CREDIT NEEDS OF SMALL BUSINESS FRIDAY, MAY 23, 1958 UNITED STATES SENATE, COMMITTEE ON BANKING AND CURRENCY, The subcommittee met, pursuant to call, at 10: 10 a. m., in room 301, Senate Office Building, Senator Joseph S. Clark (chairman of the subcommittee) presiding. Present: Senators Clark, Sparkman, Proxmire, Capehart, and Case. Also present: Senator Bush. Senator CLARK. The subcommittee will be in session. We are happy to have you back with us, Mr. Barnes. I see you have a pretty elaborate statement here. I suggest that you just proceed in your own way. Do you want to read it all? Mr. BARNES. I will not read it all. Some are exhibits. Senator CLARK. All right. We will put it in the record at the end of your remarks. Senator Capehart would like to make a statement. Senator CAPEHART. I will be unable to remain for your testimony, Mr. Barnes, because I have to go to a Foreign Relations Committee meeting, where we are writing up to the mutual aid bill, but I have gone over your letter and your proposals and I am sure that these two distinguished gentlemen here will treat you with great consideration. Mr. BARNES. All right, sir. Senator CLARK. Before you go ahead, Mr. Barnes, there are a few formal matters I would like to get in the record. First, by way of opening, these hearings are in a sense a continuation of hearings held by this subcommittee in the spring of last year, 1957. Since that time the House has passed H. R. 7963. That bill makes the Small Business Administration a permanent agency and rewrites the Small Business Act of 1953. Accordingly, we will be very much interested in hearing Mr. Barnes' views on the House bill. There are other bills, namely, S. 2729, S. 2825, S. 2993, S. 3319, S. 3434, S. 3453, S. 3664, S. 3791, and Senate Resolution 138, which have been referred to this committee since the last hearings, and which are concerned with the Small Business Administration. Testimony to be received in the present hearings is by no means limited to comments on these bills, but the committee is particularly interested in obtaining views and information about them. I would like to offer for the record the bills I have just referred to, and the reports on the bills which have been received from Government agencies. 535 Senator Fulbright has asked me to offer for the record his statement made on the floor of the Senate on January 13, 1958, in introducing S. 2993. We also have some letters received by the committee with respect to Senator Fulbright's bill, S. 2993, and other letters and material sent to Senator Fulbright by Mr. Barnes regarding small business size and standards for the purposes of Government procurement, all of which I will be glad to have appear in the record. (See appendix, p. 671.) (The information referred to follows:) [H. R. 7963, 85th Cong., 1st sess.] AN ACT To amend the Small Business Act of 1953, as amended Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled, That title II of the Act of July 30, 1953 (Public Law 163, Eighty-third Congress), as amended, is hereby withdrawn as a part of that Act and is made a separate Act to be known as the "Small Business Act". SEC. 2. The Small Business Act is amended to read as follows: "SEC. 1. This Act may be cited as the 'Small Business Act'. "SEC. 2. (a) 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 preser: vation 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 property and services for the Government (including but not limited to contracts for maintenance, repair, and construction) be placed with smallbusiness enterprises, and to maintain and strengthen the overall economy of the Nation. "(b) Further, it is the declared policy of the Congress that the Government should aid and assist victims of floods and other, catastrophes. "SEC. 3. (a) For the purposes of this Act, a small-business concern shall be deemed to be one which is independently owned and operated and which is not dominant in its field of operation. In addition to the foregoing criteria the Administrator, in making a detailed definition, may use these criteria, among others: Number of employees and dollar volume of business. Where the number of employees is used as one of the criteria in making such definition for any of the purposes of this Act, the maximum number of employees which a small-business concern may have under the definition shall vary from industry to industry to the extent necessary to reflect differing characteristics of such industries and to take proper account of other relevant factors. "(b) The Administrator shall without delay establish a new definition, in compliance with subsection (a); and if such new definition has not been established and placed in effect for all purposes of this Act within sixty days after the date of the enactment of this subsection, the definition which was in use by the Administrator for financial assistance purposes immediately prior to the date of the enactment of this subsection shall be in effect for all the purposes of this Act from the end of such sixty-day period until such time as the Administrator establishes and places in effect such new definition. Nothing in this subsection shall affect any small-business certificate issued under this Act before the enactment of this subsection, or restrict the authority of the Administrator to issue such certificates under section 8 (b) (6). "SEC. 4. (a) In order to carry out the policies of this Act there is hereby created an agency under the name 'Small Business Administration' (herein referred to as the Administration), which Administration shall be under the general direction and supervision of the President and shall not be affiliated with or be within any other agency or department of the Federal Government. The principal office of the Administration shall be located in the District of Columbia. The Administration may establish such branch and regional offices in other places in the United States as may be determined by the Administrator of the Administration. As used in this Act, the term 'United States' includes the several States, the Territories and possessions of the United States, the Commonwealth of Puerto Rico, and the District of Columbia. "(b) The management of the Administration shall be vested in an Administrator who shall be appointed from civilian life by the President, by and with the advice and consent of the Senate, and who shall be a person of outstanding qualifications known to be familiar and sympathetic with small-business needs and problems. The Administrator shall not engage in any other