Selected statistics on financial assistance and procurement and technical assistance activities-Current fiscal year through April 1957 in comparison with same period in fiscal year 1956 Cases of procurement assistance counseling and representation to procurement agencies in behalf of small firms.. Firms assisted to bid on specific procurements. Additional sources of supply furnished for bidders' lists on which small 8,403 4,991 business competition was needed.. 3 6, 157 Certificates of competency: 3 3, 570 Applications received. Value COC's issued. Value $6, 597, 100 Plant visits in connection with progress of certified contracts. $8,854, 600 3 597 Engineering surveys (loans, certificates, preaward, etc.). 3 1,940 Cases in which production and management assistance, including material and equipment assistance, was given. 3,799 Requests fo. products assistance handled.. 8,677 Inventions listed in the products list circular.. 940 Requests received for information and data on inventions listed in the products list circular.. 1 These awards resulted in 10,091 contracts to small firms. 2 These awards resulted in 6,029 contracts on small firms. 3 Through March of each fiscal year only. 4 September 1955-April 1956. December 1955-April 1956. 3502 31, 329 7,002 4,306 4 617 (The following was ordered inserted in the record (see p. 311)): Hon. JOSEPH S. CLARK, United States Senate, Washington, D. C. DEAR SENATOR CLARK: In further reply to your letter of February 7, 1957, I am enclosing herewith a general summary of both the programs of financial assistance and procurement and technical assistance. We trust this information will be helpful to you and the committee in preparing for the hearings to be held on the bills concerned with the extension and modification of the program of the Small Business Administration. Sincerely yours, WENDELL B. BARNES, Administrator. SMALL BUSINESS ADMINISTRATION PROGRAMS OF FINANCIAL ASSISTANCE TO SMALL BUSINESS INTRODUCTION The Small Business Administration was established by the Small Business Act of 1953 (Public Law 163, 83d Cong.) enacted on July 30, 1953, and signed the same day by the president. The original act was amended in 1955 by Public Law 268 of the 84th Congress effective July 31, 1955. This is the first independent Government agency created to serve and represent all small businesses both in peacetime and in periods of national emergency. Its activities are designed to help small business (1) gain access to adequate capital and credit; (2) obtain a fair share of Government procurement and (3) obtain competent management, technical, and production counseling. Many of the programs conducted by the Small Business Administration were inherited from agencies which were formerly in operation. The authority to make business loans to small-business concerns as well as loans to assist victims of floods and other disasters were powers formerly exercised by the Small ¿Defense Plants Administration and the Reconstruction Finance Corporation. The Small Business Administration has been given a far more extensive scope of operations than its immediate predecessor, the Small Defense Plants Corporation. In addition to being charged with SDPA's broad powers and responsibilities with respect to procurement and various other activities designed to assist small businesses and protect its interests, SBA has been given the authority to make business loans on its own account to small-business concerns as well as loans to assist victims of floods and other disasters. These latter two powers were formerly held by the Reconstruction Finance Corporation. In addition to a broadened scope of powers and responsibility, as compared with SDPA, the Small Business Administration has been given a greatly enlarged range of operations. SDPA could only recommend loans to be made by RFC for purposes primarily confined to defense manufacturing and essential civilian industry. SBA's responsibilities to make direct and participating loans includes all types of small-business enterprises such as mining, construction and transportation firms and those engaged in distribution, retailing, and numerous service trades and industries which are in the public interest. In the area of financing, the Small Business Administration recognizes that its task is to obtain for small-business firms adequate sources of capital as well as credit on reasonable terms when it is not avalable from private sources. Its program of financial assistance is designed to stimulate and preserve the initiative, independence, and enterprise of small firms. The basic consideration in this program is that small-business concerns generally are at a competitive disadvantage compared with large businesses because (a) they are frequently unable to afford specialized financial management and (b) they are often unable to obtain from private sources the intermediate and long-term credit required for general progress and normal growth. Paramount in SBA's function is its financial counseling assistance made available to all small firms, directing them to private sources of credit, thus minimizing the need for Government credit. and in finding solutions to other financial problems when the need for additional outside financing is not indicated. The Small Business Act of 1953 empowered the Small Business Administration to make loans to enable small-business concerns to finance plant construction, The conversion, or expansion, including the acquisition of land or to finance the acquisition of equipment, facilities, machinery, supplies, or materials or to supply such concerns with working capital to be used in the manufacture of articles, equipment, supplies, or materials for war, defense, or essential civilian production or as may be necessary to insure a well-balanced national economy. original act provided that no loan could be made to any one borrower for more than $150,000 or for longer than 10 years except in the case of construction loans, where the period may be for such additional time as is required to complete the construction. All such loans must be of such sound value or so secured as reasonably to assure repayment. The 1955 amendment to the act increased the amount of a loan which could be made to one borrower to $250,000 and also made possible loans to corporations formed and capitalized by small-business concerns for the purpose of establishing facilities in and through such corporation to produce or secure raw