Hard-Hit Small Businesses Denied Post-Sandy Loans

Barrels and barrels of aging wine were submerged in the storm surge. Photo: Red Hook Winery

Mark Snyder smelled the destruction before he saw it. The day after Sandy shoved the Atlantic Ocean up and over the banks of the narrow waterways surrounding New York City, an oily stench became apparent as Snyder, owner of Red Hook Winery, walked down Pier 41 toward his business and past Steve’s Key Lime, which was now stripped of its outdoor seating and signs. The oily aroma, mingling with the scent of seawater then took on a more ominous component. “It smelled like wine,” Snyder said. “And I knew we were screwed.”

Once a small army of volunteers had helped him clear a path through the overturned barrels of aging wine, which will now never be bottled, Snyder and his colleagues began documenting the damage on spreadsheets in anticipation of the paperwork deluge to come. “I have a close friend who lived through Katrina,” Synder said. “And he told me to get started right away.”

And so the list-making began: wine refrigerators, cabinetry, wine-making equipment, almost three vintages, bottled wine, couches, 19 stainless steel 1,500-gallon fermenting containers—all submerged. The estimated damage rang in at $1.5 million.

Within a week he had submitted paperwork for the federal government’s Small Business Association disaster loan, which offers up to $2 million at an interest rate of around 4 percent—new debt, that for many businesses is too much to consider.

Then there was another application for the city’s $25,000 emergency loan at an interest rate of 1 percent administered through the city’s Department of Small Business Services. (“It’s not going to rebuild the winery, but it shows the support of the city,”  Snyder said.) That’s also the gateway to a $10,000 grant for all approved businesses, “which puts some meat on the bones,” he noted. Then, of course, there was the application to his insurance company, which has received tens of thousands of Snyder’s dollars over the last five years.

The first rejection came from the city (“insufficient cash flow”). The next came from his insurance company in the form of a six-page letter explaining in a series of cause-and-effect clauses why the company “was not responsible for any loss or damage attributable to flooding” and therefore not responsible for anything lost or damaged in the October storm. (They’re now in negotiations.) As for the federal loan, it’s still unclear where things stand.

“It’s now almost three months later and I’ve sent 10 sets of documents back and forth and I still have not received any positive or negative response,” Synder said. “It’s just been a paperwork carousel.”

By mid January, the only relief money he’d received, he said, was from a group of small businesses that banded together in the days after the storm to begin raising funds for their recovery. ReStore Red Hook handed him $4,000, an even chunk of the $200,000 they had raised by December, while another group of local businesses handed him $1,000 in an envelope after one of their fundraising events: $5,000 total.

After appealing his rejection from the city, sending letters, digging up more financial records, he was finally approved in late January and expects to have the money in his account by the end of the month—more than 80 days after his winery was shipwrecked. Meanwhile, he continues to play paperwork ping-pong with the federal government and his insurance company, hoping he’ll get something. And he is one of the lucky ones.

“We can do it Red Hook, rebuild!! xo The RH Winery.” Photo: Red Hook Winery

Many shops, restaurants and other small businesses in the areas that bore the brunt of the storm damage either had too much debt to even consider taking on another loan, have lost their appeals, or are still waiting to hear their fate. It’s been particularly hard for newer businesses that took on debt to get things going or those, like Snyder’s, that had gone through recent renovations and therefore had less cash flow to show on their loan applications. Without some substantial help, those without any other source of income (or loved ones with money to spare) won’t be able to make the repairs needed to get back up and running. And so far, fewer than half of city and federal disaster loan applicants from New York City have been approved.

Many are still being processed, some rejections are being appealed while other business owners have withdrawn their applications altogether. But in the meantime, as November turned to December, and December to January, which is now heading into yet another month, bills are piling up and many businesses—rejected, appealing or still awaiting a reply—are falling deeper into a hole from which they may never escape.

On the battered Rockaway peninsula, boarded up buildings and shuttered gates now pepper the streets that used to bustle in the summer with a mix of locals and towel-toting day-trippers.  Kevin Alexander, president of the Rockaway Redevelopment and Revitalization Corporation says he knows of fewer than ten businesses in the area that have been approved for a loan and estimates that fewer than half of those closed by the storm have managed to reopen.

“Most of the businesses in the Rockaways did not have flood insurance,” Alexander said. “A lot of the small business were operating on margin, and profit margins didn’t allow them to buy additional insurance.”

The storm left detritus all over Pier 41. Photo: Red Hook Winery

Like any other type of coverage, flood insurance premiums climb relative to risk.  The National Flood Insurance Program, the federal entity that provides flood coverage to homes and businesses, establishes rates according to risk criteria (like a building’s proximity to a flood zone and age) and do not vary company to company.

Businesses in low-to-moderate risk areas can get the top protection offered ($500,000 for damage to the building and another $500,000 for damage to whatever’s inside that building) for $2,878 a year. Businesses in the highest-risk areas, meanwhile, will have to pay $37,970 a year for the same coverage, according to FloodSmart.gov. On top of taxes, rent or mortgage payments, and premiums from any other insurance policies, flood insurance is often an additional expense business owners in high-risk areas cannot afford.

In an ideal scenario, businesses destroyed by a flood are protected by flood insurance and can receive payment to cover most, if not all of their losses. Unlike a loan, insurance money does not accrue interest and does not have to be repaid. For those without flood insurance, government disaster aid can be the next best thing.