business, vocation, or employment than that of serving as Administrator. The Administrator is authorized to appoint three Deputy Administrators to assist in the execution of the functions vested in the Administration. "(c) The Administration is authorized to obtain money from the Treasury of the United States for use in the performance of the powers and duties granted to or imposed upon it by law, not to exceed a total of $650,000,000 outstanding at any one time. For this purpose appropriations not to exceed $650,000,000 are hereby authorized to be made to a revolving fund in the Treasury. Advances shall be made to the Administration from the revolving fund when requested by the Administration. This revolving fund shall be used for the purposes enumerated subsequently in sections 7 (a), 7 (b), and 8 (a). Not to exceed an aggregate of $500,000,000 shall be outstanding at any one time for the purposes enumerated in section 7 (a). Not to exceed an aggregate of $125,000,000 shall be outstanding at any one time for the purposes enumerated in section 7 (b). Not to exceed an aggregate of $25,000,000 shall be outstanding at any one time for the purposes enumerated in section 8 (a). The Administration shall pay into miscellaneous receipts of the Treasury, at the close of each fiscal year, interest on the net amount of the cash disbursements from such advances at a rate determined by the Secretary of the Treasury, taking into consideration the current average rate on outstanding interest-bearing marketable public debt obligations of the United States of comparable maturities. "(d) There is hereby established a National Small Business Advisory Board, which shall advise and consult with the Administration in carrying out the purposes of this Act. The Board shall consist of the Administrator, as chairman, the Secretary of the Treasury, the Secretary of Commerce, and not less than two nor more than six other individuals appointed by the Administrator who are familiar with small-business needs and problems and are truly representative of small-business interests. The Secretary of the Treasury and the Secretary of Commerce may each designate an officer from his Department, who has been appointed by the President by and with the advice and consent of the Senate, to act in his stead as a member of the Board. "SEC. 5. (a) The Administration shall have power to adopt, alter, and use a seal, which shall be judicially noticed. The Administrator is authorized, subject to the civil-service and classification laws, to select, employ, appoint, and fix the compensation of such officers, employees, attorneys, and agents as shall be necessary to carry out the provisions of this Act; to define their authority and duties; to provide bonds for them in such amounts as the Administrator shall determine; and to pay the costs of qualification of certain of them as notaries public. The Administration, with the consent of any board, commission, independent establishment, or executive department of the Government, may avail itself on a reimbursable or nonreimbursable basis of the use of information, services, facilities (including any field service thereof), officers, and employees thereof, in carrying out the provisions of this Act. Subject to the standards and procedures under section 505 of the Classification Act of 1949, as amended, not to exceed fifteen positions in the Administration may be placed in grades 16, 17, and 18 of the General Schedule established by that Act, and any such positions shall be additional to the number authorized by such section. "(b) In the performance of, and with respect to, the functions, powers, and duties vested in him by this Act the Administrator may "(1) sue and be sued in any court of record of a State having general jurisdiction, or in any United States district court, and jurisdiction is conferred upon such district court to determine such controveries without regard to the amount in controversy; but no attachment, injunction, garnishment, or other similar process, mesne or final, shall be issued against the Administrator or his property; "(2) under regulations prescribed by him, assign or sell at public or private sale, or otherwise dispose of for cash or credit, in his discretion and upon such terms and conditions and for such consideration as the Administrator shall determine to be reasonable, any evidence of debt, contract, claim, personal property, or security assigned to or held by him in connection with the payment of loans granted under this Act, and to collect or compromise all obligations assigned to or held by him and all legal or equitable rights accruing to him in connection with the payment of such loans until such time as such obligations may be referred to the Attorney General for suit or collection; "(3) deal with, complete, renovate, improve, modernize, insure, or rent, or sell for cash or credit upon such terms and conditions and for such consideration as the Administrator shall determine to be reasonable, any real property conveyed to or otherwise acquired by him in connection with the payment of loans granted under this Act; "(4) pursue to final collection, by way of compromise or otherwise, all claims against third parties assigned to the Administrator in connection with loans made by him. This shall include authority to obtain deficiency judgments or otherwise in the case of mortgages assigned to the Administrator. Section 3709 of the Revised Statutes, as amended (41 U. S. C., sec. 5), shall not be construed to apply to any contract or hazard insurance or to any purchase or contract for services or supplies on account of property obtained by the Administrator as a result of loans made under this Act if the premium therefor or the amount thereof does not exceed $1,000. The power to convey and to execute in the name of the Administrator deeds of conveyance, deeds of release, assignments and satisfactions of mortgages, and any other written instrument relating to real property or any interest therein acquired by the Administrator pursuant to the provisions of this Act may be exercised by the Administrator or by any officer or agent appointed by him without the execution of any express delegation of power or power of attorney. Nothing in this section shall be construed to prevent the Administrator from delegating such power by order or by power of attorney, in his discretion, to any officer or agent he may appoint; "(5) acquire, in any lawful manner, any property (real, personal, or mixed, tangible or intangible), whenever deemed necessary or