Arguments for a Small Business Disaster Grant Program

Throughout the years, Congress has expressed interest and concern for businesses recovering from disasters. More recently, Congress has contemplated whether grants should be made available to small businesses after major disasters. Equity Concerns

Over the years some have questioned why residences, nonprofit groups, and state and local governments are eligible for disaster grants but not small businesses. While reports vary on the number of small businesses that fail after a disaster, even the low estimates could be considered significant. According to FEMA, "roughly 40-60% of small businesses fail to reopen following a disaster." The Institute for Business and Home Safety found that 25% of businesses that close following a disaster never reopen. A study on businesses in New Orleans recovering from Hurricane Katrina found that 12% of businesses remained closed 26 months after the storm. The typical economic pattern following large-scale disasters consists of large immediate losses of output, income, and employment. Small businesses play a significant role in the national economy. To support this argument, they would point out that Section 101(b) of the Stafford Act states that it "is the intent of the Congress, by this Act, to provide an orderly and continuing means of assistance by the federal government to state and local governments in carrying out their responsibilities to alleviate the suffering and damage which result from such disasters...." They may therefore conclude that if the federal government were to provide disaster grants to businesses, those grants should be provided under the Small Business Act or some other authorization statute. Some of the considerations Congress may contemplate for a potential small business disaster grant program include: (1) preventing the duplication of administrative functions and benefits; (2) the selection of the authorization statute; (3) whether (and what type of) declarations and designations will put the disaster grant program into effect; (4) what size businesses should be eligible for disaster grant assistance; and (5) the types of activities eligible for grant assistance. In addition, Congress could explore alternative options to a small business disaster grant program that could also address business disaster recovery concerns including (1) loan forgiveness; (2) reduced interest rates; and (3) measures that could help small (and large) businesses develop continuity and disaster recovery plans to help them prepare for and recover from disasters. 6641 ), the Small Business Act, or other statute. Concluding Observations

Congress has contemplated how to help businesses rebuild and recover from disasters for nearly a century. Historically, the federal policy for providing disaster assistance to businesses has primarily been limited to low-interest loans. Changing the federal government's disaster policy approach to businesses could be complex and require careful decisionmaking. Steps would need to be taken to avoid and remedy potential grant and loan duplication. Congress would also have to determine under what circumstances and situations the grant program would be put into effect. Eligibility requirements would need to be developed to determine under what situations and circumstances grants would be provided as well as what types of business should be eligible to receive grants. Similarly, Congress might consider whether grants could be used for rebuilding, mitigation, or economic loss, in addition to other recovery activities. In addition to these concerns and others, Congress may want to investigate the potential cost implications of a small business disaster grant program.
Throughout the years, Congress has expressed interest and concern for businesses recovering from disasters. For nearly a century, the federal government's policy for providing disaster assistance to businesses has been limited primarily to low interest loans rather than grant assistance. More recently, Congress has contemplated whether grants should be made available to small businesses after a major disaster. During this debate, some have questioned why small businesses are not eligible for disaster grants when residences, nonprofit groups, and state and local governments are eligible. In addition to concerns about equity, proponents of small business disaster grants argue that small businesses should be eligible for grant assistance because of the important role they play in the national economy. Major disasters can severely disrupt economic activity by causing immediate losses of output, income, and employment. While reports vary on the number of small businesses that fail after a disaster, even the low estimates could be considered significant. The Institute for Business and Home Safety found that 25% of businesses that close following a disaster fail to reopen, and a study on businesses in New Orleans recovering from Hurricane Katrina found that 12% of businesses remained closed 26 months after the storm. The number of failing businesses after a disaster reported by Federal Emergency Management Agency (FEMA) are higher. According to FEMA, "roughly 40%-60% of small businesses never reopen their doors following a disaster."
To some, these findings suggest that the federal government should play a greater role in business disaster recovery. As part of this expanded role, Congress could consider providing grants to businesses to help them rebuild and recover from disasters. Changing the federal government's approach to business disaster policy, however, could be complex and require some careful decisionmaking. Steps would need to be taken to avoid and remedy potential grant and loan duplication. Congress would also have to determine under what circumstances and situations the grant program would be put into effect. Eligibility requirements would need to be developed to determine under what situations and circumstances grants would be provided as well as what types of businesses should be eligible to receive grants. Similarly, Congress might consider whether grants could be used for rebuilding, mitigation, or economic loss, in addition to other recovery activities. In addition to these concerns and others, Congress may want to investigate the potential cost implications of a small business disaster grant program.
This report examines the historical development of federal disaster assistance to help explain possible reasons why businesses are currently provided disaster loans rather than grants. This is followed by a discussion of policy considerations and options related to a potential disaster grant program for small businesses, including
how to minimize duplication of operations and benefits; whether to authorize the program in the Small Business Act, the Stafford Act, or other statute; the potential cost implications of a small business disaster grant program; and eligibility requirements (such as business size standards, eligible activities, and grant award amounts).
Alternatively, Congress could explore other policy options to support small businesses struggling to recover from a disaster, including
loan forgiveness; decreased interest rates; and establishing programs to help small (and large) businesses develop disaster and business continuity plans.