How Small Businesses Should Plan for Disasters

Photograph by Blake Sell/AP Images

Sveinn Storm pumping water out of his flooded store, Storm Bros. Ice Cream Factory, in October 2012 in Annapolis, Md.

Businessweek:
By Karen E. Klein September 06, 2013

Question: After Hurricane Sandy, I didn’t even have time to think about preparing for the next disaster. Now that my business is finally running smoothly again, I’d like to prepare in case another major storm hits. What should I be doing?

Image via CrunchBase

Answer: You’re ahead of the game, since your business has survived one major disaster and you’re familiar with what it takes to recover and reopen. The U.S. Small Business Administration estimates that one-quarter of businesses that are hit by disaster fail as a result.

Even after coming through a catastrophe—whether it be a hurricane, fire, or terrorist attack—some small business owners don’t prepare for the next one, says Bob Risk (yes, it’s his real name), who owned a 65-employee disaster cleanup business for 18 years and now works as a safety expert for Staples (SPLS). “I’ve seen people get hit with a flood, fight to get back into business, talk about how terrible it was, and then three months or three years go by and the exact same thing happens—and they haven’t taken any measures to deal with it.”

BLOG: What Happened to Small Businesses Walloped by Hurricane Sandy?

SBA opens Disaster Loan Center in Austell, GA, October 26, 2009 (Photo credit: Wikipedia)

If you’re worried that disaster prep will be costly and time-consuming, those fears are unfounded, says Bob Boyd, president and chief executive of Agility Recovery, based in Charlotte, N.C. Small steps can make a big difference. “Don’t get paralyzed by worrying about big solutions that are expensive when it’s easy to knock off the low-hanging fruit,” he says.

English: Martinsville, IN, June 13, 2008 -- U.S. Small Business Administration (SBA), Deputy Administrator, Jovita Carranza, offers aid and advice to a Hoosier family after flooding in southern Indiana, at a Disaster Recovery Center (DRC). Barry Bahler/FEMA (Photo credit: Wikipedia)

Boyd recommends you start at the SBA’s disaster planning site and think through the three major problems that result from disasters: loss of power, loss of communications, and loss of property. “If you can take phone calls and keep production going, you’ll be light years ahead of your competitors. Your customers will never come back to you if your business fails them. But everyone will come to you—and they’ll never leave—if you prove your business to be successful and trustworthy,” he says.

Here’s what to do:

STORY: The Disaster Response Industry's Salesmen of the Apocalypse

English: Goldsboro, NC, October 6, 1999 -- Michael C. Allen of the U.S. Small Business Administration, explains recovery programs at a forum recently held in Goldsboro, NC. The SBA works in partnership with FEMA to assist the victims of disaster. Photo By DAVE SAVILLE/ FEMA News Photo (Photo credit: Wikipedia)

Plan for power loss. Talk to an electrician about what kind of generator you would need to power your business and how to get one in a hurry. “Most business people don’t know what they would need if they had to find a generator someplace,” Boyd says. If you plan ahead, he says, “as soon as you lose power, you can make one call and get one.”

Plan to communicate. With power down, you may not be able to rely on electronic devices or have access to important contact information. “Make sure your employees know how to reach you and how you’ll communicate with them in an

English: Findlay, Ohio, September 20, 2007 -- Small Business Administration (SBA) representative Gilbert YingLing (L) listens to Brian Wilkins, a local business owner whose glass company suffered extensive damage in recent flooding. SBA contacts local business owners as part of their Disaster Outreach Program. John Ficara/FEMA (Photo credit: Wikipedia)

emergency, whether it’s on Facebook (FB), Twitter, or through text messages,” Boyd says. Print out important phone numbers, bank account numbers, credit-card numbers, and any other information that is critical to your operation and update it regularly. Then put hard copies in several locations and make sure your staff knows where they are located.

Plan to keep working. Your final major hurdle will be finding a place to work if your location is under water or otherwise inaccessible. “Think through where you’re going to go, and don’t just rely on a work-from-home strategy,” Boyd says. “If your office is dark and unconnected, your home may be also. Come up with some remote locations where you can relocate temporarily, perhaps setting up a reciprocal arrangement with a business or a friend in another city.”

BLOG: The SBA’s Role as Home Lender, Post-Oklahoma Tornado

Buy basic supplies. It’s easy to purchase emergency preparedness kits and keep them in your office, your home, and your car. They can be expensive, though, and will probably include many items you don’t really need. “Grabbing an old duffel bag and throwing some basic things in there can meet your requirements just as effectively,” Risk says.

What should be in it? Risk suggests crank-powered radios, flashlights, and cell-phone chargers; heavy-duty extension cords; emergency water; mylar blankets and inexpensive ponchos; and rubber boots that can be pulled over your shoes. Don’t forget easy to carry emergency food, such as high-calorie energy bars with long shelf-lives. And, for 50¢ or $1 each, glow sticks on lanyards provide 12 hours of light in case you need to evacuate your employees or walk home after dark.

