In the aftermath of Hurricane Sandy, which caused billions of dollars of damage in the Northeast, it’s important for small business owners to know where to turn for help. Carol Chastang, a spokeswoman for the Small Business Administration in Washington, D.C., explains to business writer Susan Caminiti what kinds of insurance coverage businesses should have and where entrepreneurs can turn for help.
SC: Let’s start with the kind of insurance coverage a small business owner should have. What would you consider essential?
CC: To start with, business owners should have liability insurance for their machinery, equipment, and any other business assets. That’s an essential. Of course, a business owner should have property insurance if they own the property where the business is located.
There’s also business interruption insurance, but often times there’s a tendency for business owners to view this as an extra expense that they don’t want to, or have to, incur. But in the long run, business interruption insurance really does pay for itself.
SC: Why should a small business have this form of insurance and what does it cover?
CC: Let’s just look at what happened on the East coast with Hurricane Sandy. Even if there was no physical damage to many small businesses, there were massive power outages. A power outage is the Achilles’ heel for any small business. You can’t operate and bring in revenue but all your expenses are still there. That’s why we recommend business interruption insurance.
It basically provides money for working capital. The expenses that the business incurs even while it’s shut down—rent, payment on equipment, for example—can be covered with this kind of insurance.
SC: We’ve covered the insurance part. Now what happens if there’s a disaster? What’s the first move to make?
CC: If it’s a presidential declaration of a disaster, we recommend that businesses and homeowners get in touch with the Federal Emergency Management Agency (FEMA). They are the first stop in getting into the recovery food chain, so to speak, and will provide information about recovery grants available for businesses in various states. However, as a small business owner you need to keep in mind that FEMA does not offer aid to businesses directly. You can get FEMA aid as a homeowner or renter who suffered damage to your residence, but the FEMA aid is for that, not for your business.
CC: [Help] comes in the form of a direct low interest loan from the SBA. The insurance companies are dealing with thousands and thousands of claims and we can’t say what the wait time is going to be to have a claim processed. So we recommend that small business owners don’t wait and instead file a disaster recovery assistance application with the SBA as soon as they can. Of course, during this time we encourage businesses to also be working with their insurance companies. But the SBA loan is going to come through faster. Once you settle with the insurance company, you can then use those proceeds to pay off the SBA loan.
SC: What’s the turnaround time for a small business to get a check from the SBA?
CC: From the time they submit their application it’s roughly 20 days until the business owner gets a check in hand. They file the paperwork through the SBA. We have recovery centers set up in all the states that were declared disaster areas.
SC: Is the process complicated?
CC: It’s not as complicated as one would think. The application is about three pages, front and back. There are just a few basic numbers the business owner needs. In addition, we have an arrangement with the IRS so that when a business owner is filing a disaster loan application they will submit a form giving us permission to obtain two to three years worth of federal tax returns. With Hurricane Sandy, no one was prepared for the amount of flooding or fires that occurred, and in many cases, important business documents were just gone. The onus of providing those tax returns is not on the business owner, who has just gone through this harrowing experience. If financial papers are lost in a fire or flood, we can still obtain the information and get the loan process underway.
SC: What kind of loans do you provide and what are the terms?
CC: We have two disaster loan programs for small businesses. The first one is for physical damage to the business. The loan limit is $2 million and we offer up to 30-year terms with a four-percent interest rate. The business owner can use it to repair or replace real estate, equipment, machinery, inventory, and furniture—anything that was damaged or lost. It is used to make the business as it was before the disaster. It’s not to be used to expand the business. The deadline for filing this application is December 31, 2012.
The second loan is an economic injury disaster loan. This loan provides working capital for the business that might not have suffered damage but was nonetheless unable to operate due to a power outage, for instance. It covers expenses that continue to accrue during the time the business was shut done or not operational during the disaster. It too carries a four-percent interest rate, the limit is $2 million, and the term is up to 30 years. The deadline for filing this loan application is July 31, 2013. Most of the business disaster loans we make are at the four-percent interest rate. There are some exceptions based on access to credit or additional assets that a business might have.
SC: Can a small business be approved for both types of loans?
CC: Yes, but the cap is still $2 million overall. So if you’re approved for a $1 million loan for the physical damage, you can only be approved for $1 million for an economic injury disaster loan.
SC: What other help does the SBA give small businesses on disaster preparedness?
CC: For the past two years we’ve been in partnership with Agility Recovery, a company that provides business continuity solutions for businesses. With them, we do free, live monthly webinars that are hosted by a business continuity expert. They run the second Tuesday of each month. We’ve gotten tremendous positive feedback from business owners on the webinars because we give useful tools they can utilize today and not just when a disaster strikes.
This interview has been edited and condensed.
The opinions expressed above are those of the individual interviewed for this article. Since each situation is unique, you should seek the advice of a qualified professional to address your specific circumstances.