previous liberty street economics The Post found that minority-owned small businesses in the Fed's 2nd District are particularly vulnerable to natural disasters. Here, we focus on the impacts of disasters (hurricanes, floods, wildfires, droughts, winter storms, etc.) and examine disparities in the ability of these businesses to restart operations and access disaster relief. Our results show that although white and minority-owned businesses remain closed for similar periods, the latter rely more on external funding from government and private sources to cope with disaster losses. I am.
How often and for how long do small businesses close after a disaster?
Similar to the previous post, we used data from the Small Business Credit Report to examine three states in the Second District: New York, New Jersey, and Connecticut; due to limited data availability, Puerto Rico and the U.S. Virgin Islands. (omitted) small and medium-sized enterprises. (SBCS) 2021-22 period. SBCS asked businesses affected by the disaster, “Has your business been temporarily closed due to this natural disaster?” For companies that answered “yes,” the survey asked an additional question about the estimated period of temporary closure. These responses may represent a lower bound for closures, as businesses that temporarily close upon survey completion may remain closed for longer than reported.
Sixty percent of all small businesses in our sample that reported natural disaster-related losses were forced to temporarily close due to the disaster. Fifty-five percent of minority-owned businesses have temporarily closed, compared to about 65 percent of white-owned businesses (see left panel of graph below). Minority-owned businesses closed for a similar amount of time as white-owned businesses, with 90% of businesses closing within his three months (see right panel of graph below). A company is defined as a minority-owned company if at least 51% of the company's stock is held by minority (i.e., Asian, Black, Native American, or Hispanic) owners. A company is defined as white-owned if at least 50% of the company's stock is held by non-Hispanic white managers. Racial/ethnic categories are not mutually exclusive.
Minority- and white-owned businesses in the region remain closed for similar periods.
This result seems surprising given the findings from our previous post that losses from natural disasters account for a large proportion of total revenue for minority-owned businesses. This fact suggests that minority-owned firms are more likely to experience longer closure periods. In contrast, a national sample found that minority-owned businesses were disproportionately likely to be closed for three months or more. One explanation may be that minority firms have different closure periods. In fact, in the national sample, Black-owned and Hispanic-owned businesses were closed longer than white-owned and Asian-owned businesses, which is consistent with the 2022 posting results. Due to the small sample size of our data, and because we aggregate across minority groups, we may not be able to identify minority businesses in our sample that were particularly adversely affected by the disaster and were forced to close for extended periods of time.
What funding sources are small businesses in the region accessing for disaster relief?
Broadening access to post-disaster economic relief could reduce the need for small businesses to remain closed for long periods after a disaster. The SBCS asked respondents who reported disaster losses to indicate the sources they relied on to cope with their losses. Companies can choose from multiple options, as shown in the table below. A similar proportion of white- and minority-owned businesses (16%) relied on catastrophe insurance funds. Among businesses affected by disasters, minority-owned businesses were disproportionately dependent on government relief funds (e.g., Federal Emergency Management Agency (FEMA), Small Business Administration (SBA), and other agencies) . Thus, 20 percent of minority-owned businesses rely on federal relief and 17 percent rely on state/local relief (compared to 15 percent and 12 percent, respectively, of white-owned businesses). They also rely more on donations, crowdfunding, and nonprofit grants, with 17 percent of minority-owned businesses relying on these sources compared to just 1 percent of white-owned businesses. Minority-owned businesses also rely on non-government financing, with 24% relying on private debt, compared to just 8% of white-owned businesses. The national sample also shows that minority-owned firms rely more heavily on external funding from government or private funds (excluding private insurance).
Disparities in disaster relief funding sources
|Share of white-owned businesses
|Share of minority-owned companies
|Funding sources relied upon:
|Federal disaster relief funds (FEMA, SBA, etc.)
|State/Local Disaster Relief Fund
|Donations, Crowdfunding, and Nonprofit Grants
|Debts/loans (other than government loans)
|Did not rely on external funding
Note: This table includes only companies in the sample that reported disaster-related losses. SBCS asks businesses reporting losses: “Which of the following sources of funding did you rely on to cope with these losses?” Select all that apply. ” Options are listed in the left column of the table. This table reports the percentage of businesses that relied on a particular funding source by racial/ethnic category. The column does not sum to 1 because there was an option to select the source. At least 51% of the company's stock is held by minority (i.e., Asian, Black, Native American, or Hispanic) owners. A company is defined as minority-owned if at least 50% of the company's stock is held by non-Hispanic white managers. Racial/ethnic categories are not mutually exclusive. Observations are removed from the sample if the question is not answered or if the race of the owner is not observed. This sample includes both employer and non-employer firms. Employer firms are pooled. Responses from employer and non-employer firms are weighted separately based on various firm characteristics to match the national population of employer and non-employer firms. To construct the pooled weights, if the company is an employer (non-employer), use the employer (non-employer) weight. The survey spans September-November 2021-2022. It was carried out.
Minority-owned businesses disproportionately rely on external funding sources to deal with disaster losses, while a majority of white-owned businesses do not rely on external relief, which is the largest percentage of disaster-related losses in total revenue. This is consistent with the fact that the proportion of cash is low and cash is large. spare.
The last word
White and minority-owned businesses in the region remained closed for similar sizes and durations following the disaster. However, minority-owned businesses are more likely to rely on external funding, both government and private, whereas white-owned businesses can tap into retained earnings. These results highlight the importance for minority businesses to access affordable and timely relief after a disaster. In the next post, we will consider this disparate impact of natural disasters on those more at risk by studying how low- and moderate-income renters in New York City are affected by flooding. Masu.
Asani Sarkar is a Financial Research Advisor for Nonbank Financial Institutions Research in the Research and Statistics Group at the Federal Reserve Bank of New York.
How to cite this post:
Asani Sarkar, “Small Business Recovery After Natural Disasters in Fed District 2,” Federal Reserve Bank of New York. liberty street economicsNovember 16, 2023, https://libertystreeteconomics.newyorkfed.org/2023/11/small-business-recovery-after-natural-disasters-in-the-feds-second-district/.
The views expressed in this post are those of the author and do not necessarily reflect the position of the Federal Reserve Bank of New York or the Federal Reserve System. Any errors or omissions are the responsibility of the authors.