Nonprofit lenders often deploy funds faster than the government but need more capital to meet demand.

When disasters strike, the images of destroyed homes and displaced families dominate the news. But natural disasters don’t just tear apart homes and schools — they unravel the small businesses that are the backbone of local economies.

More than 70 percent of small businesses shut down within two years of events such as last month’s Los Angeles-area wildfires. The fires were among the costliest natural disasters in U.S. history, resulting in more than $250 billion in economic loss, affecting nearly 2,000 small businesses, and disrupting the livelihoods of more than 11,000 residents. Without swift, targeted funding, the lifeblood of these neighborhoods will disappear, and the road to recovery will be far steeper.

Small towns and neighborhoods within massive Los Angeles County were demolished by the fires, including the family-owned businesses that make Central-Alameda different from Santa Monica and Sierra Madre unique from Venice. Behind every shuttered storefront is not just an economic loss but the shattering of a family’s dream — the local coffee shop, the mom-and-pop repair business, and the artisan boutique that give neighborhoods their identity.

The high rate of closure makes sense given the realities facing small businesses. Most lack locations outside the disaster area where they can continue generating revenue. They have less money in the bank and less access to loans and credit lines than large businesses.

David Herschorn, owner of PhotoBohemia, a Los Angeles-based event photography business, knows these challenges firsthand. As wildfires engulfed parts of L.A., Herschorn lost almost all his scheduled bookings overnight. “Clients just didn’t feel right throwing parties when the city was in mourning,” he says. “The harsh reality of disasters like this is some businesses rebuild, some pivot, and some are just gone. The faster help arrives, the more businesses can survive.”

Raquel Smeir, owner of My Friend’s Café LA, was still navigating the lingering effects of the pandemic on her business when the wildfires destroyed her inventory. Say Smeir: “Life has been challenging, but it’s also been a time of rebuilding and resilience.”

LA Fire Fighters at work — Courtesy: Getty Images

Too Little, Too Late

On January 15, the Small Business Administration opened two offices in Los Angeles to provide relief to people like Herschorn and Smeir. But past disasters show that the SBA’s Economic Injury Disaster Loans program often doesn’t offer enough support fast enough to ensure these businesses will stay afloat. They need funding in days, not months, to make payroll, pay rent and taxes, replenish lost inventory, and open their doors immediately. Even when businesses make it through the lengthy application and review process — sometimes after receiving a bridge loan from a community lender — their requests are often denied.

Nonprofit community lenders increasingly step into the breach to get funds quickly to small businesses. In fact, because of the increase in disasters, most lenders in the Aspen Institute Microfinance Impact Collaborative, which one of us (Joyce) coordinates, now have standard relief programs that immediately suspend repayments of existing loans and provide small grants or loans to cover day-to-day operations and longer-term loans to support rebuilding.

Within one week of the fire, the nonprofit community lender LiftFund, led by Amy, provided funds to several Los Angeles small businesses, including $5,000 grants to Herschorn and Smeir. “The grant helped us maintain operations and adapt to new market conditions. While we’re still rebuilding, we’ve been able to stay afloat, retain staff, and continue serving clients,” said Herschorn.

For Smeir, the quick infusions of cash helped “stabilize our operations and focus on recovery.”

Community lenders like LiftFund already have the infrastructure to distribute funds rapidly. After Hurricane Harvey struck Texas in 2017, LiftFund made small loans to more than 300 businesses, saving some 1,500 jobs and helping create about 1,000 more. What these lenders lack, however, is the capital to fully meet the demand. This is where philanthropy comes in.

Estimates from LiftFund’s past rapid-response efforts show that a $1 million investment can save hundreds of small businesses — and with them, hundreds of jobs. Yet despite community lenders’ track record of rapid and effective post-disaster support, the scale of their response is limited by their ability to quickly raise funding from local governments and donors.

How Funders Can Help

Given the limitations of current federal relief programs and the uncertainty surrounding SBA and FEMA funding under the Trump administration, more philanthropic support is needed to expand the efforts of community lenders following natural disasters.

Philanthropy can have an immediate impact by donating directly to community lenders engaged in disaster relief. In our experience, the most effective approach is to fund collaborative efforts between larger nonprofit lenders with established systems for deploying disaster aid dollars and local nonprofits that can raise awareness of the grant programs and help small businesses through the application process.

Such collaborations are also a good way to guard against fraudulent practices by those looking to exploit post-disaster charitable aid efforts. Pairing large organizations that have strong fraud mitigation practices with local lenders that have deep community connections helps ensure the funds are safeguarded and reach the businesses most in need.

To speed up distribution of funds, grant makers should also consider supporting efforts to create a national disaster loan fund that lenders across the country could quickly draw on when a disaster strikes their region. A pooled fund of this type could help alleviate one of the greatest obstacles for community lenders after a disaster: the time it takes to raise additional money required to make specialized post-disaster loans. Such loans typically include deferred payments, low interest rates, and flexible repayment terms — all risky features for lenders.

A state-level pooled fund was used in North Carolina following Hurricanes Helene and Florence and was funded by both philanthropic and state dollars. The advantage of a national fund, rather than a state-specific program, is that resources could be raised in advance of a disaster, enabling rapid deployment when one occurs anywhere in the country. The six lenders that make up the Microfinance Impact Collaborative — Allies for Community Business, Ascendus, DreamSpring, Justine Petersen, LiftFund, and Accion Opportunity Fund — are working to design such a fund and hope to launch it before this year’s summer hurricane season.

By investing in community lenders now, philanthropy has an opportunity to demonstrate the tangible impact of community financial institutions on post-disaster business recovery while building a compelling case for sustained public funding and a more agile and responsive system.

Small business owners have great tenacity, but they can’t overcome natural disasters on their own. As disasters grow more frequent and severe, building a stronger support system for small businesses isn’t just an economic imperative — it’s a moral one. Every day we delay, another small business closes its doors, and another community loses its heartbeat.