Climate Disasters Are Killing Small Businesses

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The United States is home to millions of small businesses that form the backbone of countless communities. Even during the best of times, keeping shops solvent can be a struggle, but when climate-driven disasters strike, the impact on mom-and-pops can be particularly devastating — and prolonged.

“The news coverage has definitely focused on the physical destruction,” said Kyle McCurry. He is the director of public relations for Explore Asheville, an organization that promotes the North Carolina city which Hurricane Helene pummeled with torrential rain and flooding last fall. ”But sometimes what’s less visible is the economic impact on small businesses in our community over time.“

Whether it’s hurricanes, wildfires, heat waves or ice storms, small businesses are more vulnerable to climate shocks than larger businesses, said Shehryar Nabi, a senior research associate at the Aspen Institute Financial Security Program. He co-wrote a recent report outlining the hurdles small businesses face from severe weather. They can be hobbled by a range of challenges, from limited preparation resources to a lack of post-disaster financing.

“One reason we focused on small businesses here is because of their importance to the U.S. economy,” said Nabi. That was certainly the case in Asheville, a city known for its artists, breweries and boutiques. Helene not only destroyed homes and upended lives, it sent the region’s economy into a tailspin.

In 2023, McCurry said, visitors to the area spent $2.9 billion. Last year, Helene hit Appalachia right before the busy fall foliage season, when tourists flock to places like Asheville to see the leaves turn. McMurry says the storm, which knocked out some municipal services for weeks, led to a 20% to 40% drop in annual business revenue.

Ten months later, a  slew of businesses haven’t reopened: Vivian’s restaurant, Pleb Urban Winery and TRVE Brewery, to name a few. Another is New Origin Brewery, which started pouring in 2021 and soon had fans lauding it as their favorite brewery in Asheville. Although the floodwaters inundated the business, the bulk of the destruction occurred when railroad cars floated off nearby tracks and crashed into the building. 

“There’s not a way to get money for damages in that scenario,” said Dan Juhnke, one of New Origin’s founders. Even after maxing out the brewery’s flood insurance claim, it wasn’t enough to cover the damage. The only other option was to take on more debt from the federal Small Business Administration, or SBA, which didn’t seem prudent. Ultimately, Juhnke and his business partner decided to apply for a Federal Emergency Management Agency-funded buyout program that purchases flood-damaged property and limits rebuilding as a way to mitigate the damage from future storms. 

“We signed up for it and have been waiting almost a year now,” Juhnke said.

McCurry estimated that around 85% of Asheville businesses have reopened in some form, which is relatively good news. According to 2014 national data from FEMA and the Department of Labor, 40% of small businesses do not reopen after a natural disaster and another 25% shutter within a year.

These waves of impacts are coupled with limited support options for small businesses in both the long and short term. While FEMA has individual and public assistance programs, there is little if any funding for businesses. The SBA often offers low-interest loans, but the paperwork can be burdensome and the money might not start arriving for months. Only 14% of businesses were able to rely on support from the federal government, according to an analysis of the 2021 Small Business Credit Survey conducted by the Federal Reserve Bank of New York. 

“Support makes a meaningful difference,” said Nabi. “For a lot of businesses, it is the difference between closing down and surviving. But it doesn’t reach all the businesses that could benefit.”

State and local governments, private lenders and community fundraising are other potential sources of money. New Origin, for example, raised more than $100,000 via a GoFundMe campaign but fell short of its $300,000 goal. A fund that Explore Asheville established has brought in $2.1 million, which has been awarded to more than 500 businesses. 

Still, Nabi said, these avenues don’t usually address one of the toughest challenges facing businesses after a storm: liquidity. Even a month or two of disrupted cash flow can devastate some operations, which is why experts point to pre-disaster planning as one of the most effective steps a business can take to help protect itself. 

“Often, businesses see contingency planning as a distraction from the core thing they want to do,” said Benjamin Collier, an associate professor in the Department of Risk and Insurance at the Wisconsin School of Business. But things such as better understanding your insurance coverage or where to move inventory in the event of a threat should be routine steps for business owners and generally aren’t expensive. 

“The natural tendency for many small business owners [is] to be reluctant to really engage with the risks that they’re exposed to,” he said. “This is a call to have more buffers and be more cautious.”

Nabi also underlined the importance of planning, but says structural change could help as well. Greater use of parametric insurance, which automatically pays out when a specific event like a disaster happens, would allow quicker access to funds. Shifting more money to pre-disaster preparation could help businesses avoid the worst impacts of a storm, too. 

“The financing for preparation is limited compared to what’s available post-disaster,” Nabi said. 

Pat Nye is the regional director for the Los Angeles Small Business Development Center Network. This year, the counties he oversees saw historically devastating wildfires, and one thing that he noticed was that unlike with residential properties, insurance companies hadn’t offered small businesses discounts for any improvements they might have made to make their buildings more fire-resilient. 

“As it stands, there is no incentive that exists for this work,” said Nye. “A lot of stuff just focuses on homeowners.”

Governments often don’t do enough to include small businesses in their recovery plans either, contends Kristen Fanarakis, the associate director of small business policy and innovation at the nonprofit Milken Institute. She pointed to a landscaper in the Asheville area who spent weeks helping clear debris after Helene without pay and ended up facing eviction. Those are the kind of businesses, she said, that municipalities should be hiring and including in rebuilding efforts. 

More broadly, a report Fanarakis wrote called for a cross-agency “small business resilience czar,” standardized disaster assistance forms and quicker grant dispersal, among other recommendations. She called the current system “very reactionary” and argues for increased attention to not just the immediate impacts of disasters but the long-term economic fallout as well. 

“When we think about fortifying small businesses,” she said, “it’s about going beyond a physical structure.”