Financial Losses to Businesses Due to Disasters

In 2018, the world saw the devastating effects of climate change through natural disasters. From severe floods and tsunamis to disastrous wildfires and heat waves, thousands of people lost their life. While natural disasters in the U.S. didn't make the top 10 deadliest worldwide in 2018, Americans experienced some of the worst hurricanes and wildfires the country has seen in decades. Survivors may view their property losses as just "stuff," but the damage brought on by 14 natural disasters cost the U.S. $91 billion in 2018.

Most businesses have insurance to cover damages brought on by natural disasters, but when coverage runs out before all damages are fixed, businesses turn to the government for loans. Thanks to the U.S. Small Business Administration (SBA) Disaster Loan Assistance, businesses can borrow money to fix damages or make up for losses brought on by disasters. So what exactly is this program and how have natural disasters impacted businesses over time? We analyzed government data to see how much money businesses have lost and which disasters left the most damage in its wake. Keep reading to see how hard businesses have been hit.

Business-Saving SBA

What is Small Business Administration Disaster Loan Assistance

Since 1953, the U.S. Small Business Administration has helped Americans start, build, and grow businesses as a means of maintaining and strengthening the nation's economy. While the independent agency provides Americans with loans for starting or expanding businesses, it also offers investment capital, surety bonds, grants, and disaster assistance. In the case of natural disasters and the cost of damages outweighing the coverage of insurance or funding from the Federal Emergency Management Agency (FEMA), the SBA offers low-interest loans to get businesses back on their feet. The loan program can be used to cover damages or losses related to real estate, personal property, economic injury, machinery and equipment, inventory, and active military duty.

Disastrous Losses Over the Years

SBA Financial Losses to Businesses Due to Disasters

From the fiscal years 2004 to 2018, there were only two years where total verified losses spiked. In 2005, losses reached $6.7 billion, largely due to Hurricane Katrina. As of 2017, Hurricane Katrina was the costliest natural disaster ever to hit the U.S. According to the National Oceanic and Atmospheric Administration (NOAA), the storm caused $160 billion worth of damage to the Gulf Coast. However, from the fiscal years 2016 to 2017, total losses increased by 388% – while there was $2.7 billion in losses in 2016, the number jumped to $13.3 billion the following fiscal year.

When looking at median losses over the same period, businesses lost the most in 2006 and 2017. In 2006, median losses rose to $111,600.Still, 2017 had the greatest financial loss. Losses in this fiscal period were largely attributed to hurricanes Harvey, Irma, and Maria.Businesses lost a median of $230,900 – a 103% increase from 2016. Considering just 13% of full-time small businesses made more than $500,000 in annual sales in 2018, covering damages costing upward of around $231,000 could cause many to shut their doors.

Lending a Hand

SBA Disaster Loan Assistance

So what disasters did the SBA respond to the most? From the fiscal years 2004 to 2018, the SBA most distributed loans due to severe storms and hurricanes. However, in 2016, 92% of the loans disbursed were to cover damages and losses caused by floods. That year set the record for the most floods in a single year, with 19 separate floods occurring across the nation – 60,000 buildings were destroyed, costing an estimated $10 billion.

Looking at median losses per business, however, tornadoes were, by far, the costliest. While tornados only racked up $177.6 million in total losses, businesses recorded a median loss of $165,000 – more than any other disaster. Hurricanes were the second costliest in terms of median losses per business but accumulated the greatest total loss at $25.9 billion.

State of Emergency

SBA Financial Losses to Businesses Due to Disasters by State or Territory

Natural disasters don't treat every state equally. Depending on the disaster, some states are significantly more at risk. Texas, California, and Oklahoma are overwhelmingly prone to natural disasters – in fact, Texas has experienced more natural disasters than any other state in recent history. But when it comes to total losses, Louisiana accrued around $120 million more in losses than Texas.

While California's heavily prone to natural disasters, it wasn't until the 2018 wildfires that the state made the top 10 states for highest total losses. Florida, on the other hand, ranked third for the top losses, raking in over $5 billion between the fiscal years 2004 and 2018. Location plays a major role in losses from natural disasters – all three of the top states are located on the Gulf Coast, an area uniquely vulnerable to disasters.

Costs Across the Country

SBA's Costliest Disasters by State or Territory

Of course, location also plays a role in which disasters cause damage. On the Gulf Coast and southeast coast, hurricanes caused the most damage. The only state in that region to differ was Georgia, where tornadoes were the costliest disasters to hit from the fiscal years 2004 to 2018.

With 79.14% of financial losses caused by hurricanes, over 57% of individual loans were disbursed to cover those costs. But with just under 8% of financial losses stemming from severe storms, almost a third of individual loans were disbursed for this disaster.

