the federal government and weakening a federal agency tasked with supporting small firms, according to interviews with seven small business owners, as well as small business advocates.

Companies connected to the U.S. government account for about 7.5 million jobs, the Brookings Institution found. That figure amounts to roughly 4.5% of the nation's workforce.

Many of those firms are small businesses, which received a total of roughly $180 billion in federal contracts over the year ending in September, or nearly $3 of every $10 in contracts over that period, according to the U.S. Small Business Administration, a government agency.

John Arensmeyer, founder and CEO of advocacy group Small Business Majority, warned earlier this month that the Trump administration's actions had left the organization "deeply worried."

"Directives to halt all federal funding will make it impossible for small businesses to access critical loans and grants," Arensmeyer added.

The White House did not immediately respond to ABC News' request for comment.

Press Secretary Karoline Leavitt on Friday reaffirmed the administration's commitment to spending cuts.

"There should be no secret about the fact that this administration is committed to cutting waste, fraud and abuse," Leavitt told reporters. "The president campaigned on that promise, Americans elected him on that promise and he's actually delivering on it."

Trump's push to halt federal funding included an executive order last month pausing funding for USAID, a federal foreign-aid agency.

Occams Group, a technology consulting firm based in Columbia, Maryland, saw its revenue nearly cut in half this month after the Trump administration paused funding for a USAID contractor that makes up one of Occams Group's largest clients, founder and CEO Ali Sinan told ABC News.

Some invoices from as far back as December remain unpaid, Sinan added, saying business with the contractor accounted for $200,000 per month in revenue. Annual revenue at Occams Group stands at more than $5 million, Sinan said.

"I was left scrambling," Sinan said. "We couldn't make payroll."

The firm cut ties with about 10 of its 50 staff members, while the remaining employees worked longer-than-normal hours as the company sought new business, he added.

"The small business is supposed to be the engine of the economy," Sinan said. "My company has been left behind."

On Feb. 13, a federal judge issued a temporary restraining order that lifted the pause on foreign aid. As of Friday, Sinan said Occams Group had not received payment from the client that contracts with USAID.

On Monday, a federal judge found the Trump administration had violated the restraining order, calling on the White House to fulfill millions in foreign aid payments.

Layoffs from private sector contractors may impact the economy faster than some federal job cuts, Julia Pollak, chief economist at ZipRecruiter, told ABC News.

Federal employees who accept a buyout offered by the Trump administration are set to receive full pay through September. By contrast, private sector employees who lose their jobs could miss out on pay and benefits almost immediately, delivering a quicker blow to the economy, Pollak said.

"There's a degree of worry and concern and uncertainty that extends a lot further than the federal workforce," Pollak added, pointing to the pullback of federal funding as a factor in a recent decline of consumer attitudes about the economy.

"There are many, many businesses and nonprofits that get a substantial share of their budgets from the federal government, and they're now worried they may be affected by these cuts," Pollak said.

In addition to a wide-reaching push for government spending cuts, Trump issued an executive order last month cancelling federal contracts and grants for DEI initiatives. The move aimed to "terminate" all "equity-related" contracts and grants, the order said, cutting funding for businesses that helped provide the programs.

Hanaa Jiminez, who runs Gold Cardinal Consulting, a management advisory firm in Aurora, Colorado, said the federal government in recent weeks canceled all of its contracts, which accounted for $14.5 million or about 80% of the company's annual revenue.

"The first contracts to go were the DEI ones, but then the leadership and coaching ones that we were providing were also canceled," Jiminez said. "It was very sad to learn."

The company may need to layoff some of its five employees, Jiminez said, but first she will explore ways to reduce her take-home salary.

"It's really to make sure we can prevent layoffs as much as possible," Jiminez added.

A federal judge in Maryland on Friday blocked the White House order cutting DEI grants and contracts. As of Tuesday, however, the company's contracts had not been reinstated, nor had the company received an indication that they would be, Jiminez said.

The push to eradicate DEI from federal contracts has also imposed onerous compliance challenges, Christine Hopkins, who runs a pair of logistics companies in Anchorage, Alaska, told ABC News.

A government official who oversees the firms' government contracts urged Hopkins to remove all mentions of DEI from hundreds of documents within a day and a half to ensure that the contracts remained in place, Hopkins said.

Government contracts totaling about $7 million make up about 80% of revenue at the two companies: SCI Federal Services and Advanced Supply Chain International, she said.

The DEI programs focus solely on boosting employment for military veterans and their spouses, added Hopkins, who voted for Trump.

"It was frustrating to have to respond in the short term to what I would call making the documents politically correct," she said, acknowledging that she supports the Trump administration's broader goal of cutting government waste.

"I'm not conceptually opposed to what is happening," Hendricks added. "I'm opposed to how fast it's happening and with how little consideration."