WILL BUSINESS INTERRUPTION INSURANCE HELP (& WHAT ARE MY OTHER OPTIONS)?
The economic fallout of the coronavirus pandemic is significant and may be felt for months or years to come. The president has declared a national emergency, multiple states are in lockdown mode and the U.S. Surgeon General has warned that the outbreak will get worse before it gets better.
All of this means serious financial hardship for small business owners. An add-on insurance called business interruption may help—but this is the exception, not the rule.
The good news is that there are other resources that can help you keep your small business afloat during this health and economic emergency.
Making a Business Interruption Claim
Countless businesses across the nation are experiencing disruptions due to stalled supply chains, decreased consumer demand, absent employees or travel restrictions. If your business insurance policy includes a type of coverage called business interruption (BI), you may be looking to this policy for financial assistance.
Unfortunately, most small and medium-sized businesses are unlikely to find relief through their existing BI insurance. That said, there are some exceptions. Whether your claim is accepted will depend largely on your policy’s specific terms and conditions.
Why isn’t BI coverage automatically triggered by the current crisis?
Following the SARS outbreak in 2003, insurance companies across the world revised their business interruption policies to exclude lost revenue due to communicable diseases. This means that—in order for you to make a successful claim—your BI policy would probably need to contain a pre-negotiated communicable disease provision. Additionally, most BI claims are triggered by quantifiable physical damage to the insured place of business, and the damage caused by contagious diseases can be difficult to quantify.
My place of business is uninhabitable due to coronavirus—does this constitute physical damage?
It depends. BI policies cover the interruption that occurs when a property is damaged or lost due to a fire, hurricane or other natural disasters. But judges in various jurisdictions have ruled that when a business becomes contaminated or otherwise “uninhabitable,” the resultant loss of use of that business constitutes physical damage. If an outbreak forces you to close and/or sanitize your business, you may be able to argue that physical damage has occurred. This will depend on the generally agreed-upon definition of physical damage in your jurisdiction, and also on whether your policy’s wording specifically excludes communicable diseases—which would render such a claim null.
To find out if your BI insurance coverage applies to the impact of the coronavirus outbreak on your business, you’ll need to carefully review the wording of your current policy. Thorough documentation of your financial losses is essential. If your policy does not have an addendum that specifically excludes communicable diseases, it’s worth contacting your insurance provider to find out if you qualify for any financial relief.
Other resources to help you weather the storm
Low-interest emergency loans from the SBA
The Small Business Administration (SBA) is now offering low-interest emergency loans to small businesses affected by COVID-19. The Economic Injury Disaster Loan (EIDL) program will offer loans of up to $2 million to help small and medium-sized businesses stay financially stable during and after this crisis. Business owners have up to 30 years to repay the loan amount.
At the time of writing the interest rates are set at 3.75% for small businesses and 2.75% for nonprofits—but there is a possibility those rates will be lowered. The SBA’s press release page is a good resource for tracking any future changes to the EIDL program.
These loans will be directed to businesses that have incurred substantial economic losses as a result of the coronavirus outbreak. Business owners can use the low-interest capital to pay their employees, pay bills and debts, and find alternative suppliers. EIDL loans are only available to business owners without access to a line of credit in designated areas that have been targeted by the SBA for disaster relief. To find out if your county has been designated, you can check the SBA’s current list of states and counties that have been declared disasters.
How does the SBA decide which states get funding?
To apply for federal funds, a state governor must give the SBA evidence of business losses for at least five businesses per county. The SBA will then use its authority to decide whether or not to allocate funds to that state. If the request is approved, the SBA will work with the state governor to direct the loans to the counties where they are most needed. Local businesses will then receive information on how to apply for a loan.
To help the process along, you can provide documentation of the need for disaster relief in your county. For information on how to submit this form, check your county website.
State-specific business initiatives
At this point in time, some states have been more deeply impacted by the coronavirus than others. As such, economic relief programs for affected individuals and businesses vary on a state-by-state (and even city-by-city) basis, according to their needs. New York, California and Washington have been the hardest hit states so far, so their governments are offering the most significant financial assistance.
Washington state is supporting business owners by offering tax filing extensions, and New York City will offer loans of up to $75,000 for impacted small businesses. Since every state has different resources and relief programs in place, business owners should find out what’s available to them by visiting their governor’s website.
Leeway from banks and credit card companies
Many major banks and credit card companies are taking the financial impact of business closures into account and have begun waiving late fees and offering minimum payment assistance. They have also expressed a willingness to work with customers experiencing financial hardship if they get in touch and ask for help. The list of banks and credit card companies that are offering increased flexibility so far includes Capital One, Wells Fargo, Citibank, Chase, Bank of America, U.S. Bank and Discover.
Plan for the future
If your business is in financial straits it may be difficult to think beyond staying afloat for the next few months. However, planning ahead can help your business become more resilient and better able to weather a future crisis.
When the time comes to renew your insurance policy, think about purchasing a contingent business interruption provision that covers communicable diseases, if this is financially feasible for your business. If your provider does not offer a contingent business interruption add-on, consider shopping around until you find a provider that does.