Does Disaster Relief Actually Help Small Businesses?

In the face of the dual threats of COVID-19 business shutdowns and the increase in climate change-related natural disasters, small-business recovery loans have become an increasingly relevant and necessary government expenditure in the last decade. However, little information currently exists about what types of businesses receive these loans when they are disbursed. Do those most in need receive the most assistance? Are loans an appropriate form of aid for small businesses that often already suffer a lack of capital?

Disaster Aid Favors Big Businesses, Study Reveals

These are the questions that Maria Watson asks in "Disaster Assistance Winners and Losers: Do Small Businesses Benefit?" in the Journal of the American Planning Association (Vol. 88, No. 3). Watson begins her investigation with the overarching hypothesis that larger and more established businesses are more likely to receive and use substantial loans from the U.S. Small Business Administration (SBA) because of their relative attractiveness as loan candidates and their ability to take on additional debt in the wake of a disaster. This hypothesis informs the central tension of Watson's study that businesses that need more aid than their larger counterparts often receive less. As she states in the article's opening line: "Growing evidence suggests that disaster assistance exacerbates the already inequitable impacts of hazard events."

Watson then uses the Hurricane Ike disaster in Galveston, Texas, as a case study, and tracks which types of businesses received disaster recovery loans from the SBA and whether these businesses then chose to accept the loan. Galveston has a diverse economy with many different types of businesses, so findings have potential implications for large swaths of the U.S. economy. She uses several variables including business size, business age, time from application to approval, loan term, amount of damage, business/sector type, median income of business area, and time from disaster to application. She then performed two separate regression analyses to determine how fluctuations in variables affected loan amounts and if these loans were then used by the business.

As expected, Watson finds that businesses that were older and larger were approved for higher loans and that businesses with higher levels of flood damage were less likely to use their loans once they were approved. She uses these results to reemphasize her original point about inequity in disaster fund disbursal and gives several recommendations for disaster assistance planning moving forward.

Watson Critiques Disaster Aid System

Watson's analysis goes beyond the scope of her investigation to forge an informed critique of our current system of disaster aid. She casts a critical eye on both the process of loan disbursal as well as to the efficacy of loans themselves to encourage small business recovery. Disaster victims, as she points out, are hardly in a state to take on massive amounts of debt to recover.

Her analysis implies the need for systemic change in the field of disaster relief and consideration of alternative forms of assistance. As these types of disasters become more common, aspiring planners would do well to follow Watson's lead in thinking outside the standard processes for recovery. As she shows, they are not functioning as we need them to.

Top Image: Hurricane Ike strikes Galveston Island, September 2008. Photo by Flickr user Galveston.com (CC BY-NC-ND 2.0)