April 11, 2005
By Marcia Heroux Pounds
Business Writer
Sun Sentinel
Six months after the hurricanes, small business owners like Boca Raton auto repair shop owner Fred Iaboni are feeling shortchanged by a system designed to help them survive disaster.
Iaboni, 45, who sold his auto shop in Toronto and last year bought Boca Auto Service, hasn't been able to collect on his business interruption insurance. He also has been rejected for a disaster loan -- a low-interest loan to aid small business owners.
"We're the backbone of the whole state. We should be compensated for our losses," he said.
Like thousands of small business owners, Iaboni thought there would be help to recover from last season's hurricanes: from the state of Florida, the federal government or his own insurance. With loans denied and insurance claims unpaid, many small businesses are struggling to stay afloat.
After Hurricane Charley in August, the first of four hurricanes in 2004 to hit Florida, President Bush vowed to help those who suffered damage. For business, Congress approved an emergency supplemental appropriation of $500 million to the U.S. Small Business Administration's disaster loan program. Florida also offered no-interest bridge loans to businesses -- but only for those that had physical damage and could pay back the loan in 90-180 days.
In South Florida, hurricanes Frances and Jeanne in September left many businesses without roofs and power and blew away sales. Small businesses, which employ half the workers in Florida, say it is taking them longer than they expected to recover, partly because the promised help hasn't come.
The SBA has rejected 57 percent of the disaster loan applications in Florida following the 2004 hurricanes. About 2,700 loans are pending and some are being reconsidered, the agency said.
While loan officers try to work with disaster victims, they have to be responsible about lending federal tax dollars, the SBA said. There is no Federal Emergency Management Agency grant program for business owners as there is for homeowners.
"We have an obligation to the taxpayers to make prudent decisions," said Frank Adinolfe, spokesman for the SBA's Disaster Assistance Office in Atlanta. The SBA considers factors such as credit history and the business owner's ability to repay the loan.
The disaster loan is a good deal for those who can get it: A 30-year loan at rates from 2.9 percent to 5.8 percent. Most business owners get the lower rate, the agency said. The loans are made both for physical damage to a business and for economic injury, to pay for expenses such as rent while the business recovers.
SBA Deputy Director Melanie Sabelhaus, who was visiting South Florida recently, said she has heard nothing but good feedback about the program. She points out the SBA has approved 9,490 loans in Florida. "If a business is in good condition, odds are they're going to get a loan," she said.
But some small firms and their supporters say initial promises of assistance after the hurricanes were misleading.
Congresswoman Nydia Velazquez, ranking Democrat on the House Small Business Committee, said problems with the disaster loans have come up before. "The agency seems to look for every possible way to disqualify these small business owners and complicates the application process for them even further," she said in an e-mail.
Some business owners in South Florida say they've waited four months for their loans to be processed, to find themselves rejected.
Adinolfe said normally the response time is 19 days, but the hurricanes were unusual. "It was historic: four storms back to back and the amount of applicants and amount of people who applied," he said.
Overwhelmed with thousands of applications, the agency spread processing of the loans nationwide and hired 2,000 additional loan officers. "We did have a delay in responding," he said.
Iaboni, who gave the SBA permission to talk about his loan application to the Sun-Sentinel, estimates a loss of $30,000 in sales for the month last year when the hurricanes tore through South Florida. "I had to dip into my own pocket to pay rent, employees' wages," he said.
Now he faces possible foreclosure on his Boca Raton home.
In declining Iaboni's loan, the agency cited a September delinquency on his home mortgage. Iaboni said he had to use the money to pay for shutters for his business and to pay his three employees that month.
The SBA also questioned his repayment ability based on information submitted. Iaboni, who operated an auto business for 25 years in Toronto, said his business had a profit -- until the September hurricanes. The agency said it would reconsider his application if he provides more detailed financial details.
INSURANCE FALLS SHORT
Nonpayment of insurance claims also has left some businesses in a difficult situation.
Last August was a good sales month for Boynton Beach-based Paper Roll Products. The paper supply company has been restructuring after founder Thomas Johnson was diagnosed with bladder cancer and retired early. His wife, Mary Claire Johnson, 48, took over.
Then September brought hurricanes Frances and Jeanne. Paper Roll Products, which sells paper for cash registers, had no physical damage. But the 15-employee company lost power for more than three weeks. "My employees gave me their all, suffering in the heat," Johnson said.
Johnson thought she was in good shape: She had business interruption insurance on two policies for which she paid $47,560 in 2004. Yet her claim was denied.
"Your policy provides no coverage for any damage or loss of income caused by or resulting from windstorm or hail," said a certified letter from the company's insurer. Her wind insurance also wouldn't pay -- there had to be physical damage.
"I've had to cut expenses, staff," Johnson said. "I was struggling before the hurricanes. The hurricanes threw it over the edge."
Johnson turned to the SBA. She has been approved for a disaster loan, but the agency wants collateral and she doesn't want to put up her home.
Last September after the hurricanes, sales had fallen to half the normal amount. Her attorney and accountant told her, "You can try to turn it around or close the doors."
But "closing the doors is not an option as far as I'm concerned," Johnson said.
BORROWING TO REBUILD
Closing wasn't an option either for the family-owned Turtle Pond Nursery in Delray Beach. Michael and Sandy Borkon own the nursery with Sandy's son, Scott Glazer.
The nursery lost 80,000 of its 90,000 orchids when its roof blew off during Hurricane Frances, tearing the orchids and turning leaves brown. "I was sick," Michael Borkon said.
Turtle Pond also lost $350,000 worth of houseplants. The total loss: more than $1 million. Yet Turtle Pond received only $175,000 from its federal crop insurance.
The nursery held the government's basic $100 catastrophic insurance policy, which kicks in when the farmer loses half the crop. The nursery lost half its orchids, but not half its houseplants. So it got nothing for its destroyed houseplants.
The owners are rebuilding. "We borrowed against the land so we have an incredible mortgage here, which is not making things easy for us," Borkon said.
Rebuilding also takes time -- a year or two for an orchid to bloom to the size that it can be sold. Turtle Pond's owners expect it will take four years to fully recover.
A 61-year-old retired veterinarian who bought Turtle Pond in 1992, Borkon was trying to take it easy after heart surgery. Now both he and his wife, 59, are working full-time again.
Six months after the hurricanes, Turtle Pond, with its 32 employees, is slowly beginning to bloom again. The nursery has reinvented itself by specializing in orchids and orchid containers.
LOOKING AHEAD
Boca Auto Shop owner Fred Iaboni thinks the state should give businesses a tax credit or some other help to recover from hurricane losses.
Michael Borkon doesn't hold government responsible, but he worries about the financial strain on a business that employs his family and workers who have been with him for 20 years.
Mary Claire Johnson is changing insurance agents. She is grateful the SBA has finally approved a $94,000 loan for her business if she can deliver the collateral. Paper Roll Products has been profitable for the last three months, she said. "We've turned the corner."
But as the hurricane season approaches, Iaboni voices the trepidation of many business owners. "What happens with the next hurricane? I might as well just close the business up," he said.
Marcia Heroux Pounds can be reached at mpounds@sun-sentinel.com or 561-243-6650.
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