Under the borrowing authorization, participation loans will be committed on a 100-percent basis, but funds will be borrowed only to the extent necessary to cover the purchases requested by banks. This method will keep funds in line with actual requirements, and assures borrowing adequate to meet any unanticipated demand and at the same time avoid a confusing element in our accounting for deferred participation loans. Due to difficulties in estimating precisely the lending workload, the Congress will be requested to authorize the Bureau of the Budget to approve a limited amount of additional administrative funds to meet unpredictable workload increases. As an example of our difficulties in making accurate estimates, the 1957 budget was predicated on a business loan application level of 350 loans per month. Through April, the applications averaged 569, with 702 received in March. When such increases occur, backlogs develop and many small businesses suffer seriously due to our inability to handle their requests promptly. The proposed authority will permit the Bureau of the Budget to provide additional administrative funds immediately to process loan applications, closings, and so forth, which exceed the budgeted level, thereby preventing the accumulation of large backlogs. You will note that H. R. 6645 establishes a uniform interest rate on the Small Business Administration share for all business loans. Similarly, a uniform rate exists for all disaster loans. In the case of business loans, including pool loans, the interest rate is fixed at a maximum of 6 percent on SBA's share. That portion of section 207 (a) (4) of the Small Business Act of 1953, as amended, which states that any loans "shall bear interest at the rate prevailing in the area where the money is to be used," has been deleted. It is our opinion that in the case of business loans, interest is not established as a fixed rate in particular areas, but varies depending upon the circumstances of each particular case. The rates to be charged in business loans will depend on such things as financial condition of the borrower, his management ability, the liquidity of his assets, the term of the loan, the amount of servicing that would be required, and other factors. Under this legislation, the bank may still fix the rate of interest for the loan, which may be less than 6 percent, but in no event may the interest rate on SBA's share of the loan exceed 6 percent per annum. We recommend that this committee give favorable consideration to H. R. 6645. Other bills which affect the Small Business Administration are H. R. 5650, 5651, and 5693, introduced by Congressman Frank M. Coffin of Maine; H. R. 6144, 6145, and 6146, introduced by Congressman Charles O. Porter of Oregon. H. R. 5651 (Coffin) and 6145 (Porter) are identical bills which direct the Small Business Administration to make extensive studies of certain problems of small business and to report on such studies. Section 208 (n) of H. R. 6645 (Hill) would amend the Small Business Act to authorize the Small Business Administration to make studies of matters materially affecting the competitive strength of small business, or the effect on small business of Federal programs and regulations. It is believed, therefore, that favorable consideration of H. R. 6645 will eliminate the necessity for the changes proposed in H. R. 5651 and 6145. H. R. 5693 (Coffin) and 6146 (Porter) are identical bills which would authorize the Small Business Administration to make loans to local nonprofit organizations promoted to assist and expand the economy of the area. Under these proposals, loans would be made without regard to the direct needs of small business and without limit as to the amount. Under its present authority the Small Business Administration has made loans to Development Credit Corporations where there has been a clear showing that the proceeds of the loans will be utilized to assist an ascertainable small business. The program contemplated in H. R. 5693 and 6164 may have merit ; however, a preferable approach would be the enactment of the Administration's Area Assistance Act, H. R. 5459, introduced by Congressman Carrigg. H. R. 5650 (Coffin) and 6144 (Porter) would enlarge the present authority of the Small Business Administration to make disaster loans and would authorize such loans in those cases where the President determines that such loans are necessary to alleviate a serious economic disaster, depression or dislocation. Here again, enactment of H. R. 5459, the Area Assistance Act, is recommended since this legislation is designed to deal with the problems of economic distress in its broader aspects. I have, in this statement, covered only the high points of the progress that the Small Business Administration has made in each of its programs of assistance to small business concerns. These are primary for the use of the staff, and I would leave it to the committee what portions might be reprinted, in the committee's report, but there is a complete detailed and statistical analysis of all the SBA's program. I would offer them as exhibits 1 and 2. Subcommittee No. 2 of the House Small Business Committee introduced, I believe under the name of Mr. Multer, but I believe some of the other members of the committee joined in or introduced identical bills, a bill which came in over the weekend, or yesterday. At the request of the subcommittee, we have made a study of this bill, in order to try to make what helpful comments I could, at the hearing this morning. Needless to say, I have not had a very long time to study this bill. My comments must be understood in that light. However, for what they may be worth, I will comment on that bill the number of which I do not have. Mr. MULTER. It is H. R. 7474. Mr. BARNES. 