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Will small businesses be able to recover?

Most experts say there's no quick fix to help small business recover along the Gulf Coast, but there's still hope.
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While a small army of counselors from federally-supported Small Business Development Centers (SBDCs) around the nation arrived at Gulfport, Mississippi, in a convoy of RVs Monday, statistics from the top official of the Association of Small Business Development Centers (ASBDCs) paint a sobering picture for small businesses hit by disaster--and testimony released in advance of today's Senate Small Business Committee hearings reveals that even some businesses expected to clean up in the aftermath are, in fact, floundering.

Don Wilson, CEO of the ASBDCs, warns that existing statistics don't favor the majority of businesses affected by a disaster. "The numbers I've seen are that 43 percent of businesses damaged in a disaster don't come back. After a year, closer to 60 percent have gone under," Wilson says. "You probably only have a 40-percent survival rate among businesses that are severely damaged."

Stat collectors need to keep in mind that those numbers were culled from disasters on record, none of them to the scale of the loss experienced after Hurricane Katrina hit the Gulf Coast. "We were very successful in New York City [after 9/11], but we were dealing with a number of square blocks. Here, you're dealing with an area the size of Kansas, the size of England. It's quite a different situation," Wilson says. "About 50 percent of the gross domestic product of Louisiana is in New Orleans."

The finances of disaster
As the state director of the Mississippi Small Business Development Centers, Doug Gurley--and his staff--are now well versed in the minutia of red tape and paperwork devastated business owners are having to deal with. After Hurricane Katrina hit, the SBA held an emergency SBA lenders training session in Baltimore. More than 250 SBA counselors from around the country, including many of Gurley's staffers, attended the post-Katrina boot camp to get training in financial reconstruction.

Their mission--and they all chose to accept it--is grueling special service. They've been putting in six-day weeks, working up to 16 hours a day, staying in RVs, many working out of temporary offices at the University of Mississippi's SDBC office that replaced the six out of nine SBDCs in Mississippi wrecked by Hurricane Katrina. Their goal: financial triage. With each business, the counselors need to determine if more debt in the form of an SBA loan is what would help, then they have to get them FEMA-registered with completed paperwork in hand for SBA disaster loans. "These counselors have a lot of experience, and they want to come in. They were volunteering as fast as they could," Gurley says.

Staffers have been working five phone lines seven days to help the estimated 70,000 businesses in Mississippi that are either totally wiped out or have some damage. Despite their dedication, however, they're barely making a dent: The influx of counselors will have to process more than a thousand applications a day to make the 60-day window set by the SBA for filing for disaster loans.

The biggest enemy of starting to fix the broken cycle of small business in the Gulf Coast region? "Bureaucracy," Gurley says. "You have no idea--every time I turn around, it's like 'We don't do things that way.' This is the greatest natural disaster we've ever had; we've got to work like a small business. We've got to be nimble if we're going to help people we've got to get down there."

The University of Mississippi and the ASBDCs have provided bridge resources for breathing room for keeping the Mississippi counseling operation afloat until other funds come across. Fellow SBDCs, for example, agreed not to apply for the ASBDCs' portability grant funds this year so that Louisiana and Mississippi might be able to get more funds to speed recovery aid. And donations came in from the corporate sector, including Intuit and Microsoft, which gave money and computers to get the processing up to speed.

But that's in keeping with the big-heartedness the United States demonstrates in the face of difficulty, according to the ASBDCs' Wilson. "We tend to do that as a country. Americans, when we see a need like this, we really rally," he says, adding that the country has another reason to help: Economic aftershocks from business shutdowns on the Gulf Coast will be felt in other places. "If a plant is depending on raw materials out of Louisiana, they may have to close the plant. The ripple effect of what has happened to small business [in the Gulf] is going to be felt across the country."

Wilson says that the role the SBDC counselors are playing is pivotal for businesses in crisis. The national average approval rate for applications for SBA loans runs between 35 and 40 percent. With the help of an SBDC counselor in the application process, that success rate doubles, Wilson says.

The federal government steps in
In a televised address from the waterlogged streets of New Orleans on September 15, President Bush battled stinging criticism that the federal government, like others, had done too little, too late. His speech covered sweeping initiatives: For struggling small businesses, he proposed a Gulf Opportunity Zone, recommending immediate incentives for job-creating investments and tax relief, loans and loan guarantees.

"It is entrepreneurship that creates jobs and opportunity. It is entrepreneurship that helps break the cycle of poverty, and we will take the side of entrepreneurs as they lead the economic revival of the Gulf region," Bush said, pledging a special commitment to minority-owned businesses a few moments later. "When the streets are rebuilt, there should be many new businesses, including minority-owned businesses, along those streets," he said.

In Louisiana, Mary Lynn Wilkerson was listening with hope as the president spoke. Wilkerson is the state director for the Louisiana Small Business Development Center, a partnership between the SBA, Louisiana's Department of Economic Development and 13 participating universities.

"He said 'entrepreneurship' numerous times; hopefully, there will be positive moves in making sure our entrepreneurs do survive this so they can rebuild our economy," Wilkerson says. "Ultimately, we have to have them back. We lost a huge chunk of our economy. A third or more is just gone."

Since Katrina hit, Wilkerson's relocated from the safety of her Monroe. Louisiana, office to Baton Rouge, where she dove right in, helping small-business owners fill out their disaster loan paperwork.

In the 10 critical Louisiana parishes most affected by Hurricane Katrina's wrath there were 72,000 businesses and an estimated 85 percent of them have fewer than 19 employees, Wilkerson says. The ones her staffers were seeing as of Friday, she says, "[were] trying to relocate and recover."