materials or supplies. In such cases, the maximum amount of SBA's share in the loan may be $250,000 multiplied by the number of small businesses which have formed and capitalized the corporation. Congress, in the 1953 act, also empowered the Small Business Administration to make loans for the relief of individuals, businesses, or institutions suffering losses because of floods or other disasters. The 1955 amendment added the reponsibility to make loans to small-business concerns for the relief of economic injury suffered as a result of drought in areas designated as drought areas by the President or the Secretary of Agriculture. The general policies under which the Small Business Administration authorizes both business and disaster loans are determined by a three-member Loan Policy Board for which provision is made in the Small Business Act, and its amendment. This Board is composed of SBA's Administrator as Chairman and the Secretaries of Treasury and Commerce and has the responsibility for establishing general policies to govern the granting and denial of applications for financial assistance by the agency. At the same time, it provides a means of coordinating the agency's policies with those of other Government departments which have basic fiscal responsibility and duties closely related to and affected by those of the Small Business Administration. The Board does not supervise the administrative activities of the Small Business Administration nor take any other part in its management. It neither reviews loans nor makes any determination with respect to them. Its concern is entirely with developing the overall lending policies of the agency. The Loan Policy Board made the decision in August 1953 to defer the acceptance of loan applications until after September 28, 1953, when the lending authority of the Reconstruction Finance Corporation expired. In the interim all applications were referred to that agency. This decision was made to give SBA time to set up its lending organization and to avoid having two Government agencies operating similar lending programs at the same time. The first policy statement issued by the Loan Policy Board, on September 16, 1953, gave preference to loans to manufacturers or processors of materials and products for military and essential civilian purposes and declared ineligible loans to certain types of industries or for certain purposes which were not considered to be in the public interest. A revised statement, dated November 16, 1953, eliminated the preference formerly given to manufacturers and made possible loans to all kinds of business concerns on an equal basis except those specific types of businesses which had previously been excluded as not coming within the purview of the intent of the act. A later amendment, dated December 21, 1953, permitted use of funds to refinance indebtedness to a Government instrumentality which would enable a firm owing money to RFC to obtain funds partially to refinance that loan. The Loan Policy Board on December 21, 1953, also issued a public statement of loan policy and an explanation of loan procedures. It contained a list of practical credit requirements such as "Applicant must be of good character; there must be evidence the applicant has the ability to operate his business successfully; and the applicant must have enough capital in the business so that, with the assistance from SBA, it would be able to operate on a sound financial basis." Since that date there have been minor revisions to the policy to permit SBA to make loans to bona fide businesses located in recreational areas (such loans had previously been excluded as recreational facilities); to effect a change of ownership in a business where such change was necessary to the continued existence of that business; and for modernization and operation of four-wall theaters. This latter change recognized the economic value of theaters in bringing trade to other businesses within the area in which the theater was located. In addition to the activities specifically authorized in the Small Business Act of 1953, as amended, the Small Business Administration, as a part of its financial assistance operations, is cooperating with the Fish and Wildlife Service of the Department of the Interior in the administration of that Department's fisheries' loan program. Small Business Administration develops the necessary credit information for such loans which are closed and administered through its regional offices. Its regional offices are also servicing the liquidating disaster loans made by the Reconstruction Finance Corporation which were transferred to the Small Business Administration by Reorganization Plan No. 2 of 1954. The agency has been working closely with the Housing and Home Finance Agency in connection with its community facilities disposal program to determine whether the Small Business Administration loans may be made available to purchasers of Government-owned business properties held for disposal by that agency and with the Medical Facilities Branch of the Department of Health, Education, and Welfare in developing a program of loans to proprietary hospitals, nursing homes, and medical and dental laboratories. Loans made by the Small Business Administration are disbursed from a revolving fund maintained in the Treasury. For this purpose, $150 million was originally authorized as the maximum amount which could be outstanding at any one time for business loans and $25 million for disaster loans. This limitation was subsequently raised to $230 million for business loans and $125 million for disaster loans. This is an authorization only and is subject to direct appropriation. The agency pays into miscellaneous receipts of the Treasury, at the close of each fiscal year, interest on the net amount of the cash disbursements drawn from the Treasury at a rate based on the current average rate on outstanding interest bearing, marketable, public debt obligations of the United States of comparable maturities. A more specific description of the Small Business Administration's financial assistance program follows: Financial counseling The Small Business Administration operates on the premise that it is the intent of Congress that Government funds should be loaned only after all other possible avenues for solving a small firm's financial problems have been explored. Frequently these firms do not need a loan but are most in need of counseling on financial management