Connecticut, New Hampshire, New York, North Carolina, Pennsylvania, Rhode Island, Vermont, Wisconsin, Kansas, and Georgia, have likewise formed corporations for the same purpose. From correspondence which we are receiving from other States, I have the feeling that this is a nationwide problem, a nationwide need, and is deserving of national recognition and support, but it seems that our people are virtually unanimous in the opinion that there should be as little Government in business as possible. If that be true, then certainly this approach puts the Government in the position of being merely a partner in the creation of opportunities and not in subsidies. Now, I should like to mention again the problems of disaster areas. I have previously acknowledged that there are such areas and that they are deserving of political and social consideration, which should be kept separate from sound financial business legislation. I believe that financial institutions located in each State, such as I have described, with technical advice and counsel being a part of the services offered, would help alleviate the causes of disaster areas. If a flood, an earthquake, or a drought creates a disaster area, there is little that planning and preparation could have done to prevent such a circumstance, but I believe the effects of a gradual economic decline, or the departure of a sizable industry from an area, would be substantially minimized in those States in which there were strong financial institutions with capable programs of technical assistance ready to provide both long-term capital and know-how to smallbusiness undertakings. Certainly, the factual information, advice, and counsel from such a financial institution could and should be of tremendous value to the Members of Congress in the matter of disaster areas. I greatly appreciate the opportunity of appearing before your committee. I greatly appreciate the interest this Congress has evidenced in the field of small business, and I shall look forward with great interest to your ultimate decisions and actions. Senator FULBRIGHT. I guess that concludes the hearing this morning. The subcommittee will recess until 10 o'clock tomorrow mornig, when they will hear additional witnesses. Thank you very much. (Whereupon, at 12:40 p. m., the subcommittee recessed until 10 a. m. the following day, Thursday, June 6, 1957.) CREDIT NEEDS OF SMALL BUSINESS THURSDAY, JUNE 6, 1957 UNITED STATES SENATE, COMMITTEE ON BANKING AND CURRENCY, Washington, D. C. The subcommittee met, pursuant to recess, at 10 a. m., Senator Joseph S. Clark, chairman of the subcommittee, presiding. Present: Senator Clark. Senator CLARK. The committee will be in session. Our first witness today is the Honorable Frank M. Coffin, distinguished Congressman from Maine. Mr. Coffin, we are very happy to welcome you here, and are looking forward to your testimony. Will you just proceed in your own way? Do you have a formal statement? STATEMENT OF FRANK M. COFFIN, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF MAINE Mr. COFFIN. Yes; I do, Mr. Chairman. I think the clerk has copies of it. Senator CLARK. Would you like to file it for the record, or read it? Mr. COFFIN. I would like to read it and perhaps add to it as I go along. Senator CLARK. Fine. Would you just proceed in your own way? Do you mind interruptions? Mr. COFFIN. Not a bit. I would welcome them. Mr. Chairman, I want to thank you for the privilege and opportunity to testify before your committee today. I know you have had busy and lengthy sessions and so I shall endeavor to be as brief as possible. This is not a new experience to me. I have been interested in legislation in the small-business field during this session, and this is the third opportunity I have had to present these ideas to a committee. You have before you a number of legislative proposals relating to problems of small business. Some are concerned with the future and functions of the Small Business Administration; others involve proposals for entirely new approaches to credit problems of small business. I should like to make some general comments on small business and its peculiar situation today, and then I should like to comment briefly on two bills introduced by Senator Humphrey, S. 2184 and S. 2185. There are some spokesmen who refuse to admit the existence of any substantial problem facing small business which cannot be cured by better management under existing conditions and credit availabilities. Senator CLARK. We had a gentleman here from your State of Maine yesterday who took that point of view and urged us to wind up the Small Business Administration. That was Mr. Maxwell, of the First National Bank, of Biddeford, representing the American Bankers Association. Mr. COFFIN. I am acquainted with Mr. Maxwell, and also with his work on the Development Credit Corp. Senator CLARK. He seemed to think that that corporation could do the whole job, and we did not need this threat to the free-enterprise system embodied in the Small Business Administration. Mr. COFFIN. I think the figures would illustrate the extent to which that is a limited tool. They have a capital investment of $90,000 and loans of $800,000, and with a maximum loan ratio of 10 to 1 at best they have another $100,000 or so to play with. That is a drop in the bucket as far as credit needs for small businesses, even in Maine, are concerned, which is not a highly