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Article 1 (Sept 2017): Hurricane Harvey Highlights Small Business Risk

September 28, 2017
The devastation left by Hurricane Harvey is a good reminder to small business owners that preparing for disaster is essential.  Catastrophic hurricanes claim close to 40 percent of small businesses, according to FEMA.  It can take years for even the most prosperous businesses to recover.  Most Mom-and-Pop operations running on the edge never reopen.
According to a 2016 study by Harvard Business Review, small and young businesses, already taking big financial risks, are notably unprepared for a disaster such as a hurricane.  The study focused on small and young business recovery one year after Hurricane Sandy in 2012.  Among its findings:
  • Many firms were uninsured. Nearly one-third of companies affected by Sandy had no insurance of any kind.  Of firms less than five years old, about 60 percent were uninsured.  Those that were insured found that their insurance covered none of their losses.
  • Businesses increased their debt load when they could.  More businesses applied for credit after Sandy than received insurance payments.
  • Credit was often constrained.  Firms unprepared for disaster found that their interest rates went up after Sandy.
  • Smaller firms were unable to secure credit because they did not meet the requirements, according to an informal survey by the New York Daily News.
  • Community banks reduced lending.  After Sandy, so many households and businesses were affected all at once that small banks found loan defaults depleted capital.  They were unable to lend.
The study concluded that risk analysis had to be made a strategic priority.
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