appropriate to the conduct of the activities authorized in sections 7 (a) and 7 (b); "(6) make such rules and regulations as he deems necessary to carry out the authority vested in him by or pursuant to this Act; “(7) in addition to any powers, functions, privileges, and immunities otherwise vested in him, take any and all actions, including the procurement of the services of attorneys by contract, determined by him to be necessary or desirable in making, servicing, compromising, modifying, liquidating, or otherwise dealing with or realizing on loans made under the provisions of this Act; but no attorneys' services shall be procured by contract in any office where an attorney or attorneys are or can be economically employed full time to render such services; "(8) pay the transportation expenses and per diem in lieu of subsistence expenses, in accordance with the Travel Expense Act of 1949, for travel of any person employed by the Administration to render temporary services not in excess of six months in connection with any disaster referred to in section 7 (b) from place of appointment to, and while at, the disaster area and any other temporary posts of duty and return upon completion of the assignment; and "(9) to accept the services and facilities of Federal, State, and local agencies and groups, both public and private, and utilize such gratuitous services and facilities as may from time to time be necessary, to further the objectives of section 7 (b). "(c) To such extent as he finds necessary to carry out the provisions of this Act, the Administrator is authorized to procure the temporary (not in excess of six months) services of experts or consultants or organizations thereof, including stenographic reporting services, by contract or appointment, and in such cases such services shall be without regard to the civil-service and classification laws and, except in the case of stenographic reporting services by organizations, without regard to section 3709 of the Revised Statutes, as amended (41 U. S. C., sec. 5). Any individual so employed may be compensated at a rate not in excess of $50 per diem, and, while such individual is away from his home or regular place of business, he may be allowed transportation and not to exceed $15 per diem in lieu of subsistence and other expenses. "SEC. 6. (a) All moneys of the Administration not otherwise employed may be deposited with the Treasury of the United States subject to check by authority of the Administration. The Federal Reserve banks are authorized and directed to act as depositaries, custodians, and fiscal agents for the Administration in the general performance of its powers conferred by this Act. Any banks insured by the Federal Deposit Insurance Corporation, when designated by the Secretary of the Treasury, shall act as custodians and financial agents for the Administration. Each Federal Reserve bank, when designated by the Administrator as fiscal agent for the Administration, shall be entitled to be reimbursed for all expenses incurred as such fiscal agent. "(b) The Administrator shall contribute to the employees' compensation fund, on the basis of annual billings as determined by the Secretary of Labor, for the benefit payments made from such fund on account of employees engaged in carrying out functions financed by the revolving fund established by section 4 (c) of this Act. The annual billings shall also include a statement of the fair portion of the cost of the administration of such fund, which shall be paid by the Administrator into the Treasury as miscellaneous receipts. "SEC. 7. (a) The Administration is empowered to make loans to enable smallbusiness concerns to finance plant construction, 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 civilian production or as may be necessary to insure a well-balanced national economy; and such loans may be made or effected either directly or in cooperation with banks or other lending institutions through agreements to participate on an immediate or deferred basis. The foregoing powers shall be subject, however, to the following restrictions and limitations: "(1) No financial assistance shall be extended pursuant to this subsection unless the financial assistance applied for is not otherwise available on reasonable terms. "(2) No immediate participation may be purchased unless it is shown that a deferred participation is not available; and no loan may be made unless it is shown that a participation is not available. "(3) In agreements to participate in loans on a deferred basis under this subsection, such participation by the Administration shall not be in excess of 90 per centum of the balance of the loan outstanding at the time of disbursement. "(4) Except as provided in paragraph (5), (A) no loan under this subsection shall be made if the total amount outstanding and committed (by participation or otherwise) to the borrower from the revolving fund established by this Act would exceed $250,000; (B) the rate of interest for the Administration's share of any such loan shall be no more than 5 per centum per annum, and shall not be more than the rate prevailing within the Federal Reserve district where the money loaned is to be used if such prevailing rate is lower than 5 per centum per annum; and (C) no such loan, including renewals or extensions thereof, may be made for a period or periods exceeding ten years except that a loan made for the purpose of constructing facilities may have a maturity of ten years plus such additional period as is estimated may be required to complete such construction. "(5) In the case of any loan made under this subsection to a corporation formed and capitalized by a group of small-business concerns with resources provided by them for the purpose of obtaining for the use of such concerns raw materials, equipment, inventories, or supplies, or for establishing facilities for such purpose, (A) the limitation of $250,000 prescribed in paragraph (4) shall not apply, but the limit of such loan shall be $250,000 multiplied by the number of separate small businesses which formed and capitalized such corporation; (B) the rate of interest for the Administration's share of such loan shall be no less than 3 nor more than 5 per centum per annum; and (C) such loan, including renewals and extensions thereof, may not be made for a period or periods exceeding ten years except that if such loan is made for the purpose of constructing facilities it may have a maturity of twenty years plus additional time as is required to complete such construction. |