problems. Often they do not have the resources available to larger firms to obtain this specialized service in solving their financial problems. In such cases the Small Business Administration provides this assistance through its financial counseling program. In response to requests for aid, or in examining applications for SBA loans, consideration is given to (1) possible means of obtaining private credit on reasonable terms; (2) possible assistance available from local development corporations; (3) various alternative plans for financing production; (4) adequacy of accounting and auditing methods and other aspects of financial management; (5) means of increasing equity capital; (6) eligibility for V-loan financing of defense contracts; (7) feasibility of obtaining advance or partial payments on contracts. Often the problem is undercapitalization or perhaps a need for liquidation of inventory or obsolete equipment, revision of credit policies or a change in product pricing principles. In other instances a contemplated expansion may not be justified. A firm's product line may be too broad or too limited or its sales policies may need review. These are a few of the possible factors considered by the agency's specialists in counseling small businesses which have financial problems. In many cases the financial specialists in the agency's regional and branch offices assist in presenting the business's application for a loan to his local bank, often accompanying the company's representatives in their negotiations with that bank. Many times the proper presentation of the company's financial position through guidance of SBA's financial specialists has resulted in banks approving loans to these firms after they had previously refused to provide such credit. Loans to business concerns Section 207 (a) of the Small Business Act of 1953, as amended, gives the Small Business Administration authority to make loans to small firms when credit is not otherwise available to them on reasonable terms. To the greatest extent possible and in keeping with the requirements of the Small Business Act, this agency seeks to provide the necessary credit to small concerns in cooperation with private lending institutions. The act provides that no immediate participation may be purchased unless it is shown that a deferred participation is not available and no direct loan may be made unless it is shown that a participation is not available. Proof must be shown that a bank will not make the loan applied for or, if a direct loan is requested, that a participation is not available. In the operation of the lending program, applications for loans are accepted by SBA regional and branch offices. Financial specialists in these offices make the necessary investigation of the applicant's operations, credit standing, and repayment prospects; and generally visit the plant or place of business of the applicant. During this visit he may examine the books of record, interview key personnel, examine the physical plant and contact the applicant's bank of account. Often the agency's technical staff is called upon to appraise collateral involved or to analyze a plant's operating efficiency. Thereafter, a brief report is written by the financial specialist in which he makes a recommendation as to appropriate action to be taken on the loan and, if recommended for approval, the recommended terms of that loan. This report is reviewed by the financial assistance chief and regional director who may concur in the recommendation or recommend some other action. The regional director may approve or decline any loan through $20,000 where there is concurrence as to the action to be taken by the processing financial specialist, financial assistance chief and regional director. He can also approve, under the same conditions, participation loans through $100,000 when there is at least 25 percent bank participation. Regardless of the amount of the loan, if there is a difference of opinion between the financial specialist, regional financial assistance chief and regional director, the loan must be forwarded to Washington for action. When a loan is approved, a formal authorization is prepared and sent to the borrower outlining the loan terms and conditions to be met before disbursement can be made. Besides setting the terms of repayment, this may include a mortgage on real estate or equipment, p、rsonal guaranties, standbys on indebtedness due owners or officers and limitations on salaries and capital expenditures. Actual disbursement is made on a loan when the borrower has satisfactorily met the loan terms. Every effort is made, however, by the Small Business Administration's staff members to expedite the closing of a loan and disbursement of funds. Participation loans The Small Business Administration makes two general types of participation loans, deferred and immediate. In a deferred participation loan the participating financial institution makes and administers the entire loan with the Small Business Administration agreeing to purchase from the bank at any time, on demand, an agreed portion of the then outstanding balance of the loan. By law the maximum agency participation in a loan on a deferred basis is 90 percent. In return for the agency's agreement to participate in the loan, the lending institution pays a small fee. The fee is charged only on the outstanding balance of the Small Business Administration's portion of the loan, and, of course, is discontinued when and if the agency is called upon to purchase its share of the participation. The agency's fees for deferred participations are designed to encourage the maximum participation by lending institutions. These fees are as follows: 1 percent per annum on agency participation up to and including 50 percent; 11⁄2 percent per annum on agency participation in excess of 50 percent but not in excess of 75 percent; and 2 percent per annum on agency participation in excess of 75 percent, up to the agency's maximum participation of 90 percent. In an immediate participation loan the Small Business Administration agrees to purchase immediately an agreed percentage of the loan which has been approved by both the agency and the participating lending institution. The loan may be serviced either by the bank or the SBA, as the bank may elect. Participation type loans are mutually advantageous to the small-business man, the participating institution, and the Small Business Administration. A bank |