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loan and investment company programs would most likely require a supplemental appropriation for the fiscal year 1962. The President took cognizance of this situation and in the message which he sent to the Congress on May 26, he stated that in the supplemental request he was submitting with his message, increased appropriations for 1962 were being recommended for the SBA.

The additional amount recommended for the SBA totals $130,898,000. This includes $130 million for the revolving fund, $398,000 for salaries and expenses, and an appropriation of $500,000 for the resumption on a reduced scale of the research grant program.

Since I recently appeared before the Appropriations Subcommittee of which Mr. Andrews is chairman, at which time we explored fully the basic estimates of SBA for the fiscal year 1962, I shall confine this statement to the developments and related facts giving rise to this additional requirement. I, of course, will be glad to review more fully any of the programs on which you may desire additional information.


The revolving fund finances business loans to small business concerns, loans to disaster victims, capital and loans to small business investment companies, and loans to State and local development companies. Against an authorized total of $1 billion, appropriations to date total $760 million, including the $20 million in H.R. 7577 recently passed by the Congress.

The estimate developed last fall indicated an additional appropriation requirement of only $20 million. However, in recent months, a great upsurge has occurred in the business loan and investment company activities. This upsurge may be attributed primarily to:

1. Greater awareness of the programs and services of SBA.

2. Increased lending authority to the field offices in order to shorten the "time gap" and expedite loans.

3. Intensification of financial assistance to small firms in areas of substantial unemployment, including the lowering of the in

terest rate from 51/2 to 4 percent in such areas. Business loans: It was estimated in the original 1962 budget that 9.600 business loan applications would be filed in fiscal year 1961 and 10,800 in 1962. Through the first 8 months of fiscal year 1961, July through February, an average of 746 applications were received each month. That was just about in keeping with the 9.600 applications. In March, the volume almost doubled with 1,332 being received, the largest single month in the history of SBA. In April, 1,066 applications were filed, in May 1,209, and in June 1,305. Each of these totals sets a new record when compared with the same month in previous fiscal years, and the total of 10,880 for 1961 established a new record for a fiscal year. The chart shown on page 10 of the justification shows this trend most clearly.

There is little or no indication that this increase in volume may abating. The average rate of 1,228 applications filed during the past 4 months is considerably in excess of the rate estimated for the fiscal year 1962 of 900 applications per month. However, sinre the months of March through June customarily represent the peak period of a fiscal year, we have revised the estimate for the entire fiscal year 1962 to a total of 12,000 applications or an average of only 1.000 per month.


This would require an increase of $74.3 million to provide for the net additional new loan commitments to be made during the year.

However, I want to point out to the committee that the heavy rate of applications of the past 4 months appears to be continuing. During July, which is usually a relatively lighter month, 1,220 business loan applications were filed. If the usual annual cycle follows the July indication, it is obvious that the estimate of an average of 1,000 applications per month for 1962 will be inadequate.

Ur. THOMAS. It was transferred from your contingency fund by $700,000 over and above your request for salaries?

Mr. HORNE. Yes, sir.
Mr. Thomas. It is $1,098,000 extra then from salaries this year?

Mr. HORNE. That is just to be used for this one program as you of course know. Our main purpose in giving this information about the business loan program is because I think the committee should have it.

Subsequent to the submission by the President of this appropriation request, the Congress in section 305 of the Housing Act of 1961 (approved June 30, 1961) provided for an expansion of SBA's disaster authority. This authorizes SBA to make loans to small firms sustaining economic injury because of forced relocation as a result of federally aided urban renewal, highway, and other construction activities. The statutory limitation on disaster loans was increased by $25 million for this new program. I call this to your attention because this estimate does not include specific provision for funds to finance these loans.

I believe, however, that the additional appropriation request now before you would provide adequate funds at least until such time as the Congress will be in session again and would have an opportunity to consider an additional supplemental request.

