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Entrepreneurs' Port in the Storm

It may be months before Hurricane Katrina victims can even begin to rebuild their homes, businesses, and lives. As it stands, New Orleans remains under water, a final evacuation of what's left of the Big Easy's some 500,000 residents is under way, and the official toll of the damage wrought by the powerful storm has yet to be fully assessed.

The Gulf Coast remains paralyzed, with virtually every industry shut down. While the hurricane and its aftermath have affected businesses of all sizes, small companies -- with fewer employees and resources and more of a reliance on cash flow -- have suffered a particularly sharp blow. The physical damage and long-term losses can jeopardize small outfits or wipe them out altogether.

REBUILDING TO COME. For many years, the Small Business Administration's Office of Disaster Assistance, based in Washington, D.C., has provided relief during times of natural disasters. It has offered low-interest loans to homeowners and economic-injury disaster loans to small businesses unable to pay bills or meet operating expenses.

While it remains too soon to begin any kind of rebuilding effort, the SBA is already ramping up for the immense challenge that lies ahead. BusinessWeek Online reporter Stacy Perman recently spoke with SBA Administrator Hector Barreto about how the agency is preparing to assist disaster victims affected by Hurricane Katrina. Edited excerpts of their conversation follow:

Given the damage from last year's hurricane season and warnings that predicted an equally rough storm season this year, what has the SBA undertaken in terms of preparation and support?

We are always planning. It is very difficult to predict a hurricane or national disaster. We realize that we need to have people ready to go on a moment's notice to respond to the needs of small businesses, homeowners and renters, and potential candidates for an SBA loan or service.

President Bush has described Hurricane Katrina as one of the worst natural disasters in American history. Logistically, how do you respond with an event of this magnitude?

We had a meeting with the President, the Cabinet, and all of the agencies. When you are dealing with something like this, you react to the priorities at hand. Right now, that is saving people. We are not in the rebuilding phase. There are a lot of folks who need help. They are stranded, and they need the basic necessities like food, water, and shelter.

We are working closely with FEMA [the Federal Emergency Management Agency]. And when the time is appropriate and we are able to get in there, we will locate disaster-recovery centers and the then assess what damage has occurred to business and homes.

Do you have a timetable?

We are looking at this in different phases. Immediately, we are in intense coordination with FEMA and getting ready to react when it is safe to get in the affected areas. We are having almost hourly conference calls with FEMA and state officials.

In the short term, we have a cadre of disaster specialists, but we are in the process of bringing many new ones with specialized abilities to go out in the field -- loan processors, inspectors, outreach to government agencies, attorneys, and paralegals.

In the long term, we plan on having customer-service representatives in every disaster recovery center. This is not just localized -- we need a regional ability to respond. With something this large, it is difficult to predict how much and how long, but the President said we will do whatever it takes to get these folks back onto the road to recovery.

How do recovery efforts compare in monetary terms to Hurricane Andrew in 1992 or the four hurricanes that struck Florida last year?

It is too early to tell. This will be a very large response, and it will take a long time.

To put it in some perspective, for the hurricanes that hit last year [in Florida], we approved $2.2 billion in loans to 64,500 residents and business owners. There will be a lot more damage [from Katrina], and last year's hurricanes didn't affect cities as densely populated as New Orleans. This is a whole different magnitude.

Given that, is the SBA financially equipped to respond? Will you need to allocate extra funds for recovery efforts?

We have monies in reserve. We have $339 million for administrative costs and plenty of resources to do what we need to now. Our fiscal year ends on Sept. 30, so we have a new budget on Oct. 1. And in terms of loans, we have more than $2.6 billion in loan-making authority. The federal government has never run out of money for SBA loans.

What are the particular challenges that small businesses will face to get up and running again?

They often don't have the resources of larger companies or the money to move their people or operations. Small businesses often depend on cash flow to exist, and obviously they are shut down for what may be a long time.

We have economic-injury loans. People may not have physical damage to their property, but they may need working capital for months of lost sales. They might not even know what they have lost until sometime in the future, six months or longer.

They might come to us and need a personal property loan or money for their homes, damages to their business, and economic injury. We are the disaster bank for the federal government. We offer direct loans at favorable and flexible rates.

In the meantime, is there anything that a displaced small-business owner can do to prepare to open shop again?

Some folks can't get back to business yet -- they will be operating blind. We recommend that those who can go to our Web site as a first point of reference for information about loans.

They may not yet know what kind of personal or business damage they have. We suggest they start making an inventory of things that need to be preserved or replaced. It will be easier when they can do a physical inspection, but they should be prepared.

We learned from 9/11 that those with a contingency plan came back the quickest. If a small business doesn't have a plan, then they need to start thinking about such issues as: Who do I need to contact, and what are their numbers? Will I need employees? If I can't operate here, is there another location? Do I have backup?

There are questions that business owners must deal with immediately. They are not there yet, but sooner or later these are issues they will need to deal with.


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