As a small business owner, you have undoubtedly invested a lot of time, money, and effort into the success of your venture. When a disaster happens, it can be a matter of minutes for all of your investment and hard work to come undone. You can, however, protect your business from these situations by planning ahead and creating a business disaster plan. One crucial element of this plan is properly preparing to qualify for any business loans you may need following a crisis.
While larger businesses tend to have resources to draw upon when recovering from disasters, small businesses are often left with the hard choices of temporarily closing down, selling off equipment, or reducing staff. Sometimes a business owner must decide whether it is even possible to ever reopen following a disaster.
With more than 30% of small businesses in the US having been impacted by a natural disaster, it is clear that a disaster plan for your business is essential. As part of that plan, be sure to include information about, and properly prepare for, the steps necessary to obtaining business financing.
One common source of business financing after a disaster is an SBA loan, which is partially guaranteed by the government and therefore an attractive loan product to lenders who want to limit their risk. If you have already put things into place for securing an SBA loan prior to a disaster, handling business matters and maintaining operation following a crisis will be far more seamless and manageable.
Here are a few ways to get started planning:
1. Take stock of your risks. What kind of events is your business vulnerable to? Which natural and man-made disasters are most likely to affect your business? Determine which type of damages can be corrected or mitigated by business loans and which events will require other efforts.
2. List and prioritize the different business functions that keep you operational. Identify those functions that must be (re)-established first following a disaster and which can be postponed. Functions that generate revenue should be a top priority. Business Interruption Insurance coverage for these functions, if available, should be seriously considered.
3. Develop plans for prevention and mitigation. How can you prevent areas of your business from coming to a standstill during a disaster? How can you quickly make corrections when systems are hit? For example, how can you re-establish and then maintain communication when phone lines go down?
4. Following a disaster, approach business lenders in your area with your disaster plan information as well as your business’s financial information, both historical and projected. In order to submit an application for a disaster business loan provided by the SBA, you will need to submit an IRS form 8821, personal financial statements, up-to-date profit-and-loss statements, a balance sheet, and a current list of business debts.
The more preparation you can do before a disaster, the easier it will be to recover from one.