Investment and development company programs: With respect to the investment and development company assistance programs, here, too, the activity is far exceeding that which was originally estimated. For example, it was originally anticipated that 200 proposals for the formation of investment companies would be received during the fiscal year 1961: the actual number was 356. During the last 6 months, new proposals have been received at the rate of 36 per month, and during the last 2 months, 49 and 51 applications, respectively, have been received. And there is no indication that this rate may diminish in the foreseeable future. As just stated, 49 new proposals were received during June and 51 in July. Consequently, the original estimate of 200 for the fiscal year 1962 has been revised to an estimate of 400 new proposals to be received. During the fiscal year 1961, 194 licenses were issued, and we anticipate 310 additional licenses will be issued during the new fiscal year.

Total capitalization of licenses-and here we are talking about actual cash money invested in, or ready to invest in small concernshas shown a sharp rise in these recent months: from $167 million in early February to $240 million at June 30. Of this figure, only $36 million has been committed or disbursed by SBA in return for subordinated debentures issued by licensees. This reflects our efforts to follow the statutory directive to encourage the maximum participation of private financing sources. The ratio of private to Federal funds in SBIC capitalization is now approximately $6 of private funds for every dollar of Federal funds.

I am sometimes asked when SBA is going to stop granting licenses. I would say that this is a question which is under constant review and study by our staff, and I think it is inevitable that the time will come when it will be more difficult to prove the need for additional licenses. The competitive situation will, in some measure, provide the solution to this problem. We have already seen this at work in some sections of the country. And in that connection, let me add that a reasonable amount of competition among small business investment companies will do more to keep rates and charges at reasonable levels than can all the rules and regulations that we might promulgate.

It is anticipated also that the volume of loans to State and local development companies will continue to increase as the program becomes better known and as additional local development companies are formed. Through June 30, SBA has approved a total of 118 loans to local development companies for $13.8 million in projects providing jobs for about 7,000 since the start of the program. Seven loans also had been made to State development companies in the total amount of $4.1 million.

These increases in investment and development company activities we estimate will require an additional $39.9 million to meet the additional commitments for loans and purchase of debentures and loans.

The original 1962 budget estimated that the available balance in the revolving fund at the close of the fiscal year 1961 would be approximately $121 million. In developing this supplemental estimate in May, the estimate of carryover was revised downward to about $76 million and the request for an additional $130 million was based on that estimate. However, the actual carryover was even below the revised estimate, dropping to approximately $50 million.

In order to meet the additional commitments, and to offset the estimated reduction in the amount initially estimated to be available on July 1, 1961, an additional appropriation of $130 million js required.


The Small Business Investment Act of 1958 established a fund to be used in making grants to States for management counseling and research on the problems of small business. Only one grant could be made within any one State in any year, and no grant could exceed $40,000.

The grants from this fund were made to all 50 States and Puerto Rico and the District of Columbia during the fiscal years 1959 and 1960. The Virgin Islands also received a grant in 1960. The 105 grants will actually result in 225 separate research projects. The unobligated balance in the fund at the end of 1960 was rescinded by the Appropriation Act of 1960. An appropriation to continue this activity was not requested for the fiscal year 1961, and the original budget estimate for the fiscal year 1962 did not contain such a request. It was decided not to submit any appropriation request for resumption of this activity until a sufficient quantity of the reports from grants previously made could be received and evaluated.

A thorough review of the first 50 studies received under the program has now been completed and, in our judgment, supports reinstatement of the program. Our appraisal would rate two-thirds of the 50 studies to be excellent or very good and the remaining one-third ranging from good to fair. This evaluation plus the favorable public response to the studies issued to date we believe supports our recommendation for an appropriation for this purpose.

The budget estimate requests an appropriation of only $500,000 rather than the approximately $2 million used in each of the first 2 years.

Mr. Thomas. That is the first time we have had any specific figure. I traced that budget for an hour and a half trying to find out what the program would cost. It is $2 million.

Mr. HORNE. $2 million each year.
Mr. THOMAS. That is $4 million.
Mr. HORNE. Yes, sir.

