Mr. HARLING. Thank you for the opportunity to be here. (Mr. Harling's prepared statement follows:)

STATEMENT OF PHILIP F. HARLING APPEARING FOR THE THEATRE OWNERS OF AMERICA, INC.

This memorandum is addressed to Senate bills 720, entitled "Small Business Credit Act of 1957" and S. 1762 entitled "Small Business Act of 1957," on behalf of Theatre Owners of America, an organization representing in excess of 5,000 theaters throughout the United States, Canada, and Mexico, and in principle, urges the adoption of Senate bills 720 and title II of 1762, with certain additions, corrections, modifications, and deletions as hereinafter set forth.

Parenthetically, H. R. 7474 introduced by Congressman Abraham J. Multer, has many good features, chief of which is the establishment of a permanent Small Business Administration and a Policy Board consisting of the SBA Administrator and a representative each from small banking and small business.

In March of 1956, the entire motion-picture industry had an opportunity, through the representatives of production, distribution, and exhibition, to make personal appearances before your Committee on Small Business of the United States Senate. The record was voluminous, and the testimony given by the proponents of the different divisions of the industry was most revealing in their wide-apart viewpoints.

In this era of "tight money" the economic health of the national economy is in jeopardy, particularly the motion picture industry, theater division, which has felt among other things, the effects of the scarcity of real estate mortgage money beginning with 1950.

The welfare of any particular industry is and should be of special significance to the Administration since any such adverse effect can, by a chain reaction, contaminate other industries and businesses in the country.

When all business required financing during and immediately after the depression which began in 1930, the Government set up various boards, committees, and administrations to revive the national economy. We had the NRA, RFC, CCC, FHA, VA, HOLC; every conceivable combination of letters of the alphabet were used to help put the national economy back on its feet, although many of the letters have long since disappeared.

One industry which formerly enjoyed a prosperous economy has been severely hurt and unless help is forthcoming will be in serious jeopardy-the motionpicture industry. This industry more than any other has felt the ravages of television competition. The public is able to enjoy, without charge, that which he must pay for in the theater. The result has been that several thousand theaters closed their doors during the last 5 years, never to open again. Others will surely close if help is not given.

And yet, there is and always will be a definite need for the motion picture theaters in the American way of life. Time and time again they have proven to be the bulwarks for maintaining national morale and for enjoyment of the mass of the people at reasonable and fair prices.

Dark theaters can only mean dark streets, empty stores, no traffic, no retail business, and a diminution of normal daily activity, which is so necessary to the public health, welfare, and economy.

On September 5, 1956, a personal appeal was made to the legal department of the SBA by representatives of the Theater Owners of America, to include theaters among businesses eligible to receive loan aid under the SBA. On or about September 28, 1956, the Policy Board of the SBA, relying on the report of its legal department, declared 4-wall theaters eligible to receive help from the SBA, according to its rules and regulations and the Small Business Act of 1953, as amended by Public Law 268 of the 84th Congress.

In expressing the policy of Congress with regard to American small business and the Small Business Administration, section 202 of the Small Business Act says:

"POLICY OF CONGRESS

"The essence of the American economic system of private enterprise is free competition. Only through full and free competition can free markets, free entry into business, and opportunities for the expression and growth of personal initiative and individual judgment be assured. The preservation and expansion of such competition is basic not only to the economic well-being but to the

security of this Nation. Such security and well-being cannot be realized unless the actual and potential capacity of small business is encouraged and developed. "It is the declared policy of the Congress that the Government should aid, counsel, assist, and protect insofar as is possible the interests of small business concerns in order to preserve free competitive enterprise, to insure that a fair proportion of the total purchases and contracts for supplies and services for the Government be placed with small-business enterprises, and to maintain and strengthen the overall economy of the Nation."

The motion picture exhibitors are no better off now than they were before they became "eligible" to apply for loans under the SBA.

One of the most important needs of the theatre today is to obtain public or private mortgage financing and definancing. All the lending institutions have, for the past 6 years, closed their doors to theatre owners. This is common knowledge and has been brought about partly by the impact of television on the motion picture industry, and more recently due to the unfavorable conditions of the mortgage market. Under the present SBA rules, there are two types of loans:

1. Business. To finance plant construction, conversion or expansion, or the purchase of equipment, facilities, machinery, supplies, or material; to supply working capital; or as may be necessary to insure a well balanced national economy.

2. Disaster. To rehabilitate businesses or homes damaged or destroyed by storms or other natural catastrophes, or to aid businesses which have suffered substantial economic injury because of severe drought conditions.

Neither of these two types of loans contemplate a regular long-term mortgage loan.

However, despite the lack of authority to make a straight mortgage loan, the SBA may take back as collateral a mortgage on land, buildings and equipment, provided, the loan is made for any of the purposes as enumerated in paragraphs (1) or (2) above. The mortgage principle is therefore recognized.

