Two reports focused on the impact on small businesses in Puerto Rico of Hurricanes Maria and Irma – use of and availability of credit, insurance coverage (or lack of it) and prospects for a full resumption of business this year – were issued Thursday by the Federal Reserve Bank of New York.
The reports were announced in a press release that quotes a New York Fed official as well as Federal Reserve Board Gov. Lael Brainard, with Brainard encouraging financial institutions to “seriously consider Puerto Rico and other storm damaged areas, including those affected by Hurricane Florence, as part of their CRA [Community Reinvestment Act] activities.”
Earlier this year, federal bank regulatory agencies issued a joint statement giving favorable CRA consideration to development activities by financial institutions located anywhere in the nation that help revitalize or stabilize Puerto Rico and the U.S. Virgin Islands.
The New York Fed’s reports – Puerto Rico Small Business Sector Trends: Evidence from the 2018 Survey (Sector Trends Report), and Puerto Rico Small Businesses and the 2017 Hurricanes (Hurricanes Report) – both draw from the New York Fed’s annual survey of small businesses in Puerto Rico, which provides timely information about firms’ performance and financing experiences. This survey was fielded from March to May 2018, the banks said, six to eight months after hurricanes Irma and Maria’s landfall on Puerto Rico.
Key findings from the sector trends report include:
- The share of micro-revenue firms ($50,000 or less in revenues) increased significantly, from 31% in 2016 to 41% in 2017. Meanwhile, annual revenues decreased for 54% of firms.
- Most firms (57%) reported increased expenses and more reported losses than profits in 2017 (41% reported losses and 33% reported profits), similar to 2016.
- Credit demand remained low in 2017 (30%), while an increased share of non-applicants cited debt aversion as the reason for not applying for credit (42%).
- Notably, however, credit availability increased significantly. If a firm applied for credit, it was more likely to have received funding in 2017 (75% at least partial funding; 53% full amount), than in 2016 (60% at least partial funding; 30% full amount).
- Most credit applicants requested small dollar loans, with 32% applying for loans of $10,001 to $25,000, and 23% applying for loans of $10,000 or less.
Key findings from the hurricanes report showed:
- 77% of firms reported losses directly from the hurricanes. The most frequently mentioned impacts were decreased revenues (71%) and increased expenses (66%).
- Most affected firms held some type of insurance, but only 4% had losses that were fully covered. 37% of affected firms held no insurance.
- Only 22% of affected firms applied for financing to address hurricane losses. Of these firms, most sought recovery financing from government entities.
- Firms used a combination of insurance and financing to cover hurricane losses and most often had funding shortfalls.
- Most surviving firms (73%)—those open or only temporarily closed in 2017–reported confidence that they will be open for business in 2018.
- 62% of affected firms expressed entrepreneurial efforts, with plans to update their offerings with new or different goods or services. 34% plan to restructure their business processes, and 28% plan to expand their business outside Puerto Rico.