Too often businesses hit by disaster – whether a natural disaster or a man-made occurrence – will close permanently. But with adequate planning – and some help from financial institutions – closure can be avoided.
Lenders said that a business with a good relationship with its bank and a well-thought out disaster contingency plan has the best chance for survival. Banks have temporary and permanent finance options available for businesses after a crisis, and they can also direct commercial clients to government and private assistance programs.
“Disaster throws everything off kilter, disrupts natural flow. We tell businesses they need to have property and business interruption insurance to replace cash flow and income. They should have a disaster contingency plan set up in case they have to rebuild,” said Jim Higgins, senior vice president at New Jersey-based Provident Bank, which also has branches in Pennsylvania, New York and Maryland.
Higgins, who is located in the bank’s Bethlehem, Pennsylvania, office, said that the best first step for a business hit by disaster is to contact its bank and discuss a recovery plan.
“Do not go into hiding. Do not ignore a call from your bank. That leaves a bank to follow their own assumptions,” Higgins said.
The Federal Emergency Management Agency (FEMA) has found that more than 40 percent of businesses never reopen after a disaster. And only 29 percent of the survivors remain in operation after two years.
Kevin Schmidt, president and CEO of The Neffs National Bank in Neffs, Pennsylvania, said that time is of the essence. A business should have a detailed disaster-recovery plan, a backup procedure, hazard insurance, insurance for business interruption, liquid assets and lines of credit.
“Make sure the bank is aware of any material changes at a company, including management and operations … Be able to explain what happened. What are your immediate needs operationally and financially?” Schmidt said.
Chris Persichetti, executive vice president and chief lending officer at American Bank in Allentown, said the bank will work with businesses to recommend government-funded and private programs that can provide some assistance.
“We would also explore the option of restructuring the customer’s current debt to minimize their monthly payments while they focus on rebuilding their business. These options may include converting principal and interest payment loans to interest-only payments or, if agreed upon by senior management, give the customer a period of complete deferment of the payments. This would certainly be dependent upon the severity of the disaster and other factors,” Persichetti said.
Persichetti added that his bank will do everything it can for a commercial client that has a strong balance sheet, a strong financial history and has maintained a commitment to the performance of its loan.
Businesses, meanwhile, can benefit from through recovery plans.
“The plan should include financial projections, which includes detailed assumptions as to the resumption of their business. It would be smart to include in the projections assumptions on the bank restructuring their debt which can assist with their plan,” Persichetti said.
At Boston-based Santander Bank, Seth Goodall, executive vice president and director of SBA Lending, said that his bank will assess the impact of a disaster to surrounding businesses and participate in federal, state and local efforts to help businesses hit by catastrophe.
“The longer a business is not operating, the longer it takes to recover and recapture customers,” Goodall said. “Some bank services like credit card processing, checking account availability and cash management can sometimes be restored fairly quickly, while other solutions such as potential loan restructuring or accessing recovery loans take more time. If emergency loans funds are required either through the bank, SBA or another entity, time will be required to review, approve and process these requests, so those should be started as soon as possible.”
Santander Bank, which is headquartered in Boston, has locations in Pennsylvania, New York and New Jersey.
Goodall said that, in the aftermath of disaster, it is important for a business to provide the lender with any documentation that has been backed up or kept in remote storage. The business must give its bank copies of loan or deposit agreements, customer contact lists and invoices. He said that the SBA has online training resources designed to help businesses protect employees, reduce financial impact and return to business as soon as possible.
Luke Bernstein, executive vice president at Orrstown Bank, said that a bank must follow best practices after a disaster. In certain situations, banks may be able to offer special disaster loan programs, which will provide emergency financing to fulfill short-term and long-term needs of disaster-ridden commercial clients.
Based in Shippensburg, Pennsylvania, Orrstown Bank has locations in Pennsylvania and Maryland.
Bernstein said businesses also must have a disaster recovery plan.
“Emergency financing requests should come with an effective plan to address the short and long-term needs of the business as well as clearly articulate the ability to meet their repayment obligation,” Bernstein said.
And there may be other requirements.
After a flood, for example, a business in a flood zone must have flood insurance coverage in order to receive assistance from the bank, Bernstein said.
“That’s why it is very important that all businesses routinely assess all of their insurance coverage in order to ensure that what they have is sufficient and would cover their physical and operational losses,” Bernstein said.