Small Business

Businesses Want Grants, Not Loans, to Aid Sandy Recovery

Photo: Timothy A.Clary | AFP | Getty Images

As Adam Weprin looks over the damage to the Bridge Cafe caused by Superstorm Sandy, he wonders where — and when — he'll get the money to repair his Lower Manhattan restaurant.

Stores, restaurants, factories and offices across the Northeast were damaged or destroyed by the Oct. 29 storm. So far, almost all the recovery money that's being offered to small businesses by government agencies is in the form of loans, but taking on debt is one of the last things owners want to do as they try to recover from the storm in an already challenging economy. (Read more: The Post-Sandy Quest: Coffee ... And a Shower)

Little Sandy Grant Money

Grants that don't have to be repaid are a more desirable option for most owners — and after the Sept. 11, 2001 terror attacks and Hurricane Katrina, many small business owners were saved by these kinds of funds. But so far, grant money for small businesses hurt by Sandy is relatively scarce. While many larger businesses also have big recovery costs, the need is more urgent for small companies because they tend to have fewer reserves and are more dependent on cash flowing in daily. Small business owners that don't get back to business fast could be forced to close their doors forever.

In New York City, Mayor Michael Bloomberg has announced $5.5 million in grants for small businesses from two not-for-profit organizations, the Mayor's Fund to Advance New York City and the Partnership for New York City. But that won't go far, considering that thousands of businesses suffered damage, many of them into the hundreds of thousands of dollars. Citywide, the damage estimate for homes and businesses was put at $19 billion. In New Jersey, the cost of recovery and rebuilding from the storm was an estimated $37 billion. All told, Sandy caused an estimated $62 billion in damage in the Northeast and Mid-Atlantic states. It's not known how much of the damage was suffered by small businesses.

Weprin is hoping that federal, state and local officials will quickly come up with grants to help him rebuild and survive. There are a number of efforts under way with grant money available from nonprofit groups, fundraising activity and even from one of the utilities serving New York City. But most of the grants are tiny in comparison with what many companies need.

Weprin can get a grant of $20,000 from a business group called the Downtown Alliance. He estimates it will take at least $300,000 to rebuild the basement of his 218-year-old building which was flooded by water from Sandy's storm surge. He's not sure what he'll get from insurance.

"Twenty thousand is a hiccup," he said. After Weprin's wood-frame building was flooded, the timbers in the basement were ruined -- he describes the wood as now having the consistency of sponge cake.

Another $10,000 grant is available from the $5.5 million fund Bloomberg announced, but only if Weprin takes out a $25,000 disaster loan from the city's Emergency Loan Fund. "I don't need another loan on my head."

Other business owners have expressed the same sentiment as Weprin, but loans are the first thing owners hear about when they ask for disaster relief help. The Small Business Administration, state and local governments and economic development organizations are some of the big sources of loan money. Corporations such as Goldman Sachs Group and JPMorgan Chase have contributed money to loan funds. The SBA loans have a low interest rate of 4 percent, and some of the loans in New York are no interest for the first six months.

Government websites in New Jersey tell business owners where they can apply for loans. So far, the only grants being offered are to help train workers to assist in cleanup and construction, said Ernest Landante, a spokesman for New Jersey Lt Gov. Kim Guadagno.

Many small business owners can't imagine the idea of taking on more debt, says Linda Baran, president of the Staten Island Chamber of Commerce.

"Many businesses have loans out, especially with the way the economy was the last couple of years. They feel that by taking out another loan, it's just putting them deeper in debt," Baran said. Staten Island is the southernmost of New York City's five boroughs and was hit particularly hard by the storm.

'I Would Dance in the Street for a Grant'

There is some good news. Small businesses on Staten Island and in the boroughs of Brooklyn and Queens are getting grants of up to $250,000 from National Grid, which supplies natural gas to parts of the city. The utility says the grants will go to its hardest-hit small business customers including stores, factories, warehouses and multi-family dwellings like apartment buildings. It's part of a $30 million program that will also give grants to homeowners and other residential customers.

The small business grant program is similar to one National Grid created in 2011 for upstate New York companies and farms hit hard by Hurricane Irene, said Ken Daly, president of National Grid-New York.

"These are for customers who have to make a big decision, do they reopen or shut down," Daly said. He expects that the program will help hundreds of small businesses. National Grid has about 1,000 to 2,000 business customers in the flood zone where Sandy hit.

(Read more: Amid 'Fiscal Cliff' Stalemate, Main Street Deteriorates)

In Sea Bright, N.J., Brian McMullin doesn't want a loan to rebuild his ice cream store, Gracie & The Dudes. The store, a block from the beach, was flooded by more than six feet of water and had to be gutted.

