75%
of businesses impacted by a major disaster fail within three years. We are currently in the midst of one of the largest disruptions to our economy in US history. Economic resilience is about rebounding in the face of business interruption.
Many small and mid-sized businesses end up wasting a lot of time, effort and money on actions they think will be helpful in overcoming these disruptions.
Wouldn’t it be helpful to know what other businesses like yours did in past disasters that worked, and what didn’t?
Wouldn’t it be helpful to use this information to build a more cost-effective strategy to cope with the disruption?
The Business Resilience Calculator (BRC)
The Business Resilience Calculator (BRC) is decision-support software designed to help you overcome the various disruptions to your business when a disaster strikes and to do so in a cost-effective manner. You have a range of options to get your business back on its feet, and the BRC helps you identify them, measure their effectiveness and cost, and combine them into a least-cost—and hence profit-maximizing—strategy.
Covid-19 BRC Pre-Release
The BRC is scheduled to be released next year. A product of years of government-funded research at major universities in the US, the BRC is now being released in limited-scope to help small and mid-sized businesses disrupted by the current crisis. It includes a module tailored to the types of economic disruptions that can occur in pandemics. These include employees not being able to come to work and supply-chain bottlenecks. This version provides predicted benefit-cost ratios for various resilience actions, or tactics, that your business can implement right now. These can play an important role in helping you identify the most cost-effective actions to take. The full release of the BCR will include additional metrics and modules.
What is resilience, and what does it mean for your business?
Each disruption your business faces causes some degree of business interruption (BI). These BI losses lead to declines in sales revenue and profits. Note that BI losses begin when the disaster strikes, and continue until your business has recovered.
For some recent major catastrophes, BI losses have rivaled or even exceeded property damage in dollar terms. For example, BI losses were four times the value of the World Trade Center in just the first year after 9/11. In the case of Hurricane Katrina, BI losses eventually exceeded property damage due to the protracted recovery.
Resilience is all about reducing BI through tactics you can implement to help your business rebound. The BRC helps you assess your current resilience capability, compare it with other businesses like yours, and identify ways to improve it.
Economic Disruptions during Covid-19
The COVID-19 pandemic differs from most other disasters in that it does not require repair and reconstruction of facilities. Instead, the main sources of BI stem from stay-at-home orders and social distancing measures, limited access to critical materials due to supply-chain bottlenecks, and communications disruptions due to overloaded communications networks. Even after mandatory restrictions are lifted, problems will persist as employees might be hesitant to return to work out of fear of contamination and critical materials may not be readily forthcoming because of supply-chain constraints.
What to Do Next to Improve Your Resilience Capacity
The BRC provides a list of options that can help you make more informed decisions about the cost-effectiveness of resilience tactics. The guidance is differentiated by major firm characteristics, such as sector, size, magnitude of property damage, type of critical input disrupted, etc.
After you use the BRC, there are many steps that you can take once you are equipped with this information. These include:
- Intra-firm improvements, such as constructing more storage space for inventories, considering options to recycle water, purchasing back-up electricity generators, identifying alternative locations in advance
- Inter-firm improvements, such as cooperating with other firms to cope with the disaster (e.g., pooling resources in short supply, exchanging resources, mutually advantageous priorities and timing of clearing of debris)
- Regulatory improvements, such as possibilities of suspending regulations that may be an obstacle to recovery (e.g., inter-firm cooperation that might otherwise violate anti-trust laws, suspension of environmental regulations under special circumstances)
- Incentive identification, such as options for securing low-interest loans government subsidies, philanthropy
Resources to Further Improve Your Resilience Capacity
Now that you’ve done a self-assessment of your firms' resilience capability and compared it to other businesses like yours, it might be helpful to identify ways to further improve your resilience. We provide two sets of sources that you can use for this important goal:
- Sources of funding
- Sources of information
You can then use these resources in the unique context of your business to improve its continuity in the event of future disasters. This table provides links to funding information for COVID-19. Eight federal programs are listed, both specific to the coronavirus and broader in scope, which your business may be able to use for coronavirus relief. The Table also identifies how these programs are applicable in a major way ( ) or minor way ( ) to various resilience tactics you may be able to implement.
