NEW YORK—The Federal Reserve Bank of New York today released two reports on small businesses in Puerto Rico: Puerto Rico Small Business Sector Trends: Evidence from the 2018 Survey (Sector Trends Report), and Puerto Rico Small Businesses and the 2017 Hurricanes (Hurricanes Report). Both reports draw from the New York Fed's annual survey of small businesses in Puerto Rico, which provides timely information about firms' performance and financing experiences. This survey was fielded from March to May 2018, six to eight months after hurricanes Irma and Maria's landfall on Puerto Rico.
"It's clear that the entrepreneurial spirit remains strong as businesses look to not just rebuild but expand from the devastating storms of 2017," said Federal Reserve Board Governor Lael Brainard. "This report is another reminder of the extraordinary needs and opportunities for investment that exist on the island," she said. "We invite financial institutions to seriously consider Puerto Rico and other storm damaged areas, including those affected by Hurricane Florence, as part of their CRA activities."
Earlier this year, federal bank regulatory agencies issued a joint statement giving favorable Community Reinvestment Act (CRA) consideration to development activities by financial institutions located anywhere in the nation that help revitalize or stabilize Puerto Rico and the U.S. Virgin Islands.
"Last year's hurricanes wrought extraordinary challenges for small businesses in Puerto Rico, and these reports provide a valuable look of the surviving firms," said Kausar Hamdani, senior vice president at the New York Fed. "The reports highlight ways to address current losses—namely through bolstering micro loans—as well as possible preventative measures for future storms—including by addressing insurance coverage gaps."
The Sector Trends Report looks broadly at trends in Puerto Rico's small business sector, while the Hurricanes Report specifically focuses on firms that faced hurricane losses. Overall, credit demand declined, possibly because of the increased aversion to taking on debt, though credit availability improved significantly. There was a higher share of micro-revenue firms, and the financing requested was primarily for small-dollar loans. Of the vast majority of firms that faced hurricane-related losses, few were fully covered by insurance, and less than a quarter applied for financing to address those losses. Despite these hardships, most surviving firms indicated high confidence that they would be open for business this year.
Key findings can be found in the Takeaways sections for the Sector Trends Report and the Hurricanes Report. They include:
Sector Trends Report
- Revenues, Expenses and Profitability
- The share of micro-revenue firms ($50,000 or less in revenues) increased significantly, from 31% in 2016 to 41% in 2017. Meanwhile, annual revenues decreased for 54% of firms.
- Most firms (57%) reported increased expenses and more reported losses than profits in 2017 (41% reported losses and 33% reported profits), similar to 2016.
- Credit Availability and Demand
- Credit demand remained low in 2017 (30%), while an increased share of non-applicants cited debt aversion as the reason for not applying for credit (42%).
- Notably, however, credit availability increased significantly. If a firm applied for credit, it was more likely to have received funding in 2017 (75% at least partial funding; 53% full amount), than in 2016 (60% at least partial funding; 30% full amount).
- Most credit applicants requested small dollar loans, with 32% applying for loans of $10,001 to $25,000, and 23% applying for loans of $10,000 or less.
- Losses and Insurance Coverage
- 77% of firms reported losses directly from the hurricanes. The most frequently mentioned impacts were decreased revenues (71%) and increased expenses (66%).
- Most affected firms held some type of insurance, but only 4% had losses that were fully covered. 37% of affected firms held no insurance.
- Addressing Hurricane Losses
- Only 22% of affected firms applied for financing to address hurricane losses. Of these firms, most sought recovery financing from government entities.
- Firms used a combination of insurance and financing to cover hurricane losses and most often had funding shortfalls.
- Confidence and Entrepreneurship
- Most surviving firms (73%)—those open or only temporarily closed in 2017–reported confidence that they will be open for business in 2018.
- 62% of affected firms expressed entrepreneurial efforts, with plans to update their offerings with new or different goods or services. 34% plan to restructure their business processes, and 28% plan to expand their business outside Puerto Rico.
About the Puerto Rico Small Business Survey
The Puerto Rico Small Business Survey is an annual survey of firms in Puerto Rico with fewer than 500 employees. The survey is designed to provide new and timely data that will fill knowledge gaps, most likely on the formal economy, given our distribution process. The results released today come from a survey fielded from March through May 2018 that analyzed responses from over 400 small businesses in Puerto Rico. Respondents were asked to report information about their business performance and financing needs and choices. A broad network of Puerto Rico business and community organizations partnered with the New York Fed to design and implement the survey—these partners include the organizations listed in today's reports.