For businesses, that means applying for the SBA’s  $2 million loan. For New York City businesses that also means trying to secure the $25,000 SBS loan, $10,000 matching grant and an additional first-come-first-serve $5,000 grant announced earlier this week.

For Sandy-shuttered businesses without flood protection even a small loan can make the difference between staying closed and re-opening the doors to customers–and to resume cash flow.

Rovshan Danilov, the owner of Arbuz Frozen Yogurt in Sheepshead Bay, which flooded with four and a half feet of water “like a swimming pool,” received the city loan about three weeks after the storm.

The rushing salt water caused structural damage, wrecked Danilov’s frozen yogurt machines and destroyed $6,000 worth of food—none of which was covered by his insurance plan.

While he’s still waiting to hear back from the SBA about a more muscular loan, the quick $35,000 allowed him to make enough repairs to reopen his doors. “It really helped,” he said, adding that he was impressed at how smoothly the whole process went. “It was faster than a bank.”

While his business is just three years old, Danilov points out that he keeps solid records, has good credit and has steady income from a separate full-time job, all of which, he says, may have played a role in his rapid approval—he was asked to sign the loan as a personal guarantor. “Those things are important,” he said.

But for every Arbuz Frozen Yogurt there are many other businesses the government has deemed too risky for a bet, and still more that are awaiting a final answer.

As of last week, out of the 1,119 Brooklyn businesses that applied for a federal disaster loan, just 89 have been approved. In Queens just 48 businesses of the 871 applicants have been approved.  Meanwhile, city loans (and matching grants) have gone out to just 122 Brooklyn businesses and 40 in Queens, with a citywide approval rate of 47 percent.

Rather than wait for loan approval, insurance money or a miracle grant, many businesses have taken to fundraising on their own behalf.

ReStore Red Hook has brought a lot of life back to the neighborhood’s main drags by raising money and passing it directly to the business owners that need it as their battles with insurance companies and government entities continue to play out.

“This community stands of three legs: residents, small businesses and non-profits. If one of those legs falls, the other two legs fall,” said Monica Byrne, the co-founder of ReStore who gathered a group of local merchants together two days after the storm to assess what everybody needed to keep the third leg of the community intact. The most obvious and immediate need was money.

And so a website went up and events rolled out—a concert at the Bell House, a literary event at Littlefield, a tattoo event at Kidd Yellin Gallery— as applications were sent and rejections came in.

“Huge numbers of people are being turned down for insufficient cash flow,” Byrne said, adding that her business, Home/Made, a local eatery that had just come back from an April fire, had not yet secured any loan money either. “Almost every business is under 10 years old and all the money they made was reinvested,” she said.

Byrne is optimistic that everyone will find a way to reopen, but she’s not so sure they’ll be able to stay afloat.

“My concern is people getting out of debt. Who’s going to be able to survive? This won’t happen en masse like the storm. It will happen one, by one over time.”

Carlo Scissura, president and CEO of the Brooklyn Chamber of Commerce expressed similar concerns and sees direct aid as the best solution to get businesses back up and running. “Our position from day one is that the federal government should be giving block grants,” he said, pointing out that the U.S. provides hefty aid packages to other nations when tsunamis and other disasters strike.

Still, some argue that government aid (including the National Flood Insurance Program, which is more than $15 million in the red on account of all the disasters in recent years) is a financial burden on the government and provides an incentive for people to live and run their businesses in places that flood (or crumble in an earthquake, or get buried in a landslide).

“One view is that people aren’t responsible enough or don’t face the consequences enough of their actions,” said George Zanjani, associate professor of risk management and insurance at Georgia State University, who sees government disaster assistance as a double edged sword.

“If your goal is to make [aid] available it’s hard to do that without incentivizing people to be a bit more careless.”

The concept that flood zones flood was giving Columbia professor Klaus Jacob, a bearded research scientist who has become somewhat of rock star in the wake of the storm, a near aneurysm one recent morning as he sat on a post-Sandy panel of geologists and government representatives. Not that he couldn’t grasp the straightforward concept–Jacob was apoplectic in the face of colleagues who tried valiantly to talk their way out of that simple fact.

He variously stared at the ceiling and rubbed his eyes as fellow speakers pointed to flood maps and talked about the unique right angle Long Island makes with the coast of New Jersey, trapping water and exacerbating flood damage all around the New York City area. Finally it was his turn to speak and like the God of Moses confronting an auditorium of idol-worshipers, he succinctly offered his thoughts. “The public. Has been. In total. Risk. Denial,” he said. We knew, he added, where the water would go, the cost of the damage, the risks of the subway system. “We have been in denial and that denial has to stop.”

Yet the development has already happened. Businesses and whole communities are already there—planted, tied, invested, connected to the dark red parts of flood maps. While they may invest in an extra generator, a better sump pump, or move the more expensive stuff to higher ground, from Red Hook to Coney Island to Williamsburg and the Rockaways, most storm-scarred business owners have little choice but to try to stay.

Snyder of Red Hook Winery laughs at the idea of rebuilding his businesses elsewhere—somewhere more protected from the temperament of the ocean.

“To walk away from it would be an even bigger loss,” he said. “I built it with self-funding. To lose it would be a massive personal loss. And a loss to the community.”