How can my small business financially recover after a natural disaster?
Recovering after Hurricane Harvey was expensive for businesses, but more so for small companies who gasped for financial air in the months after. With customers still displaced and a lack of revenue to pay workers and keep the lights on, small businesses have turned to loans to make ends meet.
“A disaster can have an outsized impact on a small business compared to a big business,” said Jennifer Rabb, director of Rice University’s McNair Center for Entrepreneurship and Economic Growth.
While many small businesses bounced back in the wake of the hurricane — a 2019 study from Texas A&M – Corpus Christi found that 75 percent of businesses reopened within six months in Rockport (Aransas County), one of the hardest-hit cities — others still find themselves still on shaky ground.
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Where can I find money if I’m still recovering from Harvey?
A grant recently made available by the Texas General Land Office and Texas Back in Business will hand out $100 million in grants for small businesses who need funds to continue recovering after Hurricane Harvey.
That might mean hiring more workers to get up to the production levels they were at before Harvey came through. Or it could mean getting more supplies and inventory through a business’ doors.
“For some of them, the debt continues to strangle them,” said Dan Slane, the founder of Texas Back in Business. “They can’t buy inventory, can’t hire people. The owners are working 16 hours a day.”
To qualify, the business must be from one of the 49 counties affected by Harvey, defined as a small business according to the Small Business Administration, damaged in Harvey and in business on the day the hurricane struck. Grants will be dished out in increments ranging from $50,000 to $250,000 starting in 2020, officials said.
The application is straightforward, requiring information from the time that Harvey whirled over Southeast Texas and details about how much physical and economic loss the business faced after the hurricane. What’s most time-consuming is the part of the form that asks for a description of what the business plans to do with the money — the award can’t be used as a reimbursement, for repairs or for getting more property.
Applications are then entered into a randomized computer system to pick apps. When the companies come in for an interview, they’ll have to bring three years of tax returns, Slane said. Then, an underwriter with Texas Back in Business will help them determine whether they qualify to receive more or less money.
Businesses will not need to pay taxes on the grants, Slane said.
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What if I need money to recover in the future?
The SBA approves loans up to $2 million for physical damages and “economic injuries” — problems like holes in the supply chain due to a disaster, said Timothy Jeffcoat, district director for the agency’s Houston chapter.
It starts when the governor writes a letter to the president asking to declare a disaster. Once declared, the SBA opens up loan applications.
But the period of eligibility varies on the intensity of the disaster. Recovery efforts could go on long after.
To qualify, a business must have good credit and show an ability to pay its loans on time.
“We’ll bend over backwards to make a loan work but there’s got to be something from a loan underwriting perspective to begin with,” Jeffcoat said.
After Harvey, 3,257 property damage loans and 527 economic injury loans were handed out to businesses to help them recover from the disaster, according to the SBA. Those loans must be paid back within a 15- or 30-year period.
“It takes a long time for a business to bounce back,” said Steven Lawrence, director of the University of Houston’s Texas Gulf Coast Small Business Development Center. “A lot of times small businesses will go borrow money from relatives, bank accounts, friends and they’ve got to pay that back before they can get up and running again.”
Local farmers can use the U.S. Department of Agriculture website to find assistance programs for crop and livestock disasters.
How do I prepare for the next disaster?
Jeffcoat says the most important thing for business owners to do is to electronically back up financial records on a cloud server. If a business turns to loans for help, they have to be able to prove that they’re creditworthy and are current on other loan payments. That means keeping tax returns and other financial documents in a safe place.
Paper records and ones stored on a computer’s hard drive are susceptible to fire or water damage. By backing them up on a cloud server (think Dropbox Business, Citrix or Microsoft OneDrive), owners and employees can access the files securely from anywhere.
Businesses should also have a rainy day fund and insurance for future damages.
“If you’re looking at a loan or grant program after the fact, that means your insurance is inadequate,” Rabb said.
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The SBA’s Houston office hosts disaster readiness workshops sporadically throughout the year, popping up at local business events as guest speakers. A calendar of future events is available on their website.
The Texas General Land Office is working on a $4.3 billion package of flood prevention investments to help government entities prepare for future floods, but until then, your best bet is to be ready for the worst. After all, in Texas, it’s a matter of when, not if.