7474. Mr. MULTER. It appears in full in the Congressional Record, delivered this morning. The mimeographed copy sent to members indicate the changes from existing statute as proposed by that bill. There were nine members of the Small Business Committee who joined me in introducing the bill. Mr. PATMAN. May I make an observation? I think it is important. Mr. Multer is chairman of the Small Business Subcommittee with instructions to investigate this matter, and present a bill to the whole committee. Mr. Multer expressed the hope it would be ready last Tuesday and the whole committee would meet and pass on it during the week. Unfortunately, Mr. Multer was not able to get it to us until Friday night, and we just have not had an opportunity to get the committee together over the weekend. So the committee has not met on H. R. 7474. Mr. Multer sent a copy to each member of the committee, the whole committee, not just his committee. Mr. BROWN. This committee or Small Business Committee? Some of them, not knowing it was not the sense of the whole committee, said they would support it, and probably they should support it. I am not saying it is good or bad, but I am just saying it is not a report of the whole Small Business Committee. It is just a report of the subcommittee which the whole committee has not yet passed on and I would like that to be known. The CHAIRMAN. We will proceed. Mr. BARNES. With that background I will comment on H. R. 7474. In general, it follows, and is similar to the Hill bill on which I just commented, and insofar as it is similar, the comments that I have just made in connection with H. R. 6645 will also apply to H. R. 7474. However, there are some differences Mr. MULTER. May I interrupt you a moment? Mr. BARNES. Yes, sir. Mr. MULTER. The House committee staff has prepared a memorandum dated May 13, 1957, which is on the desk of each member of the Banking and Currency Committee which indicates the differences between the Hill bill which is 6645 and the Multer bill, which is 7474. Do you have a copy of that before you? Mr. BARNES. Yes, sir. And my comments will in general follow along. Mr. MULTER. Very good. Mr. BARNES. So all I am commenting on now are the differences between 7474 and 6645. In section 102 of H. R. 7474, the definition of a small-business concern contained in 6645 is also included in this section. However, new material has been added which provides (a) that no definition promulgated by SBA shall be based solely on the number of employees; (b) that the Administration shall establish a definition consistent with the intent of Congress; and (c) until a new definition based on the criteria stated in this section is established, the definition. presently used for financial assistance will be used for all purposes by SBA. My comment is, this section would require the SBA, in defining manufacturing firms, to use a standard in addition to the number of employees. We have considered this to be unfeasible because there are no statistics that are supplied to us by the Bureau of the Census which can be applied or used for this purpose. Gross sales cannot be used as a test, principally because it is the value added by manufacture that is significant and important, when considering the size of a small-business concern. 92432-57- 3 Nor can the assets or total assets be used, because of the divergent nature of capital investment found in any number of companies that are studied. Employment, which is directly related to the value added by manufacture, has also been considered a fair yardstick for size. We do, however, of course, depart from it in defining wholesale and retail concerns. Furthermore, the SBA would be compelled to carry over the financial standards into procurement activities. This creates some problems which we have heretofore considered difficult if not impractical. The reason is that the financial standards are based on industry classifications. Procurement by the Government, buying by the Government, is based on specific commodities, and the commodity classification does not jibe with the industry classification. If financial standards were to be used for procurement a careful analysis of each firm would have to be made, since it would be necessary (1) to determine the proper dominant activity of the firm to see in which class it falls, and (2) to see to it the firm is restricted from bidding on any commodities than the one which falls within its predominant activity. Now, of those-well, I think that covers that particular change, as fully as I can, at this time. The CHAIRMAN. What is your definition of small business? Mr. BARNES. AS contained in the law, it is generally that a business is small if it is independently owned, and not dominant in its field. And then authority is given the Small Business Administration to issue further definitions and it is stated that we may use the number of employees, or the dollar volume of business, during any one year, our other standards. We have been wrestling with this problem very earnestly of what should be a proper definition, and we have been using one type of definition in financial matters, and another type in procurement matters, for the reasons that I have just stated. We have issued a regulation which sets out fully our