By: Brock Blake
Natural disasters can strike at any time, and have a devastating impact on communities and small businesses. For owners, government organizations like the Small Business Administration (SBA) have been offering disaster relief since before World War II, and continue to do so today with Hurricanes Harvey and Irma. According to MarketWatch, as of last week, the SBA had received 2,117 loan applications from residents and businesses affected by Hurricane Harvey.
Unfortunately, not all small businesses are able to recover after a natural disaster, and 75 percent of small businesses don’t have a disaster plan in place. According to the Federal Emergency Management Agency (FEMA), 40 percent of small businesses don’t reopen after a natural disaster due to the astronomical cost of repairing damages. Even if the small business does reopen, 52 percent of owners say it would take at least three months to recover.
No one can predict a natural disaster, but there are precautions you can take. Here are three things your business can take care of now to prepare for a natural disaster and get back up and running quickly:
1. Let your lender know about your situation.
Proactively call your primary bank, or any financial institution where you have credit, and let them know about your emergency situation. Most of the time they will work with you to defer payments and waive fees until your business is back on its feet. It never hurts to ask. In light of Hurricane Harvey, the majority of the 75 lenders on Lendio’s platform have agreed to work with small business borrowers in the impacted areas to defer collecting payments after the storm hit.
2. Research resources for low-interest disaster loans.
The SBA has two loan programs to help disaster victims. One is for physical damages with interest rates not exceeding 4 percent and terms of up to 30 years, and the second is for economic injury, which covers expenses you would have been able to pay before disaster struck. Businesses can borrow up to $2 million with these loans. The U.S. Department of Agriculture also provides a loan program to help eligible farmers and ranchers rebuild from farm-related losses due to tornadoes, flooding, or droughts.
Even if you don’t qualify for a disaster loan, or if you need quick, short-term working capital, there are plenty of options available. Consider applying for a business line of credit so you instantly have access to capital when an emergency arises. The benefit of a business line of credit is that it’s a fixed amount, and for the most part, you aren’t required to use the funds until you need them, and it won’t gather interest in the meantime.
3. Save for the unexpected.
Having a reserve of money to keep up with employee wages and expenses is essential since it takes time to complete insurance claims and undergo the process of repairs. Have at least 30 days worth of savings to cover your expenses. Complete a cash flow forecast to help prevent a future cash shortage and have a better idea of what you’ll need to stash away. That also means gathering, organizing and securing backups of your financial paperwork. Consider reconfiguring your budget to reduce overhead costs, pay off loans, and reduce existing debt to free up more cash for unexpected emergencies.
Keeping your small business running after a natural disaster is important, but the safety of you and your staff is most important. If your community is hit by a natural disaster, contact organizations such as FEMA to find emergency management agencies in your state. If you’re in an area that could be affected by a natural disaster in the future, a good place to start is the SBA, which offers checklists and safety tips for hurricanes, winter weather, earthquakes, tornadoes, wildfires, and floods.