A provision which is repugnant to a prospective borrower in order to qualify, is the necessity of first having to go to a lending institution; get turned down, and then obtain a letter or some other writing to the effect that he has been turned down, which letter turn down is then annexed to his application for a loan from the SBA. This requirement raises a negative presumption that the prospective borrower is insolvent; that his credit is not sound; that he cannot efficiently run his business and perhaps his character and reputation are subject to question. No American businessman wants to be placed in such a compromising position.

The onerous collateral requirements and the complicated and voluminous data that must be obtained before the application can be considered, is sufficient cause for abandonment of any attempt to put an application through the SBA. Only two small theatre applications have been approved to date.

Today mortgage financing is absolutely essential to the motion picture exhibitors if they are to survive and remain an integral, necessary and important part of every community in the United States, contributing to the national economy, growth and general welfare.

The Loan Policy Board of the SBA has the authority to revise the general loan policies of the agency to fit the changing conditions and needs of the national economy. This language is used by the SBA itself.

The Theatre Owners of America, in behalf of its members, and in behalf of those other exhibitors wo may deem it expedient to join in the instant application, recommend as follows:

1. Section 101 should be broadened to permit an "approved lender" to be a bank, insurance company, building loan association, and any other approved lenders found to be qualified and eligible for insurance of loans against loss of principle and interest.

2. That section 102 be amended so that the aggregate principal amount of loans would not exceed $1 billion instead of $250 million in said bill and that, after July 1, 1958, the President may increase this limit to $1,250 million.

3. That Senate bill 720 be adopted, with the following changes: That section 105 (b) be amended to increase the amount of a loan from $250,000 to $1 million, and that the maturity of said loan be extended from 5 years 32 days to 20 years. 4. That a policy board be established under S. 720 consisting of the Administrator and two businessmen, who should be authorized and empowered to pass upon real-estate-loan applications from all small businesses, including motionpicture theaters.

5. That the SBA delete from its rules that a borrower submit written evidence, from a bank or other private institutions, of inability to obtain private financing as a condition precedent to filing an application for a mortgage loan.

6. That a qualified borrower shall be deemed to be a person, firm, or corporation having been actually engaged in the operation of a four-wall motion-picture theater continuously at least 1 year prior to the filing of an application for a mortgage loan, whether such applicant be an owner, lessee, or sublessee, or subtenant of such theater property.

7. That, where a motion-picture exhibitor does not possess the right to mortgage a theater because such power or right belongs to an owner of a theater building who is not an operator, such owner shall have the right to make such mortgage application, provided the theater has been in continuous operation for at least a period of 1 year prior to the filing of such application.

8. That small business, within the meaning of the SBA, would be deemed to be a unit doing a gross business not in excess of $1 million per year, irrespective of affiliation or connection with any company or enterprise, provided it can be identified as an independent, operating business.

Senate bill 1762 be adopted with the following deletions, additions, certain corrections, and modification:

9. Section 102 be amended by deleting therefrom the following words: “which is not dominant in its field of operation."

10. Section 103 (a) should be amended so that the Policy Board shall consist of the Small Business Administrator and two businessmen.

11. That title 1 of S. 1762 does not provide for loans to be guaranteed by "approved lenders" and, moreover, the requirement of a fund of $700 million is unnecessary when a fund of $10 million, to be used for the insuring of mortgage loans, is adequate to carry out the spirit and intent of the Small Business Administration Act, and, therefore, we are not in favor of this title I of S. 1762. Title II of S. 1762 should be adopted with the following additions, corrections, deletions, and modifications:

12. Section 202 be amended to increase what may be the aggregate amount to which loaned from $250 million to $1 billion, and that the President be empowered to increase this limit up to $1,250 million.

13. Section 205 (b) should be amended whereby the amount of each loan would not exceed $1 million and that the maturity of same should not exceed 20 years. 14. Section 207 be amended so that the operation of this title II would vest and be administered by the Administrator of the SBA and two businessmen who would be designated as the Policy Board, and that wherever in title II reference is made to the Administrator, it would include the Policy Board as hereinabove suggested.

The intent of this memorandum is to broaden the scope of the Small Business Administration so that under a revised, permanent Policy Board it can approve and guarantee real-estate-mortgage loans to the theater industry and other industries similarly situated upon such terms and conditions as are legal and customary for mortgage loans of this type to be made, and it is again specially emphasized that the provision requiring proof of failure to obtain a loan from a private institution be eliminated as onerous and unnecessary.

Senator CLARK. Mr. George J. Burger, vice president of the National Federation of Independent Business.

Mr. Burger, we are happy to welcome you here. I see you have a short statement. Do you wish to place it in the record?

STATEMENT OF GEORGE J. BURGER, VICE PRESIDENT, NATIONAL FEDERATION OF INDEPENDENT BUSINESS

Mr. BURGER. No, Mr. Chairman. I would like to read it. It is very short.

Senator CLARK. Go right ahead.

