Your business has survived the first two or three critical years and your dream has become your career. You've learned to protect against your market's basic risks and come out ahead. But could your business - and your livelihood - survive a natural disaster, a major risk you can't predict?
These are the questions I asked about my own small business. My business isn't at risk for physical damage, but I could be devastated if a disaster struck my area. Like most small business owners, my business plan won't support the expense of private disaster insurance. The next best protection, as I discovered for my own business, is preparation.
Small business owners can hedge against the risks of physical damage and economic injury from disasters - including floods, fires, tornadoes, storms, and hurricanes - by planning their response in advance. Such planning begins with an understanding of the Disaster Assistance Loan Program available from the Small Business Association.
Here are the basics every small business owner should know about SBA Disaster Assistance Loans.
What Types of Disaster Assistance Loans Are Available?
Physical disaster loans help businesses repair or replace real estate and tangible property, including fixtures, equipment and inventory. Physical disaster loans range up to $2 million per borrower.
Economic injury disaster loans help businesses stay afloat after a disaster by helping with financial obligations the business would have incurred despite the disaster. Economic injury disaster assistance loans also range up to $2 million per borrower.
Who Can Qualify for a Disaster Assistance Loan?
Small business owners who have experienced physical or economic damage from a declared disaster. The SBA maintains a list of current declared disasters for your reference. Not all physical disasters are declared disasters. For example, localized damage due to fire or water damage will not qualify. Larger events with widespread damage are more likely to be declared disasters.
How Can Businesses Use Disaster Assistance Loan Funds?
Funds obtained through the Disaster Assistance programs are subject to some limitations.
Loan proceeds made for physical damage may be used to repair or replace equipment, facilities, inventory, machinery and leasehold improvements. In some circumstances, funds may be spent not only to repair real property or leasehold improvements, but also to make modifications to help protect against future disasters.
Economic injury disaster loans may be used to help meet business financial obligations that would have been met had the disaster not interfered. In short, these loans provide small businesses with the working capital they need to stay afloat until they achieve lasting recovery.
Where Can I Apply for a Disaster Assistance Loan or Obtain Additional Information?
The SBA website offers detailed application instructions and an option to submit an electronic application. The SBA website also lists the information small business owners should prepare in advance of their application, such as FEMA registration number and private insurance information.
By taking the time to review the options available through the SBA, a small business owner can be prepared to respond nimbly to save his or her business and livelihood in the event of disaster.