Disaster Recovery Journal - Spring 2001 Issue- Pre-disaster Mitigation: The Small Business Administration Lends a Hand

DISASTER RECOVERY
JOURNAL

Return to the Spring 2001
Index

P. O. Box 510110
St. Louis, MO 63151
(314) 894-0276
Fax: (314) 894-7474
Internet www.drj.com
E-mail drj@drj.com

PUBLISHER &
EDITOR-IN-CHIEF
Richard L. Arnold, CBCP
richard@drj.com

SENIOR EDITOR
Janette Ballman
janette@drj.com

EDITOR
Michelle Saab
michelle@drj.com

COPY EDITORS
Edward H. Pearce, CBCP
drj@drj.com
Richard Sandhofer
richards@drj.com

INTERNET /
ADVERTISING
Robert Arnold
bob@drj.com

_____________

Corporate

President/CEO
Richard L. Arnold, CBCP
richard@drj.com

Vice President
Robert Arnold
bob@drj.com

CONFERENCE COORDINATOR
Patti Fitzgerald, CBCP
patti@drj.com

CONFERENCE REGISTRAR
Merce Knese
mercedes@drj.com

CIRCULATION
Laura Baugh
laurab@drj.com

INTERNATIONAL
CONTACTS
England: Thom Hetherington
Business Continuity
Phone: 0161-237-1007
thomh@tempus.demon.co.uk

Australia: Anthony J. Harvey
Journal of Business Continuity
Phone: 0011-613-953-0055-8
fax: 0011-613-953-0528
sector@notability.com.au

Japan: Shinji Hosotsubo
Quake Japan Co., Ltd.
Phone: 03-3215-2880
fax: 03-3215-2881

Brazil: Jose Carlos Ferreira
Disaster Recovery Mercosul
Phone: 55 11 3666-9506
conc2000@uol.com.br
ww.drms.com.br