definition, and I will introduce it into the record at this point, in order that the committee will have before it what the present definitions are which are being used. (The regulation is as follows:) (As promulgated by Wendell B. Barnes, Administrator, Small Business Admistration, pursuant to the Small Business Act of 1953 as amended) Congress, in the Small Business Act of 1953, stated that to be considered small, and therefore eligible for assistance from the Small Business Administration, a business concern must be "independently owned and operated and *** not dominant in its field of operation." The act also authorized SBA, in making a more detailed definition of "small business," to use such criteria as number of employees and dollar volume of business. SBA uses two different yardsticks in determining whether a firm is small-one is employed in determining whether a firm is eligible for contracts assistance, the other in determining whether it qualifies for financial and other nonprocurement assistance. 1 The definition becomes effective January 1, 1957. DEFINITION FOR CONTRACTS ASSISTANCE PURPOSES SBA's contracts-assistance program is conducted in cooperation with all major purchasing agencies of the Government. The definition of "small business" used in this program, therefore, has been developed cooperatively by all the agencies concerned. Until recently, SBA and these purchasing agencies have used a definition of "small business" under which any firm employing fewer than 500 persons, including employees of affiliates, was classified as "small." Now, however, SBA and the Government purchasing agencies have adopted a revised definition of "small business" for procurement purposes. This new definition, which is effective January 1, 1957, takes in to account not only the number of employees of a firm but also whether the firm is dominant in its industry. Under the new ruling, for purposes of Government procurement, a manufacturing concern is a small business if (a) it is not dominant in its field of operations and, with its affiliates, employs fewer than 500 employees, or (b) it is certified as a small business by the Small Business Administration. To be classified as a "small business concern," a nonmanufacturing firm bidding on Government purchases (dealer, distributor, wholesaler, jobber, or agent) must meet the same criteria as a manufacturer, plus two additional requirements: (1) It must be defined as a "regular dealer" under the Walsh-Healey Public Contracts Act, and (2) in the case of a Government purchase reserved for award to small business, or in appropriate cases involving equal bids, it must furnish the product of a small manufacturer or producer in the performance of the contract. When submitting a bid or proposal on a Government procurement, a manufacturing or nonmanufacturing concern which meets the above criteria, and which has not previously been denied small-business status by SBA, may represent in the appropriate place on the bidding form that it is a small firm. The concern then will be deemed to be a small firm for the purpose of the specific Government purchase, unless another bidder protests to the contracting officer and SBA about the firm's size status, or the contracting officer himself questions its representation. If the firm's representation that it is a small business is challenged, it may then apply to the nearest SBA office for a certificate that it qualifies as a small firm. If granted, this small-business certificate is conclusive. If a firm clearly meets the stated criteria for manufacturers or nonmanufacturers, it need not apply for a small-business certificate for use in bidding on a Government purchase. The firm need only represent on the bidding form that it is a small-business concern. The firm should apply for a certificate only if its representation that it is a small business is challenged. If a firm is in doubt as to whether it meets the small-business criteria, it may apply to the nearest SBA office for a small-business certificate. If SBA finds that the applicant is not dominant and is otherwise a small firm in its field of operation, even though it may have more than 500 employees SBA will grant it a certificate. The firm then will qualify as a small business for Government procurement purposes. On the other hand, even though the firm and any affiliates may have less than 500 employees, if SBA finds that it is dominant in its field, the agency will reject its application for a certificate. DEFINITION FOR LOANS AND OTHER PURPOSES For business loans and purposes other than Government procurement, SBA will continue to use the definition of small business adopted by it on June 10, 1954. This definition provides: Manufacturing concerns Any manufacturing concern is classified as "small" if it has 250 or fewer employees, including employees of affiliates; as "large" if it employs more than 1,000 persons. A manufacturing firm which has more than 250 but not more than 1,000 employees may be classified as either "small" or "large," depending upon the size standard which SBA has developed for its particular industry. (These size standards are listed as schedule A in the following regulation reprinted from the Federal Register of December 7, 1956.) Nonmanufacturing concerns Any wholesale concern is considered small if its annual dollar volume of sales is $5 million or less; any retail or service trades concern as small if its annual sales or receipts are $1 million or less. (The regulation also provides certain |