Rocky Recovery : Small Businesses Find Life After Quake Tough, if Not Impossible

In the warm days of September, 1987, Mary Yoon contemplated her good fortune.

It was 4 1/2 years after Yoon opened her chocolate shop in Whittier’s quaint Uptown Village, and the business was thriving. Yoon and her husband were raising their family in Whittier, a city that has been her home for more than 20 years.

Then on the morning of Oct. 1, the earth shook for 15 seconds.

The building that housed Yoon’s shop, Entiche du Chocolat, suffered extensive earthquake damage and was condemned. There was about $40,000 in damage to Yoon’s home. Unable to obtain financing, Yoon abandoned the business and declared personal bankruptcy. Now, federal bankruptcy trustees are threatening to repossess her van and home.

‘Like a Criminal Act’

“You start feeling like being in an earthquake is a criminal act,” said Yoon, whose blue eyes flash angrily as she recounts her struggle to stay afloat after the 5.9 temblor and its aftershocks. “We have lost a tremendous amount of faith in government.”

Yoon owned one of about 50 small businesses in the Uptown district that did not reopen after the disaster. Popular establishments such as Chiyomoto’s Japanese Restaurant and Stallone’s Fast Pasta closed permanently, while businesses such as Conlin Bros. Sporting Goods and Ames Bookstore moved elsewhere.

“Because of their size and limited economic resources, small businesses are easily disrupted by earthquake damage,” according to a study of small businesses after the 1983 Coalinga earthquake by Michael E. Durkin, an engineering consultant and USC associate professor of architecture. “And since they form the economic backbone of many communities, the loss and disruption of these businesses can slow the community’s recovery process and threaten its economic survival.”

In the 1987-88 fiscal year in which the earthquake occurred, Whittier’s sales tax revenues were $6.7 million, about $500,000 less than expected. City officials attributed the drop to a number of causes, including the earthquake and the closing of May Co. department store at the Whittier Quad mall before the earthquake. Sales tax revenues for the 1988-89 fiscal year are estimated to be about $7 million, according to city records.

A report by the National Center for Earthquake Engineering Research on the Whittier earthquake also noted the “serious level of vulnerability of businesses and corporations to the effects of moderate earthquakes.”

The center recommended that state and federal governments consider sponsoring earthquake insurance and encouraging property owners to make sure older buildings are structurally sound.

The number and diversity of small business owners make them a difficult group to educate, said Paul Flores, director of the Southern California Earthquake Preparedness Project.

“Many are unaware they are at risk, unaware of the problems they may face,” Flores said. “They just don’t know that (earthquake-caused bankruptcy) could happen to them and why.”

Structure a Factor

Small business owners often do not know that the structural reliability of their buildings is a major factor in surviving an earthquake, Durkin said. Many merchants begin their businesses in older buildings because of cheaper rents without considering how the building would react to an earthquake, he said.

Durkin’s study found that most business owners simply did not know whether their buildings were structurally sound.

Structural safety is especially important to small businesses with expensive inventories and equipment such as pharmacies, liquor stores, restaurants and food sellers.

Yoon opened her chocolate shop in Mission Court, a 72-year-old unreinforced masonry building on Penn Street across from the Whittier Hilton. Though she was advised that earthquake insurance would be difficult or impossible to obtain because of the building’s construction, Yoon decided to lease the place anyway.

“It was charming,” Yoon said of the Spanish-style building with a fountain in the courtyard. “It suited our purposes.”

Merchants also must maintain adequate financial records to obtain a disaster relief loan from the Small Business Administration. The SBA requires such documents as tax returns for the last three years, balance sheets showing assets and liabilities, projections for the coming year--”reasonable things a business must be able to do,” said Robert L. Belloni, disaster assistance director for the SBA’s western region.

But Durkin’s study found that one-third of Coalinga small business owners who took out loan applications after that city’s 6.7 earthquake in 1983 never submitted the paper work. Those merchants told Durkin they either were overwhelmed by the SBA’s requirements or believed they could not qualify for the loan. Comparable figures for the Whittier earthquake are not yet available.

Building Demolished

Evelyn Gould, owner of Village Needlecraft in Uptown Whittier, said she filled out a preliminary SBA loan form, but was told she did not make enough money to qualify for the program. The building Gould was leasing was demolished after the earthquake, so she moved into one of about 15 trailers set up as temporary quarters for displaced merchants.

After 10 months in the trailer, Gould made a permanent move and leased space in a newer building in the business district. In retrospect, Gould said, perhaps it was a blessing that she was unable to qualify for the loan.