While the cause for this discrepancy is unclear, the additional protection of hurricane insurance may play a role. States with an increased risk of hurricanes (like Florida) are eligible for added coverage to cover damages caused by hurricanes. However, damages from severe storms may fall under homeowners or flood insurance, leaving businesses to turn to the government for help covering the leftover costs.

History of Losses

SBA's Costliest Disasters

Even with the added protection of hurricane insurance, hurricanes are costly. Specifically, Hurricane Katrina, which devastated the Gulf Coast in 2005, caused over $6 billion in verified losses. The SBA approves loans to cover recovery costs not covered by insurance. In response to Hurricane Katrina, the SBA approved over $2 billion in loans, covering 35% of losses. Hurricane Harvey was the first of many destructive storms in 2017 and caused the second-highest total verified losses. With a total of over $5.7 billion in losses, SBA approved $1.3 billion in loans, covering 22.7% of all losses.

However, later in 2017, Hurricane Maria hit Puerto Rico, causing $3.2 billion in losses. While SBA loans covered a significant portion of losses for every other major hurricane, approved loans only covered 11% of losses for Hurricane Maria. Despite the decreased assistance by the SBA, President Trump continues to believe Puerto Rico has received too much aid. It's not clear why Hurricane Maria was so different.

The 2018 California wildfires were the only non-hurricane natural disaster to make the list for costliest disasters. However, SBA loans covered an even smaller portion of losses compared to Hurricane Maria. While the fires caused a total of $719 million, approved loans only covered 8.2% of losses.

Although Hurricane Wilma didn't cause the most total verified losses when it hit in 2006, the SBA covered the highest percentage of losses associated with it. With a total of $918.5 million in losses, the SBA covered almost 50%, approving almost $500 million.

Hardest-Hit Counties

When Hurricane Katrina made landfall on the Gulf Coast, 80% of New Orleans went underwater. Over 12 years later, the city has yet to fully recover. Across all natural disasters, Orleans Parish, Louisiana, was where businesses accrued the greatest financial losses. The parish's businesses had over $2.6 billion in losses, followed by Harris County, Texas, with around $2.2 billion.

While hurricanes caused the most damage in the same counties, severe storms left the coastline and caused the costliest damage in Davidson County, Tennessee. With businesses losing a total of nearly $170 million, the Tennessee county was followed by Linn County, Iowa, where businesses lost $147 million.

In most states, businesses did not accrue any losses from flooding. However, businesses in nearly every Louisiana parish were affected. This time, East Baton Rouge saw the most devastation – businesses lost a total of over $1.2 billion, with no other county coming close to reaching the $1 million mark.

The deadliest wildfire to spread in California hit in 2018, destroying more than 7,100 structures in Butte County, California. But in the 13 years prior, businesses in San Diego County accumulated the most losses from fires. With a total of $82 million in losses, the only county to suffer a greater amount of losses was Sevier County, Tennessee, with over $145 million. The most damaging fire in Tennessee history was also the deadliest in the state – a fire thought to be started by two teenagers engulfed over 17,000 acres, killed 14 people, and burned over 2,400 buildings.

Build Your Business Back

Natural disasters are an inevitable part of life. In fact, 2017 was a record-breaking year in terms of storms and the damage that ensued, causing businesses to lose more than ever before. When insurance coverage and funds from FEMA ran out, the SBA was there to support small businesses – but only a small percentage of losses were covered.

Running a small business is difficult work, and whether you're just starting, wanting to expand, or dealing with unforeseen expenses, reaching out for help with funds can be the difference between success and failure. At FundRocket, we're all about your business and being your partner, not a lender. No need to worry about high interest rates or accumulating a never-ending debt – we only get paid when you get paid. To learn more about your funding options, visit us online today.

Methodology

We collected data from the U.S. Small Business Administration Office of Disaster Assistance on loans that were distributed between the fiscal years 2004 and 2018. The information was accessed on Feb. 21, 2019, and limited to only business loans. Data contain 25,524 records of business disaster loans. We referenced FEMA disaster numbers to determine the type of disaster primarily related to each loan. The analysis was limited to data related to total verified losses, total approved loan amounts, damaged property state, city, and county.The U.S. Small Business Administration defines the total verified losses as damage estimates calculated by SBA inspectors. Total approved loan amounts are defined as the total monetary amounts approved for SBA disaster business loans. Disaster loans are for damages not covered by insurance or other recoveries to businesses.

Limitations

Values in these data are "original" values and may not reflect the most recent estimates. The data include unmodified data from the SBA's Disaster Credit Management System (DCMS). Data may have been entered directly by a survivor of a disaster and are subject to human error.

The type of disaster was unable to be determined for records that did not contain a FEMA Disaster Number.

Sources

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