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After the Storm: A Small Business Guide to Disaster Loans

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In late September, 2024, Hurricane Helene ripped through the Southeast U.S. with what President Biden called “history-making” effects. With a rising death toll and billions of dollars in damages, the impact on families and communities is devastating. With a federal major disaster declaration for counties in Florida, the Carolinas, and Tennessee, some financial relief is on the way. Unfortunately, small businesses face significant challenges after a natural or unexpected disaster like Hurricane Helene. While the impact may vary based on location, industry, and disaster level, there are a few key any small business can do to lessen the economic impacts of natural disaster and acquire disaster loans.

Key ways that small business can recover from disaster:

Physical Damage to Property and Assets

Impact: Buildings, inventory, and equipment can be damaged or destroyed by high winds, floods, and debris associated with natural disaster. Likewise, businesses can often face delays or denials in their insurance claims, which delays cost repair or stretches the timeline for repairs.

Recovery Tip: Assess the damage quickly and file insurance claims for your small business immediately. Sometimes it can be difficult to remain levelheaded after disaster, but remember to take many photographs, keep records of the damage, and work with reputable contractors to get estimates for repairs or replacements.

Revenue Loss from Forced Closures

Impact: Forced closures during and after a disaster can result in a significant loss of revenue, especially for businesses that rely on a daily sales cycle like restaurants, retail stores, and service-based companies. Transportation and logistics networks may be disrupted, making it difficult for businesses to receive supplies. And in dire cases of emergency, customers may leave the area temporarily or permanently, reducing demand for services.

Recovery Tip: Apply for SBA disaster loans or local assistance programs to cover lost income and operational costs while your business is closed. Consider moving some operations online or offering limited services to keep cash flow going and to maintain your sense of the customer base during unexpected times.

Supply Chain Disruptions

Impact: Natural disaster can disrupt the transportation of goods and supplies, causing delays or shortages.

Recovery Tip: Diversify suppliers if you feel you are relying on a single source for one good or product. Establish backup agreements with alternative vendors and explore local suppliers who may have the ability to provide more in the circumstances.

Power and Utility Outages

Impact: Power outages can disrupt business operations, including online orders, point-of-sale systems, and production.

Recovery Tip: Invest in backup power solutions, such as generators, to keep critical operations running during outages. Also, look into cloud-based services that allow you to operate remotely as needed.

Workforce Disruption

Impact: Employees may be physically unable to report to work due to displacement from their homes or a number of transportation challenges. Most small businesses see an uptick of employee absenteeism during times of disaster.

Recovery Tip: Create an emergency communication plan to stay in touch with employees. As is possible, offer flexibility, including remote work options, or temporary paid leave to keep your workforce intact and loyal.

Decreased Consumer Spending

Impact: Your customer base may be financially impacted by the disaster, leading to reduced demand for your products or services.

Recovery Tip: Adapt your marketing strategy to target new or existing customers online. Consider offering discounts or flexible payment options for loyal customers during the recovery phase.

Increased Operating Costs for Recovery

Impact: Repairing damage, replacing equipment, and restocking inventory can significantly increase operational costs after a hurricane.

Recovery Tip: Seek financial assistance, such as SBA disaster loans, FEMA grants, or state and local programs. These can help cover recovery expenses without straining your cash reserves.

Photographer: Library of Congress | Source: Unsplash

Reputational Damage

Impact: If your business is unable to fulfill orders or provide services, customers may turn to competitors, damaging your brand.

Recovery Tip: Communicate with your customers about the status of your business. Be transparent about delays or issues and provide regular updates to maintain trust and customer loyalty. Remember, it’s best to be genuine when communicating about challenges. Recognize that many of your customers may be dealing with similar negative effects.

Emotional and Financial Strain

Impact: The emotional toll of dealing with the aftermath of a disaster, combined with financial uncertainty, can be overwhelming for business owners.

Recovery Tip: Small business owners may have invested personal savings into their business, and the destruction or disruption caused by natural disaster could be devastating for their personal finances. In any instance, small business owners should seek support from local business networks, recovery organizations, and mental health resources.

Difficulty in Accessing Aid and Resources

Impact: While disaster loans and grants are available, the application process can take time, and many businesses may face immediate cash flow problems while awaiting assistance. Likewise, it can be daunting to navigate the complex paperwork required for disaster loans, insurance claims or government aid.

Recovery Tip: Reach out to a trusted financial advisor to help you sort through complex paperwork or claims. Financial experts, such as Loan Mantra, can help you determine the best economic recovery strategies and help you find assistance. Similarly, many nonprofits or other professionals are available to help small businesses get disaster loans and aid.

A car is damaged by a tree uprooted during natural disaster
Photographer: Mick Haupt | Source: Unsplash

What kind of federal assistance or disaster loans are available?

After a natural disaster like Hurricane Helene, small businesses can access various disaster loans through the U.S. Small Business Administration (SBA). The SBA offers disaster assistance in the form of low-interest loans designed to help businesses repair or replace real estate, inventory, equipment, and other assets damaged or destroyed. Businesses of all sizes, private nonprofits, and homeowners or renters (depending on the loan type) may apply.

Applications are typically available through the SBA website or local disaster recovery centers. Businesses will need to provide financial statements, tax returns, and other documents to prove damage and financial loss.

Here are the primary types of disaster loans available:

SBA Disaster Loans for Physical Damage

Business Physical Disaster Loan: Available to businesses of all sizes to repair or replace real estate, equipment, inventory, and other business assets damaged during a disaster.

Loan Terms: Up to $2 million with terms as long as 30 years, depending on your ability to repay. Interest rates for businesses without credit elsewhere are low (around 4%) and slightly higher for businesses with credit elsewhere.

SBA Economic Injury Disaster Loans (EIDL)

Economic Injury Disaster Loan (EIDL): This loan provides small businesses with working capital to meet necessary financial obligations that they could have met if the disaster had not occurred. It's designed to help businesses recover from the economic impact of a disaster, such as revenue loss.

Loan Terms: Up to $2 million at interest rates around 4% or lower for businesses without credit elsewhere, with a term of up to 30 years. These loans are only for essential needs, such as payroll, rent, or operating expenses.

SBA Military Reservist Loan Program

Military Reservist Economic Injury Disaster Loan (MREIDL): For small businesses whose employees are essential to the operations of the business but are called to active duty. It helps the business meet operating costs until the employee returns.

State and Local Loan Programs:

State and Local Relief Programs: Some state and local governments offer disaster relief programs, which may include low-interest loans, grants, or temporary tax relief.

Private Loans and Grants:

Non-SBA Lenders: Some banks and credit unions may offer special disaster recovery loans for businesses, often at low or no interest. Additionally, businesses can look for grants from nonprofit organizations or industry-specific programs.

Federal Assistance through FEMA:

FEMA Grants and Assistance: While FEMA generally helps homeowners and individuals more than businesses, it can offer assistance to some small businesses, particularly agricultural enterprises or non-profits, as well as provide information on SBA disaster loans.

Next Steps:

Hurricanes like Helene, or any other natural disaster, can hit small businesses hard, but with the right recovery strategies, you can minimize the damage. By securing financial assistance, communicating with employees and customers, and preparing for future disasters, your business will weather the storm.

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