Click Here for a Printable Version

Pre-disaster Mitigation: The Small Business Administration Lends a Hand

- by Carol Chastang

Before the downpour of July 1996, Dalph McNeil ran his company as most small business owners do-focusing on strong marketing plans, keeping up with changes in technology and developing new products, always having a vision for future growth and greater profits.
Yet McNeil, owner of the Brookville Mining Equipment Corporation (BMEC), in Brookville, PA, wasn’t as focused when it came to being prepared for a disaster. And so in July 1996, he was blindsighted, and nearly lost a multi-million dollar business that had been in operation since 1916.
The 24-hour rainfall of July 19, 1996 caused the nearby Redbank Creek to crest. The next day McNeil went to survey the damage at his 25,000 square foot plant, located about 100 miles north of Pittsburgh. Flooding had caused $1.6 million in damages to BMEC, a major supplier to the underground mining market in the United States. Inventory had been swept away on a powerful current of water that also tore down a 30-foot section of wall.
After receiving a disaster loan from the U.S. Small Business Administration (SBA), McNeil employed a basic mitigation strategy when he rebuilt his warehouse: he relocated, far away from the flood plain. His new 72,000 square foot factory opened in July 1998, employing 50 local residents.
Amazingly, McNeil said he had been thinking about rebuilding on a different site before the flood hit. After nearly losing everything he had spent years working to build, McNeil said that as far as mitigation was concerned, “The time was right for us. Mother Nature just gave us the reason.”
Many business owners find time to take steps to prepare for disaster after the flood or tornado or hurricane or fire renders a formerly thriving company a mess of destroyed inventory and office equipment, with losses in the millions of dollars. Mitigation is usually an afterthought.
Since 1995 alone, the SBA has made nearly $2.7 billion in disaster loans to 51,176 business owners. Since the agency started making disaster loans, in 1953, SBA has provided more than $9.7 billion in disaster loans to 224,000 businesses. Instead of approving so many disaster loans, say agency officials, they’d rather find ways to help business owners decrease the losses suffered when a natural disaster strikes.
This year, SBA will roll out a Pre-Disaster Mitigation pilot loan program. Small businesses will have an opportunity to protect their property by taking specific measures to mitigate disaster damage using loan funds. Congress authorized the program for a five-year pilot.
Working in conjunction with the Federal Emergency Management Agency (FEMA)’s Project Impact Program, SBA will make loans of up to $50,000 at a 4 percent interest rate with up to 30-year terms to small business owners located in Project Impact communities. Each state, the District of Columbia, Puerto Rico, the U.S. Virgin Islands and Guam has at least one Project Impact Community. Altogether, there are 250 Project Impact communities.
Agency officials hope the new program will change the way local entrepreneurs put together a business plan. “With this initiative, we hope to encourage business owners to become more proactive about being prepared for the inevitability of a disaster,” said James Rivera, deputy associate administrator for SBA’s disaster assistance program.
Under the SBA pre-disaster mitigation loan program, small business owners may use the loan funds, for instance, to make upgrades to their property such as adding impact-resistant doors and windows in tornado-prone areas, retrofitting buildings for seismic safety in areas where earthquakes are the major risk, elevating structures or erecting retaining walls to minimize flood risk.
The loans will be approved on a first-come, first-served basis, based on the availability of funds. The small business owner’s structural mitigation plan will be evaluated by the FEMA Project Impact coordinator, to verify that the project meets the mitigation priorities and targets of the local community.
Meanwhile, if a business located in a flood-hazard area is approved for a pre-disaster mitigation loan, that business owner must purchase flood insurance before the loan can be disbursed. Decisions on loan approval will ultimately rest with the SBA Disaster Area office located in Niagara Falls, NY, Atlanta, Ga., Ft. Worth, Texas or Sacramento, Ca.-the respective office handling the region where the small business is located.
To be eligible for an SBA pre-disaster mitigation loan, the small business must have been in existence at least one year-operating as a sole proprietorship, partnership, corporation, limited liability company, or other for-profit legal entity recognized under State law.
SBA’s size standard criteria categorizes businesses as “small” based on the criteria of number of employees or sales averaged over the previous three years. The agency’s current size standards are distinguished by industry:
¯ Manufacturing - 500-1,500 employees, depending on the industry
¯ Wholesaling - 100 employees
¯ Services - From $4 million to $21.5 million in average annual receipts, or 1,500 employees, depending on the industry
¯ Retailing -From $5 million to $21 million in average annual receipts, depending on the nature of the business
¯ General and heavy construction - From $17 million to $27.5 million in average annual receipts
¯ Special trade construction - $11.5 million in average annual receipts
Officials at FEMA say they are looking forward to working with SBA to help small businesses become more disaster resistant. In the three years since Project Impact began, said National Director Maria Vorel, program coordinators have worked hard to include their local businesses as partners in the consensus planning and decision making process necessary to becoming better prepared to withstand the devastation of a natural disaster. “(SBA’s) business loan program will be an effective tool to help businesses fully participate in their community’s mitigation efforts.”
Public outreach and education is another key to developing more disaster resistant businesses, say officials from both agencies, and the word of mouth generated even before SBA has begun accepting loan applications may contribute to a deepening awareness among businesses owners that they need to be prepared before disaster strikes.
“Instead of relying on an SBA disaster loan after the hurricane or the flood, it would make more sense for the business owner to spend the time and money to have a plan, to be prepared,” said SBA’s Rivera. “Mitigation makes sense, since it lessens the long-range cost of disasters to the individual business owner, and the community.”
After the Redbank Creek flood nearly ruined him, Dalph McNeil aggressively prepared for the next disaster. In addition to relocating, he added a safety coordinator to his staff. That person is responsibility for doing quality assurance and quality control, running monthly meetings with representative from six sections of the company to make sure all the employees understand the early warning and evacuation plans for fires and tornadoes, as well as the emergency procedures. And now, McNeil also carries business interruption insurance. Two years ago, SBA presented McNeil with their “Phoenix Award,” to acknowledge his successful efforts to rebuild after the flood, prepare for future disasters, and emerge stronger than before. Since the flood, BMEC sales have increased about 10 percent annually, while introducing three to four new products to the marketplace each year. McNeil said the flood taught him a lot. And while he hopes he never has to use the emergency plans he has in place, he says he is now prepared for anything. It’s a philosophy that he says all small business owners should make a part of their business plans.
“As a small business owner, you can never be too prepared for disaster,” McNeil said. “And while most small business owners pay more attention to their order books, or how they can develop new products, planning for disaster is something everyone should think about.
“It’s like planing for the death of your CEO. It’s something you don’t want to think about, but you have to be prepared for that. How do you carry on business as usual, as quickly as possible after a disaster? You have to be a bit of a fatalist, thinking in terms of the worst case scenario for your business.”

Carol Chastang is the public information officer for the U.S. Small Business Administration’s office of Disaster Assistance.
For more information on SBA’s Disaster Assistance Program, visit the web site at www.sba.gov/DISASTER. To find out if your business is in a Project Impact community, visit FEMA’s web site at www.FEMA.gov.