Small Business Financial Assistance Following Disasters

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When a disaster like a hurricane, earthquake, forest fire or tornado strikes, small businesses are often hit hard. They may not have a disaster plan in place or the resources to quickly recuperate after an emergency. The Federal Emergency Management Agency estimates that approximately 40 percent of small businesses never reopen after a disaster because the cost of recovery is so high.

However, small businesses may be able to receive financial assistance after a disaster by pursuing resources that they may not know are available to them. By being aware of such programs, they may be able to avoid the fate of many other businesses that simply close down after encountering their first disaster.

Financial Problems of Small Businesses after Disaster

Small businesses may not be prepared to handle disasters for a number of reasons. One may be that they do not have adequate insurance to cover the loss. The disaster may not be covered under the insurance policy for some reason. The business owner may not have the right kind of insurance. For example, he or she may not have flood insurance. The Insurance Information Institute reports that many small business owners are covered under a business owner policy, which often does not cover floods.

Even if the business is covered by insurance, the insurance funds may be delayed due to many claims in the same area. Insurance carriers may require additional paperwork, estimates and other documents to establish coverage and how much in insurance proceeds should be provided. A claimant may not have access to insurance policies and other documents he or she needs because of evacuations or because the documents were destroyed in the disaster.

It may take a lot of time for a contractor to come and make repairs to the business when he or she is booked for several jobs in the area. Financial scams may increase after a disaster when scammers take advantage of distraught business owners. It may take time to build back up inventory, restore computer systems and get the business ready for reopening.

Small Business Loans

The United States Small Business Administration often offers loans to business owners who were affected by a disaster area. It may have a variety of loan types to assist small business owners in this position. It may offer physical disaster loans as well as economic injury loans. The United States Small Business Administrationís mission is to help make the economy stronger by establishing and supporting small businesses. It is also committed to supporting economic recovery in communities that are affected by a disaster.

The Small Business Act permits the Small Business Administration to provide disaster recovery loans to homeowners, renters, businesses and nonprofit organizations. These loans are often low-interest and may provide much-needed funds to approved applicants within a month of applying. The amounts and terms of the loans are based on the financial condition of each applicant. There is a cap for businesses of $2 million to repair or replace real estate, machinery, equipment, inventory and other assets that were damaged or destroyed.

In fiscal year 2016, the Small Business Administration provided in excess of 25,000 disaster loans that totaled over $1.4 billion. The loans are backed by the government. The Small Business Administration also helps small businesses gain access to federal contracts, many of which may see increases after a disaster.

Other Financial Support

After a disaster, there may be additional funds that are available to individuals. Individuals should contact the Federal Emergency Management Agency to check if any programs may provide financial support during this time. Other federal and state agencies may provide additional access to claimants for financial support and recovery. Private charities, non-profit organizations and other entities may provide funding when thousands are affected by a disaster.

Word of Caution

Sometimes after a disaster strikes, small business owners may be contacted by scammers who seek to get their information and steal their identity or otherwise cause financial harm to them. These scammers may also try to provide loans at incredibly high interest rates or with unfavorable terms due to the urgency of the situation. Small business owners should ensure that they are talking to whom the person identifies himself or herself as.

Seek Legal Assistance from a Business Lawyer

After a disaster strikes, it can be difficult for small businesses to recover. To protect their financial and legal interest, business owners may wish to consult with a business lawyer before entering into an agreement.


Disclaimer: While every effort has been made to ensure the accuracy of this publication, it is not intended to provide legal advice as individual situations will differ and should be discussed with an expert and/or lawyer.

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