industrialized area. Senator CLARK. I know it is not in your district, but perhaps you are generally familiar with the situation in the Biddeford-Sanford area, where a textile company went out of business, and where there is a very substantial labor surplus. Mr. Maxwell, after testifying that he thought the Small Business Administration should be shut up, implied he thought that a number of the loans they had made to bring industry back into Sanford might not have been too wise. We showed him a good many loans had been made by the Small Business Administration up there. I wonder if you are familiar enough with that area to have any views as to whether the Small Business Administration's activities have been helpful there? Mr. COFFIN. I think it has, Senator Clark. Take Colonial Aircraft. Senator CLARK. That was one of the loans of which he was critical. Mr. COFFIN. Well, I have been in touch with our State officials in the department of economic development to get an up-to-date report on that. Their problem now is that they have developed a product which has a demand, and they now need more skilled labor, so that on the State side we are considering crash training programs to train these skilled workers to come in and wind the coils and do other things of that nature. In other words, there is a company that has created problems, but they are the type of problems we like to face. It seems to me that that is a showcase example of the good that the Small Business Administration can do. We have got a long ways to go in Sanford. The mills moved out and employment now is from one-third to one-half of the original employment, and the existing employment is not as good an opportunity as the job opportunities which have existed under the old setup. So there is a long ways yet to go. I think those who say there are no problems that deserve governmental attention would cite Dun & Bradstreet to prove the major cause of small-business failures has been poor management. Senator CLARK. That is right. And I asked Mr. Maxwell yesterday how Dun & Bradstreet could be sure that incompetence was the cause of these failures. Of course, I have no doubt it is in many cases, but I think you and I know that human error is a trouble in almost all activities, and I doubt that it is any more severe in small business than in big business, myself. Mr. COFFIN. I would agree with that, and I think there is a dispute as to the extent to which it is the chief cause of failure. I have talked to small-business people here in Washington who would state there are three big problems. Management is one, equity capital is another, and taxes is another. One of the major small-business organizations takes issue with the Dun & Bradstreet conclusion. Senator CLARK. You do not mind my interrupting, do you? Senator CLARK. Would you not also think in addition to equity capital that longer term loan capital is important? That is to say, a commercial bank ordinarily loans for a pretty short term, or on demand. One of the small-business problems, as we have heard the testimony here, is that you cannot get a bond issue, for example, in a small-business concern, like you can in a big-business concern, because the stock exchange is not equipped to handle it, and the commissions that have to be paid for the floating of what is essentially a speculative issue are very high indeed. Have you run into that at all? Mr. COFFIN. As a lawyer I have run into that quite a bit. I have had a number of companies where financing stock issues was out of the question. They would borrow, and at best they could borrow on a year-to-year basis, and they would get their money and go ahead. Then they would find themselves unable to repay the bank. So then they would go to private financiers, who would take a large slice of the business and charge a tremendous premium. They would go along for a while, but eventually they would wind up insolvent, or in reorganization. Senator CLARK. We had some very interesting testimony from some extremely able and successful small-business men from Arkansas, one of whom said, in order to keep his company afloat he had to pay 25 percent for a 1-year loan. Mr. COFFIN. I am sure that is true. I have seen it and you cannot blame the individuals who charge that, because that is what the market is. It is just too bad there is not an alternative source for small business. So I would agree that long-term loans are a necessity. Coming back to the Dun & Bradstreet conclusion that poor management is the major cause of small-business failure, one of the bills that I am addressing myself to, the one that would require the Small Business Administration to make studies, would place the Small Business Administration in a position to say to the public what the causes of failure are. The Small Business Administration of its own knowledge does not know what the causes of failure are. It did, in its last semiannual report, cite Dun & Bradstreet, but we should be in a position where we know what the causes are without citing Dun & Bradstreet as the only authority. Senator CLARK. Yesterday we had some testimony from our friends from Arkansas to the effect that one of the best ways to get these studies of specific problems made properly would be to authorize grants to local State universities and their economics departments. In that way we would get a much more grassroots, local result than if we just 93527-57-13 |