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DROUGHT DISASTER LOANS

Included in section 207 (b) of the 1955 amendment to the Small Business Act of 1953 was authority to make drought disaster loans for the relief of smallbusiness concerns economically injured as a result of drought conditions in areas declared drought areas by the President or the Secretary of Agriculture. Such injury may have resulted from a loss of business as a result of the drought, inability of farmer-customers to retire their financial obligations to small-business concerns or through a loss of raw material by those firms processing agricultural products or the failure to obtain enough water for continued operations. For the most part, loans granted are confined to working capital purposes, however, refinancing of indebtedness on which delinquencies are directly attributable to the drought is permissible. Loans may be used to replenish normal inventories but cannot be made for expansion of facilities.

There is no dollar limit in the Small Business Act on the amount of a loan which can be made for drought relief. The size of the loan is determined by the needs of the borrower for continued operations until the drought is broken. In this program, too, arrangements have been made for local banks to accept and process applications received, thereby reducing the cost to the Government of the operation of the program.

Percent of number of business loans outstanding, loan balance, and amount delinquent over 60 days

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1 Based on 3,891 business loans as of the 25th of the month and as complied from the SBA form 122B reports of the 15 SBA regional offices.

Summary sheet for business loans delinquent over 60 days and in problem status as of Mar. 25, 1957

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1 These figures were compiled from reports submitted by the 15 SBA regional offices and were verified from the official loan records of the respective area fiscal offices.

224.2 percent of unpaid balance.

92432-57-7

Summary sheet for business loans in liquidation status as of Mar. 25, 1957

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1 These figures were compiled from reports submitted by the 15 SBA regional offices and were verified from the official loan records of the respective area fiscal offices.

2 36.5 percent of loan balance.

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$187, 500.00 290,000.00 220, 000. 00 225, 879. 11 58,000.00 574, 700.00 280, 758.30

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357, 399. 23

431, 300.00

170, 000. 00

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138, 800.00
33,000.00

$103, 091.06
154, 827. 51
177, 586.80
89,653.54
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447, 022. 38
144, 309. 12
213, 530. 47
235, 349. 43
266,846. 65
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Туре

Summary of business loans charged off

Borrower

Gross amount

Date charge-off authorized

Mar. 23, 1956.

Direct..

Deferred participation, bank, 27 percent.1

Deferred, participation, bank, 15 percent.

Direct..

Do........

John R. O'Brien & Associates, Wash-
ington, D. C. (2 loans).

Loy L. Anderson, doing business as
Anderson Tire Service, Paducah,
Ky.

Paul S. Jones, doing business as The
China Doll, Paducah, Ky.
William J. Welch, doing business as
Welch Manufacturing Co., Lowell,
Mass.

Steve N. Ritsos, doing business as
Messco Cleaners and Shoe Re-
builders, Memphis, Tenn.

Immediate participation, bank, Quincy Drug Co., Inc., Quincy, Fla..
10 percent.

Total..

1 Approved in regional office.

Income:

Interest earned.

$70,095. 81

7, 262. 28

Jan. 2, 1957.

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Revolving fund-Statement of income and expenses

Fees earned on deferred participation loans.
Miscellaneous..

Total income.

Expense:

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1 Financed from the revolving fund in 1957, and is a part of the administrative expense figure above.

The CHAIRMAN. We will proceed under the 5-minute rule. I want to ask you 1 or 2 questions.

There are certain areas in the United States which are recognized by all as depressed areas.

Have those areas any preferential standing with respect to the role of your organization?

Mr. BARNES. Only in this regard at the present. We have a directive out to our field offices that any loan application received from a seriously depressed area gets a priority in consideration, in that it is acted on first and as quickly as possible, and the full facts about the depressed area are written up and accompany the loan report, as it comes into Washington or is handled-acted on in the field office.

However, we have not interpreted there was any other thing in our law that entitled that type of loan to any different type of consideration than any other loan. I am sure that perhaps we have taken some greater risks in those cases, and I think that about 10 to 15 percent, perhaps larger than that, of our loans are to concerns that are in depressed areas.

But the Administration's policy toward lending money in depressed areas, and placing Government contracts, is set forth in two places. There is a Defense Department directive, giving certain priorities in the letting of contracts to firms that are located in labor-distress

areas.

However, this is a program that is completely handled and operated by the Department of Defense. And then the Administration has urged the enactment of a bill to which I made reference earlier the Area Assistance Act, which sets up a loan program under special criteria, just in those areas.

The CHAIRMAN. Sometimes disasters from economic conditions are as bad as disasters that result from natural causes. Do you think there should be something in the law that would give them some preference? Mr. BARNES. I do not believe it should be in the Small Business Act. I believe it should be in the Area Assistance Act to which I made reference.

The reason I feel that is that we are except in a disaster-loan program, where it is dealing with a natural catastrophe-we are dealing with a business concern, and the best way that you can help a labor distress area is to expand an existing business concern. And that is what all of these loans as I say, 10 or 15 percent of our loans which are in those areas, do.

They provide funds for new machinery and working capital and thus increased employment. Now, this Area Assistance Act has a little different approach. It provides a way of taking somewhat greater risks in the establishment of new businesses, or new undertakings for the specific purpose of absorbing unemployment.

The CHAIRMAN. You would be in a position, though, to give them help, if it were provided in a reasonable way?

Mr. BARNES. Yes, sir. I think that our plant loans have done that, sir. We made a study about a year ago-we have not made one currently—and found that there was this larger percentage of loans going to labor distress areas, and that they did result in increased employment.

The CHAIRMAN. And they are just about as well defined and well drawn as the areas that have been the victims of natural disasters? Mr. BARNES. Yes, sir.

The CHAIRMAN. We will proceed under the 5-minute rule.

Mr. Talle, do you have any questions?

Mr. TALLE. Thank you, Mr. Chairman.

I should like to discuss one point that you made in your statement, Mr. Barnes. It relates to the loan criteria in existing law. May I read the law again, and I quote:

All loans made shall be of such sound value or so secured as reasonably to assure repayment.

That is the end of the quotation. As you rightfully pointed out, Mr. Barnes, that language was taken over from the RFC where the policy served very well. I think everyone would agree to that.

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