Prepare your employees. “Designate a disaster preparedness point person, or team, to spearhead the planning efforts,” Esmail Hozour, chief executive of Palo Alto (Calif.)-based Etón, which sells preparedness products, writes in an e-mail. That team should set up an area for employees to meet in your building or outside it; maintain an updated list of employees to make sure everyone is safe and accounted for after a disaster; display emergency contact information in a central location in your workplace, and encourage your staff to enroll in first aid and CPR classes, paid for by your company.

STORY: The Importance of Disaster Plans

Check out some additional resources: The Independent Community Bankers of America, a trade group representing 7,000 community banks, lists financial preparedness tips on its website. The SBA is hosting three free webinars this month on disaster preparedness for small businesses.

Klein is a Los Angeles-based writer who covers entrepreneurship and small-business issues.

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This Month, a New Financing Crisis for Small Businesses

Smallbiztrends blog
June 3, 2011
By Dawn R. Rivers
Since a lot of folks (primarily policymakers) seem to think that small businesses don’t need anything at all but access to debt financing in order to thrive, it’s interesting that we have a couple of highly relevant bits of nongovernmental research on the subject this month….

Financing, From a Slightly Different Angle
MultiFunding’s National Lending Snapshot for the first quarter of this year finds what it calls a “national collateral crisis” underway. According to its findings, MultiFunding divided small businesses into three groups: A) Asset-Rich Borrowers (31 percent of small businesses, in this survey), B) Moderate Borrowers (47 percent), and C) Non-Lendable Borrowers (15 percent).

The A borrowers should have no trouble getting bank financing and getting great rates, because they not only have the credit rating and the cash flow, they also have assets with which to secure loans.

The B borrowers have the credit and the cash flow, but they lack collateral and would have to turn to alternative lenders (factoring, unsecured loans with higher rates, friends and family, etc.).

The non-lendable borrowers, or C borrowers, are just what they sound like. Their only option would be microlenders and, even then, the amount they could borrow would be severely limited (most microlenders cap loans at $35,000 to $50,000).

Image via CrunchBaseMicroFunding concludes that we are facing a collateral crisis among small business owners. The challenge is particularly acute among small businesses earning less than $1 million in annual income but, no matter how you slice it, this survey suggests that a whopping 62 percent of small business owners would be unable to qualify for a bank loan right now (and only 20 percent would qualify for an SBA loan).

“Research showed that, in today’s economy, collateral is a key factor in determining interest rates. Credit and cash flow, previously important in assessing a small businesses’ credibility, have taken a backseat to equity in their balance sheet.”

Buyer Beware

Image via WikipediaA new study by the Pew Charitable Trusts has found that American households receive more than 10 million offers per month for business credit cards, and the majority of those cards have “potentially harmful terms that would not be legal on those labeled for consumer use.” That’s because consumer credit cards fall under the jurisdiction of the Credit CARD Act of 2009, while business credit cards (the primary form of financing available to most microbusinesses) remain unprotected….

About the Author

Dawn R. Rivers, an award-winning small business journalist, regularly reports and analyzes small business policy and research as the publisher of the MicroEnterprise Journal. She also publishes research at the Microbusiness Research Institute and she blogs at The MicroEnterprise Journal Blog.

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Congress restores incentives to make SBA loans more attractive

Memphis Business Journal

Memphis Business Journal - by Kent Hoover

Congress … restored incentives that made Small Business Administration loans more attractive for borrowers and lenders.
The $636 billion defense bill that was signed into law Dec. 21 includes $125 million for the SBA, which the agency will use to increase the government guarantee on its flagship 7(a) loans to 90%. The funds also will enable the SBA to eliminate fees for borrowers on its 7(a) loans and 504 loans, which primarily finance real estate. This will return the guarantee and fees to where they were before Nov. 23, when the SBA ran out of the economic stimulus funds that enabled the agency to make these enhancements.
The new funding, however, is expected to last only through Feb. 28, 2010. The House, in a separate jobs bill, appropriated $354 million to keep the higher guarantee and lower fees in place through Sept. 30, 2010. That extension awaits Senate approval.
“We’re hopeful that it gets done,” said Tony Wilkinson, president and CEO of the National Association of Government Guaranteed Lenders.
…The SBA “needs to be stepping up and filling that void,” [Wilkinson] said. Given the constraints on bank lending, “this is pretty much the only game in town.”
The SBA’s normal guarantee on 7(a) loans ranges from 75% to 85%, depending on the size of the loan. The higher guarantee made SBA loans even less risky for lenders, and the fee reductions made the loans more affordable.
“These changes proved very effective at jump-starting small business lending, and the need to continue them is clear,” said Sen. Mary Landrieu, D-La., who chairs the Senate Small Business and Entrepreneurship Committee.
…The SBA set up a waiting list for borrowers and lenders who wanted loans with a higher guarantee or reduced fees if more money for these breaks became available. As of Dec. 21, there were 838 loans totaling $431 million sitting in the 7(a) loan queue, and 192 loans totaling $114 million in the 504 queue.
President Barack Obama, who urged Congress to renew the stimulus-funded breaks on SBA loans, also favors increasing the size limits on SBA loans. This, he said, would enable more businesses to expand and hire more workers as the economy recovers.
Landrieu’s committee approved legislation Dec. 17 that would increase the maximum size of 7(a) loans from $2 million to $5 million. The bill would increase the size limit on regular 504 loans, which are paired with conventional loans, from $1.5 million to $5 million. The loan limit for small manufacturers or projects that meet certain energy guidelines would increase from $4 million to $5.5 million.
This legislation also would allow businesses to refinance short-term commercial real estate into a long-term, fixed-rate 504 loan.
Kent Hoover is Washington bureau chief for American City Business Journals. He can be reached at (703) 816-0330 or khoover@bizjournals.com

