An image of the outside of the Biltmore Estate's Gate House Shop. The building features a red door, surrounded by flowers, and shows a knocked over table and chairs due to the aftermath of hurricane activity.
Insights

Improving Small Business Disaster Response and Recovery

The Disaster’s Next Wave

When a natural disaster strikes, the physical destruction and its costs typically dominate the headlines. Less attention is paid to the secondary effects disasters have on a community—especially its small businesses. The Federal Emergency Management Agency (FEMA) estimates that 40 percent of small businesses never reopen after a natural disaster, and within one year, an additional 25 percent shut down. The Small Business Administration (SBA) estimates that closer to 90 percent of small businesses never reopen after being struck by a disaster. It's primarily the small businesses that provide the first wave of critical support and act as economic first responders during and after a natural disaster. Yet, beyond FEMA grants and SBA loans, there is little reliable support for the small businesses themselves. Natural disasters often turn into devastating economic disasters for small businesses, from which most never recover.

For the Good of the Community 

After Hurricane Helene, Asheville, NC, could only be reached by air for weeks as the two main highways connecting the city to the rest of the state were either washed away or blocked by landslides. It was the local small businesses that spearheaded recovery efforts before official disaster response teams and supplies could reach this bucolic town nestled high in the Blue Ridge Mountains. Breweries, which are the second-largest manufacturing employer in the city, bottled and donated water from their inventory before supplies could be flown in from the outside. It was the local restauranteurs who helped World Central Kitchen activate just one day after the hurricane hit to ensure residents, who were without both power and water, had something to eat. Landscapers donated their equipment and time to help clear roadways and debris, but some are now facing eviction from their homes because they were not compensated for their volunteer services. More recently, Los Angeles street taco vendors quickly mobilized to feed first responders and coordinate broader grassroots relief efforts.

Most small businesses have less than three months of operating cash on hand for emergencies. Small businesses are the least able, from a financial perspective, to aid their community, but they are consistently the most active in offering aid during and after a disaster. Why? For the good of the community. In times of crisis, we naturally turn to those closest to us. Small business owners are the closest to their communities. Their relationships with their patrons are often personal, not only transactional. Lucy Jones, PhD, noted in a recent op-ed for the Los Angeles Times: "We are more willing to face risk when we are helping others."

These volunteer efforts ultimately reduce the government's burden to help a community recover after a natural disaster. Most businesses are never compensated for the support they provide to their community, and there is little support beyond low-cost loans to help these businesses survive. A single natural disaster can wipe away years, if not decades, of work. 

Rethinking Resilience 

As the frequency of natural disasters increases and impacts become more widespread, we must rethink how to support small businesses, given their overall importance to the economy and community resilience. The Department of Treasury noted that "small businesses have long played a critical role in our economy, but that role has grown post-COVID expansion."

Our physical infrastructure should be better able to withstand natural disasters, but we must also address how to make small businesses more resilient. Small businesses are infrastructure, and it's time we support them as such by prioritizing their survival after a natural disaster strikes.

The Byzantine patchwork of government aid and ad-hoc philanthropic support creates a significant administrative burden at the worst time. GoFundMe campaigns often provide the timeliest, though most unreliable, source of capital. Interest in these campaigns can fade as quickly as the headlines and success often depends more on social media savvy rather than matching funds to the level of aid provided. After Hurricane Sandy, the GAO highlighted the challenges of navigating federal programs, resulting in missed opportunities. Missed opportunities have an economic cost; they are a form of unmeasured government waste. Federal and state governments spend billions of dollars a year on programs to spur entrepreneurship and support small businesses but offer limited help to existing businesses survive a natural disaster.

The Milken Institute recommends the following actions to improve the post-disaster small business survival rate: 

  • Appoint a cross-agency Small Business Resilience czar who will convene a Small Business Disaster Response and Recovery Council to coordinate federal resources, reduce overlap, and increase the efficiency and efficacy of government spending.
  • Create a Small Business Resource and Connections Hub to serve as a clearinghouse for federal, state, and philanthropic resources and to facilitate the public-private connection to those resources.
  • Establish a long-term recovery fund for disaster loans at the SBA.
  • Update national, state, and local disaster resilience plans to incorporate small business preservation as a goal.
  • Provide immediate grant relief for businesses that could not open because of a lack of municipal utilities yet face denial of business interruption insurance claims.
  • Provide one-time tax credits to small businesses that donated time, resources, and space to the community during the recovery process.
  • Create a standardized post-disaster application similar to the FAFSA to streamline the post-disaster grant and loan application process for small business owners.

Instead of letting natural disasters continue to feed the bleak statistics, we believe it’s time to test a new disaster response playbook. One that recognizes the critical role small businesses play in a community and prioritizes their survival. Read the full report, Weather and Waste: Rethinking Small Business Support Following a Natural Disaster.