"I would dance in the street for a grant," McMullin said. He's hoping to get some money from a fundraising campaign in Sea Bright, but the bulk of the estimated $250,000 cost of rebuilding will have to be borrowed. That's something he and his wife Michelle dread after having paid down credit cards and other loans. The mayor of Sea Bright was not immediately available to discuss the fundraising effort.

"We're back to square one," Mullin said. "When you build a store, it takes you almost 15 years to pay off the debt on it."

As reluctant as small businesses may be about taking out debt to pay for their recovery, loans aren't always desirable for lenders either.

Loans aren't a good option for businesses with an uncertain future — especially those that serve neighborhoods where scores of homes were destroyed. It's not always certain how they'd make the money to pay back the loans.

"These are businesses that live hand to mouth and the loss of their inventory and facilities and also their customers in the area they serve is devastating," said Kathryn Wylde, president of the Partnership for New York City, an economic development organization which contributed $500,000 to the pool of grants in the city. "There's no way to loan them money till you figure out where they're going to be and where their customers are going to come from."

Loans are problematic for other reasons. SBA loans are intended to cover uninsured losses. But many companies decimated by Sandy still don't know the extent of their losses, and how much will be covered by insurance.

It Has Taken Months, Even Years

Loan money tends to be more readily available than grants. Investors are willing to back loans because they expect to get their money back. But grants are generally given with no expectation of repayment. Some of the grant money currently available for small business to help recover from Sandy came from grants given after the Sept. 11 terror attacks and that companies decided on their own to repay, Wylde said.

Another reason government grants are hard to come by is the fact that lawmakers would have to approve them -- something they may be reluctant to do when budgets are already strained.

(Read more: Small Employers Weigh Impact of Providing Health Insurance)

Making small business depend on loans is a mistake, said Jeffrey Robinson, a professor of entrepreneurship at Rutgers University in New Jersey.

"A loan is not going to be good for a business that's already deeply in debt," Robinson said. "A loan is not going to be good for a startup or for someone who has been in business for the last year or two — having a loan at that stage, you probably already have some loans, and so that may not be a good move for them."

He said a widely held belief that market forces should determine which companies succeed or fail is a primary factor behind the emphasis on loans rather than grants. That's wrong, given the dire straits many businesses are in after Sandy, Robinson said.

"The market has already been significantly altered by a catastrophic event that can allow the economic spiral downward to continue," he said. "You're going to be in a worse situation than in the beginning."

Another danger: Small businesses that can't operate because they have no cash coming in are at risk of collapsing — sending workers to the unemployment line and weakening the economy, Robinson said. "The state should chip in at some point for the very reason that (small business) is a huge tax revenue producer."

Some public officials including the speaker of New York's state Assembly, Sheldon Silver, also believe there should be more grants.

"So many (small businesses) were hit so hard by Hurricane Sandy and are facing enormous costs due to damage," Silver said. "In partnership with local business organizations, I have been calling for support including disaster recovery grants, for our small businesses."

But the fact that grants are scarce now doesn't mean they won't be available in the future. It has taken months, even years, for grant money to be found and distributed after past disasters. In March 2003 — a year and a half after the Sept. 11 attacks — grants were still being given to small businesses. More than half a billion dollars in grants were approved in the post 9/11 effort.

It can take time for officials to realize how great the need is. Grant money helped save small businesses in New Orleans after Hurricane Katrina in 2005 although then-Louisiana Gov. Kathleen Blanco didn't launch the Business Recovery Grant & Loan Program until January 2007.

"They were able to save a bunch of businesses ... they realized they had a lot to lose if they didn't get it right," Robinson said.

Raising money for grants can be a painstaking process, as chamber of commerce officials in Westerly, R.I., are finding after Sandy. Of the 41 businesses on Misquamicut Beach in Westerly, between 30 and 35 have had devastating losses, said Lisa Konicki, the executive director of the Greater Westerly-Pawcatuck Area Chamber of Commerce. The chamber has sponsored or publicized a series of events like dinners, concerts and T-shirt sales to bring in money for grants.

Konicki is hoping to raise between $300,000 and $400,000 by the spring to help these businesses, most of which are closed for the off-season, open in time for the summer.

Misquamicut Beach business owners hit hard by Sandy are grateful for what the chamber of commerce is doing, but they think government officials need to do more.

"I feel like they really don't know what they're doing," said Sally Sorenson, whose family restaurant, the Windjammer Surf Bar, lost parts of its roof and had collapsed walls and other damage. "It's been such a long time since we've had a disaster of this magnitude that they are really chasing their tails."