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. 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 article 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 287 small 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 played a positive and statistically significant role in determining the actual revenue change and owners’ perception of revenue.
Highlights
Hurricane Katrina hit the Mississippi Gulf Coast of the United States in August 2005
The model takes into account that receiving a small business administration (SBA) loan is endogenous and the results show that the errors are statistically significantly correlated (−0.92, p < 0.01)
We hypothesized that SBA disaster loans played a significant role in determining revenue change post-Katrina
Summary
Hurricane Katrina hit the Mississippi Gulf Coast of the United States in August 2005. The US government provided $2.6 billion of small business administration (SBA) disaster loans to individuals and businesses in Mississippi [2]. SBA disaster loans are low interest rate, long-term loans used for damages, which were not fully insured. These loans are provided directly from the United States government, unlike other types of SBA loans where borrowers apply for commercial loans with a guarantee from SBA. Businesses of all sizes can apply for the disaster loan for the purpose of repairing or replacing damaged properties in a declared disaster area [2,4,5]
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