Now that Hurricane Ida has subsided, the hard and arduous clean-up and rebuilding work begin. As a category 4 hurricane, Ida swept through large portions of the United States, hitting the Gulf Coast and the East Coast. While people often think first of homeowners when they think about the damage caused by a hurricane, with over $50.1 billion in damages to deal with on account of the disaster there is no doubt that thousands of impacted small business owners will be working hard over the coming months and years to rebuild their businesses as well.
As part of this, small business owners will want to pay special attention to the different forms of disaster assistance available to them. Fortunately, there are a number of programs and other forms of assistance available for those who were impacted by Hurricane Ida which are designed to support them as they recover from the storm’s impact. The assistance programs are offered at the federal, state, and local government levels, as well as by numerous nonprofits. Last Friday, President Biden and the White House approved a major disaster declaration for areas impacted by Hurricane Ida, giving them access to FEMA funding and numerous other federal assistance programs.
Disaster recovery can be a tough task, so small businesses should attempt to utilize all of the public assistance and disaster relief available to them. These programs can mean the difference between a successful recovery effort and a failed recovery effort. In this article, we’ll discuss some of the various recovery assistance programs available for small businesses as well as how small businesses can access them in a timely manner. That way, businesses impacted by Hurricane Ida can obtain the funding and assistance they need and emerge from the wreckage stronger than ever before.
Small Business Administration (SBA) Loans
The main coordinator of the federal government’s response to natural disasters is the U.S. Small Business Administration (SBA). The SBA (which can be visited at sba.gov) offers low-interest disaster loans to small businesses in areas that are considered “disaster zones.” Be sure to check the SBA website’s page on “Presidential and SBA Agency Declared Disasters” to see if your business is in a qualifying area. For example, businesses in certain areas of New York, New Jersey, and Louisiana, such as New Orleans, are currently eligible for disaster assistance on account of Hurricane Ida.
In particular, in light of the situation with COVID-19 and the ongoing pandemic, the SBA has opened a Virtual Business Recovery Center and Virtual Disaster Loan Outreach Center aimed at providing individual assistance to small business owners. These centers operate via a helpline that businesses can call into to receive personalized assistance that is specific to their business’ individual needs. This hotline is a great resource for small businesses that have questions about the various SBA loan programs and how they relate specifically to their individual situation. Each business is unique, so having a resource that can provide up-to-date information that pertains to your exact situation can make a real difference in your recovery effort.
Emergency Injury Disaster Loans (EIDL)
The keystone loan of the SBA is their emergency injury disaster loan (EIDL), which is designed for small businesses and nonprofit organizations that are unable to get credit elsewhere.
EIDL loans can provide up to $2 million and are designed to assist businesses in meeting financial obligations and operating expenses that they would have been able to meet had the disaster never occurred – in essence, they are designed to return businesses to their status quo operation. This means the funds can be used for utilities, fixed debt payments, healthcare benefits, rent, working capital, and other normal expenses that a business incurs on a daily, monthly, and annual basis. The terms of EIDL loans are also typically very generous, with interest rates not exceeding 4% and maturity dates as far as 30 years out (the repayment term of the loans are determined by the borrower’s ability to repay the loan). There are also no pre-payment penalties or fees associated with the loans, meaning businesses can pay off the debt early without having to worry.
It should be noted that EIDL loans are not designed for physical property damage – this is reserved for another category of SBA loans, which will discuss directly below. EIDL loans can actually be obtained by small businesses even if there was no actual property damage caused to the business by the hurricane. Instead, businesses only need to show that the hurricane impacted their ability to meet daily, weekly, monthly, and/or financial obligations 8th they otherwise would have been able to cover. The combined total of both the EIDL loan and the property damage loan that businesses receive cannot exceed $2 million.
EIDL loans make a lot of sense for small businesses in disaster areas since they are perfect for smoothing out cash flow during a time where your business probably won’t be operating as usual. While many small businesses have insurance to cover property damage and other physical damage caused by natural disasters, many do not have insurance to cover losses in revenue and decreased cash flow during the aftermath of a natural disaster. However, the dramatic fall in revenues that often takes place after a natural disaster is often the very issue that causes otherwise successful and sound small businesses to fold.
EIDL loans exceeding $25,000 also require businesses to put down some form of collateral, with real estate being the preferred source. A loan exceeding $200,000 also requires a personal guarantee from the borrower, which is something to consider since it can put a small business owner’s personal property and assets at risk.
EIDL loans can be applied for conveniently online. Once your application is submitted, the SBA will send out an inspector who will estimate the cost of damage to your business. They will then be able to determine your eligibility for a loan.
SBA Physical Disaster Loans
Physical disaster loans offered by the SBA are another area businesses can receive assistance in. These loans, unlike EIDL loans, are specifically designed for covering property-related disaster losses not covered by a business’ insurance company and policy. Nonprofits are also eligible for these loans.
Diving a little deeper, these proceeds are designed specifically to be used for real property, equipment, machinery, inventory, fixtures, and leasehold payments. Basically, anything in your place of business that has been damaged physically and which was not covered by insurance is eligible.
