Although the 2009 hurricane season has been relatively quiet, small businesses and home-owners alike have faced their fair share of disasters this year – floods in the mid-west, wild fires in California, an extraordinarily long tornado season, and long-term drought conditions across several states.
For small business owners the consequences of such natural disasters or emergencies can be devastating. According to post-disaster estimates, over 40% of all companies that experience a disaster never reopen, and over 25% of the remaining companies close within two years.
To coincide with Disaster Preparedness Month, here are some steps you can take to help you prepare for a disaster as well as an explanation of the financial lifelines available to you and your business should the worst happen.
Before Disaster Strikes – Protect Your Business
Of course, your first line of defense against any disaster is to be prepared. Every responsible small business owner should consider developing an emergency preparedness and management plan that makes it easier for you to manage through a disaster and re-build after the event. To help you develop your plan, take a look at www.ready.gov . The site is designed to educate and empower business owners to prepare for and respond to emergencies, and includes tips and resources to help you develop an emergency plan.
In addition, take a look at this Small Business Disaster Planning Guide from www.business.gov that includes step-by-step advice for protecting your business assets, including your property and business records (including those irreplaceable tax and financial records) as well as a business recovery checklist to help you get back on your feet again after a disaster.
After Disaster Strikes – Get the Right Financial Aid
If you are affected by a disaster, your first step should be to contact FEMA and request assistance. This will ensure that your day-to-day living and personal needs (from clothing to medical expenses) are taken care of so that you can focus on rebuilding your life and your business. You’ll also need to register with FEMA if you choose to apply for a business disaster loan.
When it comes to getting financial assistance and tax relief for your small business there are several options available from the Small Business Administration (SBA), the Farm Services Agency, and your state government (find your state emergency information here). Here is a summary (largely drawn from Business.gov’s Disaster Assistance, Loans, and Tax Relief Guide) with links to additional information:
1) SBA Disaster Recovery Loans
The SBA provides low-interest, long-term loans. These disaster loans are the primary form of federal assistance for the repair and re-building of non-farm, private sector disaster losses. There are two main types of loans available:
a) Physical Disaster Assistance Loans – These loans provide assistance to businesses, not covered by insurance, who have suffered property damage or destruction in a disaster. Loans cover the repair or replacement of disaster-damaged property owned by the business, including real estate, inventories, supplies, machinery and equipment. Businesses of any size are eligible. Private, non-profit organizations such as charities, churches, private universities, etc., are also eligible.
b) Economic Injury Disaster Loans (EIDL) – EIDLs provide capital to small businesses and to small agricultural cooperatives (impacted by an agricultural production disaster designated by the Secretary of Agriculture) to assist them from economic injury caused directly by the disaster, and permits you to maintain a reasonable working capital position during the period affected by the disaster. Your loan amount will be based on your actual economic injury and financial needs.
To apply for these loans you must be situated in an officially declared disaster area and have registered with FEMA for assistance. You can submit your loan application to the SBA online here or visit your local SBA Disaster Recovery Center for guidance.
Read this SBA Disaster Loan Fact Sheet for more information.
2) Farm Emergency Loans
The USDA’s Farm Service Agency (FSA) provides emergency loans to help producers recover from production and physical losses due to drought, flooding, other natural disasters, or quarantine. These loans can be used to restore or replace property, pay all or part of production costs associated with the disaster year, pay essential family living expenses, reorganize the farming operation, and refinance certain debts. Read more about eligibility and how to apply here.
3) Tax Relief Assistance
Special tax law provisions may help taxpayers and businesses recover financially from the impact of a disaster. Depending on the circumstances, the IRS may grant additional time to file returns and pay taxes.
Both individuals and businesses in a federally declared disaster who paid taxes in the tax year immediately preceding the tax year in which the disaster occurred, can choose to deduct your loss on a Form 1040X (Amended U.S. Individual Income Tax Return) for the prior year instead of waiting to file your current year return. This allows you to receive a refund of some or all of the taxes paid on your prior year return. More on this from the IRS here.
- Business Emergency Preparedness Guide – From Business.gov, this online resource combines information from across government on preparing a disaster plan; disaster assistance, loans and tax relief; disaster clean-up and safety; and more.
- Small Business Loans and Grants Search Tool – Quickly and easily find government loans (including disaster loans) and grants from both the federal government and your state government.
- Tutorial of SBA’s Disaster Assistance Programs (www.sba.gov)
- IRS Disaster Tax Center
- Disaster Preparedness Month You Tube Video from SBA Administrator, Karen Mills, offers preparedness tips for small business owners.