Natural disasters are increasing in number and intensity. Over the past five years, extreme weather events causing in excess of $1 billion in damage hit the United States an average of 18 times a year. Last year alone, the damage totaled $175.2 billion.
Businesses make up a sizable portion of those affected. The Federal Reserve found that 1 in 10 small and midsize businesses nationally suffered losses from natural disasters in 2021.
It’s in the best interests of bankers to be proactive about reaching out to their business customers before and after these events occur to let them know about the resources that are available to them.
Checking in Before a Natural Disaster
Though natural disasters can strike without warning, many offer some lead time. In the case of a hurricane, the projected path can help bankers determine which areas — and which small business owners — are likely to be impacted.
Outreach though email, phone or text might focus on recommendations on how to best prepare, with the understanding that every business is different and has unique needs. For example, in the case of business owners new to the Gulf Coast who have never had to prep for a hurricane before, one option is a checklist on how to physically prepare their building, protect their inventory and coordinate with their employees.
An outreach campaign pertaining to replacement claims on equipment also could be helpful. Business owners may need to have actual proof of purchase or installation to file a claim, and documentation is often stored at the business, which can be problematic if the location is damaged or destroyed. Bankers could offer advice on what to remove ahead of time.
Additionally, insurance claims often require documentation of pre-storm preparatory measures. Bankers can remind business owners of what they might need later on, in terms of documentation.
How Many Businesses Are We Talking About?:
The share of U.S. small and midsize businesses that suffered losses from natural disasters in 2021, according to a Federal Reserve survey:10%
It makes sense for bankers to prepare a communications plan well before there is any threat on the radar. Craft messages to address a variety of natural disasters, and review information the bank already has on its business customers — such as where they are located (and whether that is in a flood plain, for example) and what type of business they are in (single location restaurant vs. multiple location retailer, etc.) — to ensure that any outreach, if it becomes necessary, is as targeted as possible.
The Federal Emergency Management Agency’s National Risk Index is a useful tool that shows which communities are most vulnerable to weather events such as severe storms, flooding, extreme heat and drought. Bankers can overlay their own data about where their business clients are located with that of FEMA or other government agencies to get a better picture of exactly what types of disasters the businesses may face.
Offering Help After a Natural Disaster
Once a natural disaster strikes, businesses could potentially be shut down for days, weeks, or even longer. If a business is completely wiped out, personal guarantees may come into effect for some loans.
In situations where a business is temporarily or permanently closed, bankers should consider whether flexibility or forgiveness is an option.
Depending on the loan type, it may be possible to make modifications to loan terms under the bank’s own policies. These could include waiving fees, reducing interest rates, and/or extending loan terms. (Of course, some loans might have to be reclassified as a result.)
Don't Wait to Be Asked:
When a natural disaster occurs, bankers have an opportunity to be a resource for small businesses, whether in a consultative capacity or simply in helping speed up the gathering of financial data and paperwork for those seeking state and federal aid.
Bankers also can help their clients navigate the Small Business Administration’s Economic Injury Disaster Loan program. The loans are made mostly to individuals but around 10% of applicants are small businesses. Because this is a direct government lending program, the money is borrowed directly from the U.S. Treasury. The EIDL program has its own internal processes, systems, and loan officers dispersing and servicing its loans’ 30-year fixed term.
These long-term, low-interest, SBA loans help replace lost revenue in the event of natural disasters and or even some manmade ones. The SBA takes know-your-customer information, performs a business owner credit check, and then determines a maximum loan amount based on a formula that is driven by a business’ typical monthly revenue and the number of months of expected disruption.
Also of note, the Biden Administration finalized new rules that increase support for individuals and small businesses affected by a federally declared disaster. These changes ensure more flexible and affordable disaster loans are available to help the recovery effort. In addition, many states have similar programs to aid disaster-stricken small businesses.
Regardless of which approach — or combination of approaches — a small business may take, there is an opportunity for bankers to step in and serve, whether in a consultative capacity or simply in helping speed up gathering necessary financial data and required paperwork for their business banking customers to apply for state and federal aid.
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Strengthening Small Business Relationships
Bankers understand the importance of customer relationships. The real measure of those relationships is determined not when everything is going well, but rather when it is not.
The reality is that bankers and businesses alike will continue to be impacted by natural disasters of all kinds — from floods to wildfires — with increasing regularity. By proactively planning how to best support small and midsize business customers, bankers can truly fulfill the role of trusted advisor.
Being a trusted financial partner in a business’ time of greatest need is a sure path to a lifetime client relationship.
About the author:
Will Tumulty is the chief executive officer of Rapid Finance, a financial technology company that provides working capital to small businesses.