“I don’t have another bill on my hands to worry about,” she said, “but I just barely hung on.”

In the 17 months since the earthquake, Yoon and Gould said, the only financial help they received were grants from the city of Whittier. The city, which received about $361,000 in donations for earthquake victims, distributed the money in grants to local merchants.

Other local merchants report more successful dealings with the SBA. Wilson Turner, who owned an unreinforced masonry building that was demolished because of earthquake damage, is rebuilding with the help of a $450,000 SBA loan. The rest of his $1.3-million building is being financed by a local bank.

“My experience with the SBA has been so delightful,” said Turner, whose new building is scheduled to open in September, although he does not yet have any commitments from retail tenants. “I can’t tell you how many different ways they went out of their way to accommodate me.” Turner said he did not find the paper work required for the loan excessive.

Belloni said the SBA wanted to help more businesses, but cannot approve loans unless applicants show they can repay the money.

‘Loans, Not Grants’

“We’re not making grants, we’re making loans,” Belloni said. “Even if we charged no interest, how many small businesses could afford even another $20,000 to $30,000 worth of debt? The last thing we want to do is foreclose, to be the landlord.”

Of the small business owners who did apply for loans, only 40% in Coalinga and 57% in Whittier ever received SBA money, Durkin said in a recent interview.

Durkin said the SBA became more restrictive about granting loans after widespread attempts to defraud the agency in the 1971 San Fernando Valley earthquake. The SBA also was sued by 300 residents over a controversial part of the loan program that authorized the federal government to forgive $2,500 of any loan for $3,000 or more.

Residents who received both home and business loans were upset because the SBA only waived a total of $2,500 for both loans. The SBA agreed to the full waiver on all loans above $3,000 in a $400,000 out-of-court settlement with the residents. The waiver clause was subsequently removed from the federal disaster loan program.

Belloni agreed that “it probably is more difficult to get a loan today than it might have been in 1971.” But he pointed out that the size of a typical 1971 disaster loan might have been $20,000--about half the average business loan of about $44,000 in Whittier. Thus, it was easier for the SBA to approve the 1971 loans, he said.

The quakes posed special problems for Whittier and Coalinga merchants, devastating central business districts dominated by unreinforced masonry buildings. In many cases, replacing older buildings resulted in higher rents that area merchants could not afford.

Turner said the lease price for his new building will be about $1.50 a square foot, about triple the going rate before the earthquake. Gould said typical retail space in Uptown Whittier now rents for about $1.35 a square foot in the same area.

The job of educating small business owners about these matters has fallen largely to the Southern California Earthquake Preparedness Project. The agency began working with the small business community in 1985, and has distributed an eight-page brochure on the topic, which is available in English, Spanish and Korean.

Meetings Are Used

Meetings of groups such as the Chamber of Commerce and ethnic business associations provide another useful channel for reaching small businesses, Flores said. The earthquake preparedness project has produced a video to show at such gatherings.

And the agency is encouraging large corporations to lend their earthquake preparedness expertise to small businesses who are suppliers. “Even though (the corporation) may have its act together, one major supplier that’s no longer there may make it difficult to resume business,” Flores said.

Corporations often can afford to hire earthquake or engineering consultants to develop a plan, Durkin said. “You need personalized problem-solving and there’s nothing like that for small business in the $200 to $300 range,” Durkin said.

After the earthquake, Yoon said, a plan should be in place which would automatically provide loan extensions and other financial relief to business owners. Durkin suggested a temporary post-earthquake moratorium on government actions, such as demolishing buildings without the consent of the owners.

After the Whittier earthquake, the City Council gave the city manager emergency powers to demolish any building that was a public hazard. About 11 buildings were razed under this provision, including some of the oldest commercial structures in town.

Cities need “a period of time where local government can’t demolish the downtown and haul it away,” Durkin said. “The potential is there for government to do a lot of things too quickly.”

However, city officials say their action was prudent because crumbling buildings were endangering people and preventing the area from being reopened to traffic.

In October, a year after the Whittier earthquake, Yoon filed for personal bankruptcy. Because she used her house and car as collateral for the loan to open the business, Yoon said, trustees assigned by the court have threatened her with foreclosure.

Yoon recently began working evenings teaching English to immigrants at a nearby computer school. Many of her days are occupied by what she calls the “legal proctology” of bankruptcy, from arguing to protect her possessions from foreclosure to selling her chocolate-making equipment.

“Some days you fight and other days you don’t even want to get out of bed,” Yoon said. “I don’t want to be a complainer. But I’m beginning to despair that the good guys are ever going to win.”