Mr. THOMAS. You had 105 contracts. You had that many studied and most were almost up to the limit of $40,000 each.

Mr. HORNE. Actually we had 225 studies; 105 contracts.

The grants are to be made to States on a selective basis, with a maximum of $40,000 to any one State. The selection would be based upon the priority assigned to the subject matter to be covered, and the widespread application of the results of such study as well as the professional qualifications of those who would conduct the study.

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The requested supplemental of $398,000 includes $377,000 for the increased investment and development company assistance workload, and $21,000 for the screening and awarding of research grants and the subsequent supervision of the work being performed by the grantees.


The previously mentioned increase in the investment company activities created workload far beyond the normal capacities of the existing small staff. A total of 356 proposals was received during the fiscal year as compared to an anticipated 200. In addition, as of July 1, 1960, there were 96 license proposals pending. While on June 30, 1961, the number pending had increased to 225, it undoubtedly would have been considerably greater had it not been for the great amount of overtime worked by employees of this Division.

As indicated earlier, we now estimate that 400 new proposals will be received during the fiscal year 1962. This is double the original budget estimate of 200. Further, the workload is compounded since each SBIC which is licensed makes requests for rulings, waivers, and approval of amendments to its original proposal as may be found necessary in the light of actual operating experience.

Many of these requests are of considerable business urgency, for example, a request for ruling on eligibility of a new client eager to receive and put to use the proceeds of an SBIC financing requires prompt handling. Also, it is not uncommon for amendments to be of such scope and complexity as to require more analytical time than had been devoted to the original proposal.

Additional workload is created by the requests for operating loans as authorized by section 303(b), which requests are made after the

companies have fully loaned their available funds from capital and other borrowings. The processing of these loan applications and the subsequent servicing represent unavoidable responsibilities and obligations of the Investment Division.

This increase in workload will require additional staff in 1962. The estimate of $377,000 would provide for 15 professional and 22 clerical employees for assignment to the Washington office, and 12 professional and 12 clerical for the regional offices. The investment company operation has been conducted mainly as a centralized operation in accordance with the expressed legislative interest. Consequently, the major part of the workload increase is in the Washington office.


Based on 1960 experience, it is estimated that 200 research proposals may be submitted for review, from among which 13 or more grants will be made. To perform this work and subsequent supervision of the grantees, it is estimated that 2 technical and 2 clerical employees will be required at a cost of $21,000 in 1962.


Although the higher estimated 1962 volume of business loan applications-originally 10,800 and now revised to 12,000—will increase the administrative expenses by approximately $700,000, with the concurrence of the Bureau of the Budget no change has been made in the original budget estimate for administrative expenses. This is because the contingency reserve of $1,845,000 included in the original estimate would be available to finance workload to a level of approximately 1,150 applications per month.

Thank you for the opportunity to appear before this committee. I shall be glad to answer questions or supply any additional information the members may desire.

For salaries and expenses, as I say, it would come to $377,000. Additional personnel needed for the screening and awarding or research grants and subsequent supervision of the work would be $21,000, making a total of $398,000 for personnel and administrative services. That, plus the $130 million which I mentioned a few moments ago, for the revolving fund to provide for business loans and our obligations with the SBIC's, and the $500,000 rather than the $2 million of the previous 2 years in which the program was in effect for research grants.

Mr. Chairman, that is pretty much a summary of my statement.

Mr. Thomas. That is a very good statement and it is very much to the point. You have done a good job in preparing it.

Mr. HORNE. Thank you, sir.

Mr. THOMAS. Gentlemen, let me briefly summarize this justification here in three parts and then I hope the committee members will take a very detailed look at your three sections here.

You have a budgeted submission in three parts. There is $130 million for additional amounts to your revolving fund; $398,000 for salaries and expenses and $500,000 here for the research program. If my figures are correct, you are seeking a total of $130,898,000 rather than $130.9 million. What happened to the other $2,000?

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