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Sandy-Affected Businesses Turn to Alternative Lenders

Hurricane Sandy destroyed house
It’s been a year since Hurricane Sandy struck the eastern shores of the United States but many small businesses are still struggling to rise above the destruction.

The main source of help is disaster business loans, but few have reached their final destination. As a part of its disaster business loan program, the Small Business Administration (SBA) approved a total of $2.2 billion. But an entire year later, only one-quarter of the loans have made their way into borrowers’ hands, according to a statement last week from SBA spokeswoman Carol Chastang.

Left without funding, many borrowers in the distressed state of New Jersey sought out funding through alternative means, such as through community development financial institutions (CDFIs).

Marilyn Schlossbach was one of these borrowers. As the owner of Langosta Lounge, a restaurant and music venue located in New Jersey’s Asbury Park, she was faced with over $400,000 worth of damage to her business, including a flooded basement, shattered windows and spoiled food.

Schlossbach submitted an insurance claim, but as the weeks passed and she heard little information, she eventually turned to a disaster business loan from New Jersey Community Capital (NJCC). She received an initial loan of $30,000 plus an additional $25,000 shortly thereafter. Later on she received a loan from the SBA, but it was the NJCC loan that helped her begin the process of repairing and restoring her restaurant.

Funding was needed for more than just physical fixes.

For Michael Sodano, another NJCC loan recipient and owner of The Showroom, a disaster loan helped keep his movie theater open during a severe downfall in attendance. Although the theater avoided any weather damage, Hurricane Sandy swept through the area several days prior to a grand opening event. The storm extended the opening by one month, and even when the business reopened, sales were down considerably for a full fiscal quarter.

Sodano understands why.

“The last thing on [customers’] minds was coming down to the shore for entertainment, even if it was just a movie,” he said.

With a $25,000 loan from NJCC, he was able to afford rent, utilities and staffing costs. The loan was approved in two weeks time.

Joe Palazzolo, lending team leader for NJCC and the lending officer for both Schlossbach and Sodano, said that speed and efficiency are the most important aspects of a disaster business loan. Many business owners questioned how long the loan process would take, and if they would need to resubmit documents along the way.

For Schlossbach, this was a main concern. The two biggest hurdles that she faced was her insurance provider’s unwillingness to pay out coverage and the slow speed of loan distribution from the SBA.

“The process is so long winded it just makes you lose hope in everything,” she said.

In contrast, after applying for a disaster loan with NJCC, she received a check within several weeks.

Duplicate Documents and Time Sensitive Requests

The SBA’s disaster loan program is designed with good intentions but fails or slows down because of current laws, according to Mark Pinsky, president and CEO of Opportunity Finance Network, a national network of CDFIs which includes NJCC.

After recent disasters, such as Hurricane Sandy and Katrina, the SBA worked to guarantee business loans, but it takes time to free up capital.

“They are trying to do this but they have to follow the law,” Pinsky said. “Sometimes that ties their hands and they can’t do things that they want to do, or it takes longer.”

Schlossbach admitted frustration with two government agencies during the disaster. She said the Economic Development Administration (EDA) and the SBA’s inability to work together as two government organizations made the loan process complicated. She submitted documentation to the SBA for her loan, only to have the EDA make requests for the same documents later on.

She finally received her $250,000 disaster business loan from the SBA, but she is still in the process of applying for a $50,000 EDA grant.

The requests for duplicate documentation created delays in a time-sensitive ordeal.

“You would think that these agencies would know how to do their jobs better until waiting until the problems are here and they are scrambling,” she said, explaining that if she was in charge, she would have strategic plans ready for each potential disaster.

Schlossbach further detailed another problem in the system: federal and state governments do not care about small businesses.

“If they had their way, every restaurant would be an Applebee’s and every clothing shop would be a Gap and the rest of us would be out of work,” she said.

Large government relief efforts were available after the Hurricane, but when a sweeping natural disaster occurs, sometimes a local response is best.

Sodano said that the community lender’s emotional connection to each borrower made the loan experience more impactful. He said the SBA’s vast loan fund is positive, but he would rather have a person nearby that can provide financial assistance fast.

“The quick response that we got was right in mind with what small businesses need and seek,” Sodano said.

Buildings have been rebuilt, residents have returned to work, but there are still internal remnants of the damage caused by the winds and waves.

Sodano said that the one thing he needs to regain his business is simply more people. He wishes that tourists would visit 365 days a year, rather than just during the summer months.

Palazzolo agrees that businesses simply need customers now.

“They need the mentality back like before the storm,” he said.