How A Hurricane Impacts Business Credit

As businesses begin cleaning up from Hurricane Helene's impact, I thought I would repost the information I've previously provided on this subject for those who have been impacted by a natural disaster and could soon after face another potentially catastrophic loss: their corporate creditworthiness.

Natural disasters, such as hurricanes, floods, fires and tornadoes, have become all too frequent around us, no matter what part of the country you are in. But history has proven that businesses far outside the actual impact zone can be dramatically impacted by these types of events, even by factors outside their control.

Natural disasters can play a huge role in a company's credibility. That's why, when generating scores and ratings based upon the amount of risk your business can sustain, business credit bureaus gauge factors that impact your financial strength, longevity and credibility. Any natural disaster is going to have a negative impact on all of those, but the resulting hit a business takes to its credit risk analysis can sometimes be equally devastating.

We saw it happen after the BP oil spill in the Gulf, after Hurricane Sandy hit the Jersey shore, after earthquakes, fires, and other natural disasters. And it may happen again, now, after Hurricane Helene moves on and businesses get busy cleaning up.

D&B, for example, has been rating businesses for over 180 years. They know from experience that businesses that lie within the zone of impact are going to face struggles that businesses 100 miles away may not. At the same time, they also know that businesses thousands of miles away may also be negatively impacted, especially if their most trusted suppliers lie within the zone of impact.

At some point soon, D&B may place a notation into the corporate credit report of every business located in the impact zone to let their suppliers and creditors know that this business may now be at a higher risk of failure. They may do that for every business, even those that escaped a direct hit — even those who experienced no damage at all.

They do this because they know this tragedy is going to reach far beyond their immediate neighborhood. Obviously, if facilities are damaged, repairs need to be made. Utilities may need to be restored before you can even begin cleanup. You may have employees who aren't able to come back to work. Supply lines may be cut for months. Current inventory may be compromised. The fact is — your company may not be operational for weeks.

But disasters also have an impact on other businesses, some located thousands of miles away or around the globe. Corporate communities far outside the impact zone are relying on those impacted businesses in order to run their own companies — whether that's infrastructure, staffing, supply lines, transportation or business systems.

In so many words, this means a hurricane in Florida can dramatically affect your scores and ratings even if your business is in New York, New Brunswick or North Dakota.

For example, let's say you are manufacturing cars for Toyota in Kentucky. If the only company that provides Toyota with a specific wiring harness is under three feet of water in Tallahassee, they may have a hard time meeting production demands. The bureaus know that supplier is Toyota's parts provider because they report into Toyota's business credit report. So now there is an unanswered question: Are product deliveries now going to be delayed? Are they going to have to find another supplier?

If you are a janitorial service in Atlanta who buys cleaning chemicals from a supplier in Valdosta, where will you now find the products you need to run your business? Of course, you can probably find chemicals elsewhere, but if this supplier reports payment history to the bureaus and they just lost their only facility, it's possible your business will be set back by the loss of your only chemical supplier.

During the Gulf oil spill, D&B downgraded risk scores for a broad swath of businesses, not just along the Gulf Coast but also all across America and around the world (and far beyond the obvious oil & gas industries.) This included the shrimp and fishing industries, restaurants, hotels and resorts, Mom and Pop souvenir shops, trucking and shipping companies, employment and staffing agencies, environmental services, call centers, caterers and everything in between. While the Hurricane Sandy disaster impacted thousands of businesses and billions of dollars were lost, far more businesses were negatively affected by D&B's sudden downgrade of their credit ratings and financial stress scores.

Everyone knows your business will be struggling, but a downgrade to your business credit scores and ratings could become a multiplier of those struggles, and one that many smaller businesses may not survive.

At times like this, it is even more important that every business owner pay closer attention to their company's corporate credit scores and ratings, and be ready to take immediate action if they see any unwarranted downgrade to your company's creditworthiness.

We are all sympathetic to the losses being faced by our neighbors, friends and family members during a natural disaster. It could be weeks or months before those businesses can meet the day-to-day needs of their staff and customers. But right now, they don't need sympathy. They need support. They need their businesses to be functional, strong and capable to weather this storm.

If your business (or supplier) is within an impact zone, please reach out to me directly for a free consultation and specific advice you can use to safeguard your business credit scores and ratings.

CLICK HERE to schedule a free one-on-one consultation or reach out if there is anything we can do to be of assistance.