The effect of Small Business Administration (SBA) Disaster Loans on Revenues of Small Businesses in Mississippi after Hurricane Katrina

Abstract

The US government provided $2.6 billion of Small Business Administration (SBA) disaster loans to individuals and businesses in Mississippi after Hurricane Katrina in 2005 (FEMA 2015). However, existing literature has not fully explored the firm-level effects of post-disaster loan aid; specifically the effect on small businesses. The objective of this paper is to examine whether SBA disaster loans played a significant role in the performance of small businesses after Hurricane Katrina. Data from a sample of 373 businesses in Mississippi that were operating before Hurricane Katrina and still operating in 2013 were used in the analysis. Two hypotheses were tested: 1. Small business owners that received SBA disaster loans have higher revenue change compared to before Katrina than those who did not receive the loan; 2. Small business owners that received SBA disaster loans perceived their businesses to have higher revenue than before Katrina. Receiving a SBA disaster loan did not play statistically significant role in determining the actual revenue change. However, SBA disaster loans had a negative and statistically significant association with owners’ perception on change of revenue compared to pre-Katrina levels.