Coronavirus: Why Is It So Hard To Aid Small Businesses Hurt By A Disaster?

As you might expect, we found that the most common reasons the SBA denied loans were unsatisfactory credit and lack of repayment ability.

Older businesses, corporations and companies with more employees received the highest loan amounts after Hurricane Ike, even when controlling for damage. These types of companies were already in a much better position to survive a disaster like a hurricane – which is likely why the SBA deemed them less financially risky and worthy of a disaster loan.

Getting those loans made a big difference in survival rates. My research found that companies that secured an SBA loan were significantly more likely to be around nine years later.

Paperwork and fuzzy guidelines

But the approval rate tells only a part of the story, since it doesn’t capture businesses who never made it through the application process.

Many businesses in Galveston described applying for federal funds as “difficult” and “cumbersome,” leading many to simply withdraw their applications.

This is again where larger businesses have an advantage because they are more likely to have the necessary documents digitized – vital when a disaster destroyed the physical copies. They also have specialized staff that are familiar with financial paperwork and know how to navigate the loan process without having to take away from the day-to-day operational needs of the business. This also helps them capitalize on fuzzy guidelines about who is eligible.

A report to Congress from the House Committee on Small Business suggests that some businesses actually refused loans after they had been approved due to lengthy delays. As one Galveston business owner told us, “by the time you get the money your small business may be broke.” Average wait times for Hurricane Ike were 11 months after landfall.

The city of Galveston offered local companies a bridge loan intended to tide them over until the disaster loan came through, but my interviews indicated that though helpful, this mostly benefited businesses with an existing relationship with affiliated banks.

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This article is republished from The Conversation under a Creative Commons license.

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Moon Kil Woong 3 months ago Contributor's comment

Because the money is flowing to the banks that fund big companies to keep them from defaulting. Also, because of if not outright government corruption, an entrenched bias to big business which writes bills and has the administration cater to the wealthy. It is good this is coming to light because something should be done about this. It hurts the free market system and prevents growth and innovation. Sadly this money will go to airlines, cruise ships, fast food chains,and hotels and not to others. Thus small R&D, technology, diverse restaurants, and ways of housing the poor will be overlooked and not funded.