Blow Me Down! Small Businesses in Hurricane Zones Still Lack Insurance
A Q&A with the SBA disaster-relief czar Bernard Kulik
The hurricane season has struck with a vengeance. Hurricane Floyd's 125-mile-per-hour winds and huge seas have pushed people from their homes from Florida on north. President Bill Clinton has declared South Carolina, North Carolina, Florida, and Georgia disaster areas, making them eligible for federal relief. No question, small businesses will sustain plenty of damage -- and sadly, many won't be insured, even those in areas that are perennially in the path of great the storms.
Bernard Kulik, the Small Business Administration's disaster czar, has seen this scenario many times in the 18 years that he has directed the agency's programs. Business Week Online's Julia Lichtblau spoke to him about how prepared small businesses are for Hurricane Floyd and other catastrophes, the loans the federal government provides to those who are hit, and how they can use that money. An edited transcript follows:
Q: What is the SBA doing for small businesses that are in the path of a hurricane?
A: We make long-term, low-interest loans for anyone who has lost physical property, to repair or replace physical damage not covered by insurance otherwise. We also make available...economic injury loans to small businesses without credit... As soon as [an area] is declared a disaster, we start operating. We work very closely with FEMA [Federal Emergency Management Agency] in this connection. Anybody at all who has any damage...will be hearing on radio and television, and just about any other way, a FEMA 800 number for teleregistration. That number starts the [loan application] process.
It's 1-800-462-9029...Instead of contacting us directly, you'll call that 1-800 number. If you have any questions, you will be transferred to the SBA, or the information will be taken, and an application will be mailed to you.
We can go up to $1.5 million for physical damage if the business is a major source of employment...We can even increase that limit. But for the most part, you're talking up to $1.5 million for a combination of physical and economic injury. Our goal is to get you an answer...within 21 days of getting a completed application...We do a quick credit check. We will send out our loss verifier...Then we'll do the credit analysis and tell you yea or nay and what the terms are. Ninety-six percent of the loans that go out to businesses will be at 4% ....Terms can go up to 30 years...We calculate what payments you can make monthly, and we figure the term from there.
Q: In the modern world, what's been destroyed might be computer equipment and data. That's a tricky area.
A: It's awfully difficult to put a value on data. We wouldn't cover that. Of course, the equipment we would cover. You can be put out of business for a time, and that's where economic injury [assistance] comes along. That's not a matter of just lost profits -- but if you get to the point where you can't cover normal operating expenses. If you have a store, and the road leading to your strip mall is out of commission for three months, that's where economic injury comes in.
Q: I understand you have a new preventative program -- but that's not going to help for this hurricane.
A: Yes. Pre-disaster mitigation loans that will be put in place after the first of fiscal year 2000. What we hope it will do is to act as an encouragement to people who are in disaster-prone areas...to look around and say: "Good Lord. This could happen to me. How can we mitigate against this problem in the first place?" We would be offering loans of up to $50,000 to small businesses to take mitigating measures. It could be something simple, like if you're in a flood-prone area, move your utilities out of the basement up to a level that doesn't get flooded that easily.
It's a pilot...Congress has authorized the program for each of the next five fiscal years and has given us up to $15 million to spend for each of those years and asked us to keep records of what good it does. You can get insurance. But hell, wouldn't you rather not have the damage? This isn't rocket science.
Q: What is your perception of small-business preparedness in areas that are susceptible to this sort of thing?
A: It's too rare. In most instances, [people think] disasters happen to someone else.
Q: If you live in Florida, North Carolina, or Long Island, hurricanes are not exactly an unusual thing. Are those the people who aren't prepared?
A: Yes, they are not prepared...You remember the flood that hit Grand Forks (N.D.) two years ago. That was the result of enormous snowstorms...When you see the size of the snow banks, it didn't take rocket science to know that this stuff has to melt. FEMA put on a sizable campaign urging people to sign up for flood insurance. I think about 17% actually did.
Q: Why is the taxpayer subsidizing this if people who live in an area where this happens every year don't want to buy flood insurance? I guess that's a political question.
A: It's a political question...You'd be amazed at how many people don't. One of our requirements is that if we make you a loan, you have to be covered by insurance. I can't tell you how many people don't like that.
Q: We talked about data. What is the SBA doing to get people to take stock of the need to insure this?
A: I'm always asked the question: "How much insurance should I have?" There's a very glib answer that I give: Calculate what you can afford to lose. Everything else should be covered by insurance.
Q: When you look at the storms coming down the pike, what are you bracing yourself for?
A: The worst. This is a weird storm. It's enormously spread out. If it moves fast, the damage will mainly be from the storm surge or the wind. If it moves slow, then you've got an additional damage factor of hours and hours of rain and flooding.
Q: Is there any effort on the part of the government to get the insurance companies to write policies that people have a prayer of understanding?
A: Bluntly, the answer is no, and the reason is simple. The insurance industry has never been regulated by the federal government. It's always been regulated by the states. Any time anyone even talks of making it federal, there's all kinds of hue and cry raised...I'm not saying that the states can't do as good a job. It's just the states don't all do the same job.