| Program | Amount of Funding Available | Comments | Relevant Tactics |
|---|---|---|---|
| Business and Industry CARES Act Program (US Department of Agriculture) | Loans that cannot exceed $25 million | Market interest rates plus fees. Max term is 10 years. Must be used by rural businesses and agricultural producers as working capital to prevent, prepare for or respond to the pandemic. Cannot be used for purchase of equipment. | Production Recapture
Input Substitution
Relocation
|
| Economic Injury Disaster Loans (Small Business Administration) | Loans originally capped at $2 million. As of April 2020, included $10,000 advance grant. As of May 2020, limited to $150,000 | Interest rate of 3.75%, or 2.75% for non-profits. Intended to fund expenses such as payroll. As of May 2020, only available to agricultural businesses. | Production Recapture
Input Substitution
|
| Employee Retention Credit (Internal Revenue Service) | Tax credits equal to 50% of up to $10,000 in qualified wages, capped at $5,000 per employee | Employers receiving a loan from the Paycheck Protection Program are not eligible for the tax credit. | Input Substitution
Production Recapture
|
| Main Street Lending Program (Federal Reserve) | Loans of minimum size of $500,000, and maximum size of $500 million | Two to four years at LIBOR plus 3%. Designed to support medium-sized and small businesses and to help companies in sound financial condition prior to the pandemic maintain their operations. | Input Substitution
Production Recapture
Relocation
Technological Change
|
| Paycheck Protection Program (Small Business Administration) | Loan of up to 2.5x average monthly payroll for 2019 or comparable seasonal period up to $10 million | Fixed interest rate of 1%. Fully or partially forgivable if at least 75% is used for payroll, and employer does not reduce payrates and number of full-time equivalent employees. | Input Substitution
Production Recapture
|
| Primary Market Corporate Credit Facility (Federal Reserve) | Loans up to $11.25 billion per company | A funding backstop for corporate debt issued by eligible issuers. Market interest rate plus 1% fee. Open to investment grade companies. | Production Recapture
Input Substitution
Relocation
Technology Change
|
| SBA Debt Relief (Small Business Administration) | Loan forgiveness for six months of principal, interest, and fees that borrowers owe on current and future 7(a), 504, and Microloans from the SBA | Equivalent to a grant. Relief not available for Paycheck Protection Program or Economic Injury Disaster loans. | Production Recapture
Input Substitution
Relocation
Technology Change
|
| SBA Traditional 7(a) (Small Business Administration) | Loans of up to $5 million | Market interest rates capped at SBA max. Loans must typically be repaid in 7-10 years. Funds for financing and equipment | Production Recapture
Resource Isolation
Relocation
Technology Change
|
All eight programs appear to provide significant support for Production Recapture, as they are intended to provide funds for businesses affected by the pandemic maintain or resume activities. They also provide funding support for workers, so businesses can avoid having to find substitutes for their pre-disaster labor force. However, the sources will have varying effects on the other resilience tactics depending on program design, eligibility rules and the current context depending on how you choose to use those funds. For example, funding sources are not relevant to the resilience tactics that need to be put in place before the disaster, the pandemic in this case (e.g., inventories, excess capacity).
The listed funding programs fall into two categories: 1) loans and credits for operating expenses, and 2) loans with fewer restrictions. Several programs fund operating expenses such as payroll, utilities, and leases, but not business expansion. Those programs, which include the Business and Industry CARES Act Program for rural businesses and the Economic Injury Disaster Loans, offer minor support for input substitution as they subsidize labor and utilities, such as energy and water, but do not support other production inputs.
Two other initiatives, the Employee Retention Credit and the Paycheck Protection Program (PPP), are designed to offer direct subsidies for businesses to rehire workers or to keep them employed. Thus, those programs appear to provide major support for input substitution to help you overcome labor shortages. The other set of programs offers less restrictive loans and credits and that can be used for expansion or renovation, including the purchase of equipment or real estate. These programs include two special purpose instruments established by the Federal Reserve: 1) the Primary Market Corporate Credit Facility for large corporations, and 2) the Main Street Lending Program for small and medium size businesses. The table also includes Small Business Administration 7(a) loans and debt relief. As these programs have few or no restrictions, they are designed to offer minor support for businesses on tactics such as relocation, technological change, and input substitution. You may be able to use the Fed’s Main Street Lending Program, which offers major support for input substitution on the labor side, since it requires that loan recipients make “commercially reasonable efforts” to maintain payroll.