Susan Wilson Solovic: Chances of Getting SBA 7(a) Loan for Your Small Business: Slim to None!

Huffington Post

So Why Does the Obama Administration Want to Give SBA TARP Funds?

…I'm fed up with listening to the sound bites … espousing feigned concern and commitment to helping small businesses survive …. I'm also tired with the headlines that mask the real problem. "TARP Funds will Boost Small Business Growth'. Beyond the headline is a plan to give TARP money to the SBA and the 7(a) program, a system that is broken and broken badly. …

The SBTV.com editorial team and I have done extensive reporting on the SBA's failures during this downturn. …SBA lending specialists as well as sources inside the SBA … reveal a common theme: A small business owner's chances of getting an SBA 7(a) loan are slim to none. The restrictions are absurd, and the application process beyond reason. The only business owners who qualify for loans are the businesses that don't need them. According to the SBA's own statistics, loans are down 60 percent so far this year. …

When you approach the small business problem with small business innovation, it becomes clear that giving more money to an institution that doesn't know how to get the money to the people it's intended to help is a huge mistake. … It's time the media start digging for the real stories, and stop offering coverage that masks the real issue.

Here's a recommendation for the Obama Administration and Congress. If you really want to help small businesses quickly and effectively, utilize the powers of the SBA's Disaster Loan program which allows the agency to provide direct loans to small businesses in designated disaster area. Congress has the power to declare certain areas of the country disaster areas for the purpose of this program. While this isn't a panacea for the long-term, it will help place funds in the hands of hundreds of thousands of small businesses so they can truly be the economic engine that helps drive our country's economic recovery.

Our government acted quickly to provide direct assistant to businesses that failed because of poor management, judgment and greed. Why not support the business leaders who are the real victims of this recession -- small business owners who create jobs and find innovative solutions that give our country a competitive edge?

Follow Susan Wilson Solovic on Twitter: www.twitter.com/susanSBTVcom

Small Businesses Might Not Be the Key to Economic Recovery

BNET Intercom BNET

By Stefan Deeran

July 2nd, 2009 @ 1:05 pm

“Small businesses vital to economic recovery go bankrupt” blares a new headlines from USA Today. … It’s been constantly repeated as fact from pundits and politicians over the last few months that small businesses hold the key to the future. … Small businesses create 80 percent of all new jobs and drive “innovation in virtually every field,” according to a recent release from the US House Committee on Small Business.

But is all this actually true?

First of all, when many of us think of a “small business,” we think of our local bakery or bookstore. But according to the Small Business Administration, a “small business” in America has less than 500 employees. … So many of the small business figures we keep hearing about may be based on a population set that isn’t quite valid.

Secondly, it makes sense to assume that we might see evidence of an economic rebound from smaller businesses first. If consumer spending inches up, restaurants may add a few more shifts before corporations start adding salaried positions to their payrolls. … But the jury is still out as to whether small businesses actually cause economic growth.

Whether implicitly or explicitly stated, the “vital to economic recovery” argument really rests on the idea that entrepreneurs will save the day. … Unfortunately, entrepreneurship may not be the economic silver bullet after all.

Here are a few of the reasons why, according to Scott Shane, a professor on entrepreneurship at Case Western Reserve University:

• To get more economic growth by having more start-ups, new companies would need to be more productive than existing companies. But they’re not.
• Far from being job creators, as a whole, new firms have net job destruction after their first year.
• On average, jobs in new firms pay less, offer fewer fringe benefits, and provide less job security than jobs in existing firms.

Shane concludes that the only small start-ups that actually create lasting, well-paying jobs and economic growth are the few hundred each year that receive substantial venture capital. In Shane’s view, government programs that encourage almost anyone to start a business are flawed because “they stimulate more people to start new companies disproportionately in competitive industries with lower barriers to entry and high rates of failure.”

Stefan Deeran consults environmental advocacy groups and businesses on their sustainability strategies and communications plans. He also publishes the online newsmagazine the Exception.