That said, it is important to emphasize that the funds cannot be used for any sort of upgrading or expansion work unless it is required by updated building codes. The funds are designed for recovery only, and the SBA does not want them being used for improving businesses. However, businesses can apply for what is known as mitigation assistance. Mitigation assistance consists of funds that are designed to be used for making improvements to property that will help reduce the risk of any future property damage that would be caused by a similar disaster. This can be a good idea for small businesses that want to increase their overall preparedness level for future incidents, especially since SBA loans typically have strong interest rates and a term of up to 30 years. Additionally, if a business’ request for mitigation assistance is approved, their initial physical disaster loan can be increased by up to 20% of the loan amount based on the SBA’s determination. This means businesses can receive not only enough funds to fix the damage to their property, but they can also receive funds to then help secure those fixes for the future. We recommend considering this if you are in an area where the probability that your business is impacted by another natural disaster is high. The interest rates on SBA loans are typically very competitive since they are subsidized by the federal government, which means another opportunity to secure your business for the future may not present itself in the future before it is too late.
For applicants that are able to obtain credit elsewhere, the interest rate for a physical disaster loan will not exceed 8%, while those who cannot obtain credit elsewhere will benefit from a cap of 4% on the interest rate. A business’s ability to obtain credit elsewhere is determined via an assessment conducted by the SBA. This is similar to the EIDL loan, as the SBA programs operate as a lender of last resort in disaster recovery scenarios.
State and Local Assistance
As part of the response to any natural disaster state and local governments also typically offer disaster assistance of their own. Individuals and businesses should be diligent about checking in on their state government’s website regularly for information related to disaster recovery efforts.
For example, Louisiana currently has a site dedicated to providing the latest news on recovery efforts related to Louisiana specifically. On the site, individuals and businesses can register for FEMA Disaster Assistance and receive updates on the latest disaster-related happenings.
Many municipalities and local governments will also offer resources for small businesses impacted by natural disasters. It is not uncommon for them to set up funds to help local small business owners get back on their feet, and oftentimes these funds – though typically small in amount – do not have to be repaid. We highly recommend contacting your local Chamber of Commerce or a similar local institution to learn about what sorts of local resources are available to your small business as you attempt to navigate the recovery process.
Local charity organizations are another common resource for disaster recovery funds. Odds are they’ll be working overtime to raise funds for the recovery effort, so be sure to see if you qualify for any assistance. If your business made it through the pandemic relatively unscathed, you might also consider making a donation or assisting these organizations in their efforts. This is not only the right thing to do, but it can help build credibility and a good local reputation for your business in the community. People won’t forget who was there to help them in their time of need, and when times improve, odds are they’ll pay you back by frequenting your establishment.
Traditional Loans and Alternative Lenders
Outside of loans and funding designed specifically to aid disaster recovery, businesses can also seek out traditional loans and funding from alternative lenders.
If your business has a strong track record of successful operation and a good credit score, obtaining a loan from a traditional lender should be no problem. Plus, given interest rates still remain relatively low, this can be a great option for businesses that are in need of cash flow.
For businesses that have credentials that aren’t quite as strong, alternative lenders are a great resource for obtaining loans. While the interest rates are typically higher since the loan is considered riskier, they are a great resource if your options are limited and you need funding. Alternative lenders can provide lines of credit, traditional term loans, working capital solutions, and more.
Finding Forms of Disaster Assistance
One of the best online resources for finding disaster assistance is disasterassistance.gov. As part of the Federal Emergency Management Agency (FEMA), the site allows businesses and individuals to find assistance via online tools.
By answering just a few questions about yourself, your location, and your situation, the site can direct you to dozens of different federal disaster assistance programs in just a matter of minutes. Additionally, since FEMA assistance is designed for all individuals in the United States, these tools can be used for finding individual disaster assistance that is unrelated to owning or operating a small business, which can be useful for small business owners who were impacted personally as well.
As part of the federal government’s response to Hurricane Ida, the Internal Revenue Service (IRS) has extended various forms of tax relief. Individuals and businesses impacted by Hurricane Ida in certain areas now have until January 3 to file their federal personal and/or business tax returns.
To qualify for this tax relief, individuals must live in an area that FEMA has designated for individual or public assistance. The IRS has released the full details on their website. If you are having difficulty discerning exactly how these changes may impact your business’ tax filings and obligations, we highly recommend seeking out the help of a certified public accountant (CPA) that specializes in working with small businesses. They will be able to provide you with solutions act are specific to your individual business and the corresponding circumstances.
In addition to federal tax relief, The New Jersey Division of Taxation has also offered relief for state income taxes for the year. Louisiana has done the same for its residents. To date, however, there have been no announcements from The New York Department of Taxation and Finance.
The process of recovering from a hurricane can be exceedingly difficult. Not only are small businesses faced with the challenge of repairing physical damage to their stores and inventories, but they also have to face a suppressed local economy afterward. This means that, even when the storm is over, the impacts still loom large over small business owners. However, with the proper approach to recovery, you can ensure that your business’ recovery is strong and quick.
The number one influencer in how your business’ recovery goes really all boils down to research. Understanding what options are available to you is critical in order for you to make an informed and reasoned decision. As such, we highly recommend doing your due diligence and weighing all of the options available to you. In particular, we highly recommend looking at resources that might be being offered locally, since they can make a real difference and are often overlooked in favor of federal programs.
At Biz2Credit, our mission is to serve the millions of small businesses located in the United States. With the ongoing pandemic – which has had an unprecedented impact on business both large and small in America – and recent natural disasters on both the east and west coast, our mission has never been more important than it is now. As such, we continue to work tirelessly to provide small business owners with up-to-date information on the latest news and trends impacting the small business community. So, please continue to check back here at our Biz2Credit Blog for the latest articles!