Mr. BURGER. I am George G. Burger, vice president and Washington representative of the National Federation of Independent Business. I am appearing here solely for the membership of the federation. Our head office is located in Burlingame, Calif., with division

offices in Chicago, Cincinnati, and New York City, and the legislative office here in Washington, D. C. We represent independent business and professional people in all vocations from all parts of the country. We have the largest directly supporting membership of any business organization in the country.

Senator CLARK. Would you mind telling us what the size of your organization is?

Mr. BURGER. Approximately 100,000 individual members; all voting members, not groups. Our position on legislation is dictated directly by our membership. We poll our members on all important issues, and we are committed by their majority vote, and, as it pertains to the Small Business Administration, our nationwide membership has been polled six times since the legislation for the creation of this agency was first instituted.

So as not to bore the committee with a long, detailed statement as to our views on the Small Business Administration-we have covered this in full detail in our appearance before the Senate Small Business Committee under date of March 15, 1957.

Senator CLARK. I would like to make it clear for the record that your appearance in March was not before this subcommittee of the Banking and Currency Committee, but before the Select Committee on Small Business.

Mr. BURGER. Yes, sir.

Senator CLARK. Which is a different committee than this one. Mr. BURGER. Exactly. Your committee well knows that in the first instance we recommended that the Small Business Administration be made a permanent agency, and we also recommended the elimination of the Policy Board being set up, consisting of the Secretary of the Treasury or his alternate, the Secretary of Commerce or his alternate, and the Administrator of the Small Business Administration. Our position today, on direct nationwide vote of our membership, remains the same. We do not believe the agency can successfully carry out the will of the Congress with divided authority in the top bracket.

Senator CLARK. Why do you say that? Are not these three ex officio members in the Administration merely like a board of directors? Why should they be eliminated?

Mr. BURGER. Senator Clark, representing the federation I have lived with the Small Business Administration from its inception. My first experience with regard to the Policy Board was on a return from a nationwide trip to our head office at Burlingame, Calif. I visited the regional offices of the Small Business Administration at San Francisco, Los Angeles, Minneapolis, and Kansas City. When I came back to Washington on or about October 23, 1953, I found a serious situation in the administration of the act as it would apply to small business. It resulted in a conference with the then Administrator, Mr. Mitchell, and his deputies, and his counsel. The conference lasted some 2 hours, at which time Mr. Mitchell recommended a joint conference be held with the Secretary of the Treasury and the Secretary of Commerce, the Administrator and myself. We went into conference on October 26, 1953, and from that point on the whole application of the act was changed with respect to all small business of the Nation, because up until that time you had to be an

essential war business before you could get qualified for a Small Business Administration loan. At the same time at Kansas City we found a situation there where the grain storage people came in for loans. Their loans were refused, but nevertheless they were assured an income from the Department of Agriculture.

I brought that up at the conference with the Treasury Department, the Commerce Department, and the Administrator.

Further answering your question, Senator Clark, we believe, with no disrespect to the Treasury Department or the Commerce Department, that we do not believe they have the common understanding of small business.

Senator CLARK. I wonder, Mr. Burger, if it could be true that that is the fault of the particular individuals who happened to be occupying those positions, rather than an administrative deficiency in the setup of the act?

Mr. BURGER. That I cannot say.

Senator CLARK. In other words, as Senator Capehart argued a little while ago, do you not need this board of directors? If you do not like the directors it is an easy thing to change that, but do you not need the directors? Maybe it is not so easy.

Mr. BURGER. Senator Clark, I have spent better than 50 years of my business life in small business. I have a fair knowledge of the operations of big business. I heard a very high-type financial man within the past 2 or 3 weeks, one of the old guard, in New York, say that when it came to directors of banks-and this is his view and not mine, and he is a very, very successful financial man-he maintains that no director of a corporation should be permitted to become a director of a bank; no officer of a corporation.

Senator CLARK. How does this relate to this Policy Board? Can we get back to that?

Senator CAPEHART. Will the gentleman yield?

You used this Mitchell example. There is not any question that you and your organization did a lot in the early days of the Small Business Administration to help them in formulating their policies and their programs, because the whole thing was new, and the Korean war was going on, and someone had to do it. You and your organization did a splendid job, I think, in assisting them. But once they started to stretch their legs and got the process working out, has it not worked well since then?

I agree with you it ought to be on a permanent basis. Either that, or we ought to extend it for 5 years, or something of that sort. I do not like this year-to-year extension, or every 2 years. I agree with you on the policy. At least it should be every 5 years, or every 10 years. I have nothing against the policy, but do you not think it has been working fairly well?

Mr. BURGER. Senator Capehart, let me answer both your question and Senator Clark's. There was a statement made very recently, within the past 30 days, quoted in the press, by the Under Secretary of Commerce, or the Assistant Secretary of Commerce. He charged or stated, as it was told in the press that one of the contributing reasons for the failure of small business was the lack of managerial experience. We have heard that and we are wondering whether that theme or that thought goes down to the Policy Board in setting the overall policy.