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business concern contracts, and further provided for the issuance by the Small Business Administration of a certificate to "smallbusiness concerns."

Section 214 of the act was expanded to include in the joint determination programs the concept of maintaining the Nation's productive capacity.

In 1956, the disaster-loan authority was increased from $25 million to $125 million and was amended to provide that loans for both residential and business purposes could be made for periods not to exceed 20 years, and further that the maximum interest rate on the Small Business Administration share of the loan shall be 3 percent.

The committee is now considering H. R. 6645, a bill introduced by Congressman William S. Hill, of Colorado. This bill has received unanimous support from all the agencies in the executive branch. It establishes the Small Business Administration as a permanent agency and clarifies portions of the existing statute.

The Small Business Act which authorizes the establishment of the Small Business Administration was passed by the Congress in 1953. The original legislation provided that all authority under the act would terminate June 30, 1955. In the latter year, Congress amended and extended the act to July 31, 1957, at which time this law will terminate.

Operation and experience under such temporary legislation have revealed a number of limitations which hamper the efficient operation of the Small Business Administration:

(1) There is a tendency to regard SBA programs as temporary expedients. As the expiration date of the Small Business Act approaches, some institutions no doubt hesitate to join with the agency in participation loans. This hesitation may be founded in the uncertainty that a bank committed to participation in a long-range loan program may incur unanticipated expenses arising out of the shift of responsibilities from SBA to a successor.

(2) Governmeint agencies may be reluctant to embark on longrange programs with SBA because they may find themselves burdened with additional responsibilities which they are not prepared to assume if SBA should be terminated.

(3) A short-range temporary agency encounters personnel problems which can be alleviated by longer tenure. The demand for SBA loans has practically doubled within the past year and it is anticipated that this higher level of activity will continue into the future. It has been difficult to obtain a sufficient number of qualified financial specialists to carry forward the agency's financial assistance program. If one trained employee is lost today, he may be replaced only with extreme difficulty because such employees are not attracted to a Government agency operating under a termination date effective in the near future. For the same reason there is a lack of incentive for longer range training programs to increase the efficiency of the

agency.

(4) It appears clear that the Small Business Administration will have important and continuing responsibilities in any defense program. However, integration of the Small Business Administration into national defense planning is made difficult by the temporary nature of the agency.

(5) Experience has indicated that better relations with the business world can be established if it is clear that the Administration's small-business program is a continuing one.

It thus appears clear that establishing the Small Business Administration as a permanent agency will strengthen all of the agency's small-business programs. H. R. 6645 continues the agency's Loan Policy Board. As you know, this Board is composed of the Administrator of the Small Business Administration who serves as Chairman, the Secretary of the Treasury, and the Secretary of Commerce, or their designees. This Board has been performing an essential function by establishing policies which have assisted the Small Business Administration to meet the credit needs of small-business

concerns.

At the same time, the Board provides a means for coordinating the agency's policies with those of other Government departments. Contrary to some misconceptions concerning it, the Board does not supervise the administrative activities of the Small Business Administration or take any part in its management. It functions only in developing the overall lending policy of the agency.

I have found it difficult to understand the criticism directed at the Loan Policy Board. Most actions taken by the Board have resulted in liberalizing our existing programs.

The Small Business Administration in lending public moneys must be guided by the requirements of what is in the public interest. The determination of what constitutes the public interest can best be determined by the collective judgment of representatives of those Government agencies having substantial responsibilities in the business and fiscal affairs of the Nation.

I have found the Loan Policy Board to be of great assistance to me in the administration of the lending program of the Small Business Administration and its deliberations and actions have been marked by a spirit of cooperation and harmony.

I have submitted to this committee a section by section analysis of H. R. 6645, which, I believe, is self-explanatory. I would like, nevertheless, to call the attention of this committee to certain differences between H. R. 6645 and the present Small Business Act.

1. In section 202, which enunciates the policy of the Congress in enacting the Small Business Act, the present statement in that section that a fair proportion of the total purchases and contracts for supplies and services for the Government be placed with small business has been revised to state 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 small business. This revision makes it clear that the policies laid down by Congress and the activities of the Small Business Administration are extended to all types of Government contracts. These will include in addition to the usual supply contracts, contracts for research and development, and for all types of maintenance and construction including the construction of highways.

2. H. R. 6645 strengthens the Small Business Administration's disaster program in several respects. Recruitment of temporary personnel to serve in disaster areas is made easier by authorizing the payment of transportation expenses of such temporary personnel from

their home to the disaster area and return. In connection with disaster loans made to small businesses located in drought areas which have suffered from the effect of such drought, H. R. 6645 provides that businesses in areas affected by the drought are eligible for disaster loans, even though the drought may have been officially terminated. 3. Section 207 (a) (2) of the present act authorized loans in excess of $250,000 to corporations formed by a group of small-business concerns for the purpose of—

establishing facilities in and through such corporations to produce or secure raw materials or supplies ***

H. R. 6645 has clarified this language and provides that such loans may be made to such corporations established

for the purpose of obtaining for the use of such concerns raw materials, equipment, inventories, or supplies, or for establishing facilities for such purposes. This change which is a desirable one makes more specific the purpose for which such group corporations may be formed.

In addition, H. R. 6645 clarifies the procedures for obtaining certain antitrust exemptions in connection with the activities of the corporations formed by small concerns.

4. H. R. 6645 provides in section 208 (n) broad authority to SBA to make studies of matters materially affecting the competitive strength of small business. This provision will enable the Small Business Administration to make comprehensive reviews of small business problems which will be helpful to both the small business community and to the Congress.

H. R. 6645 contains a provision whereby the Small Business Administration is authorized to borrow from the Treasury, program funds necessary for its revolving fund in lieu of requesting direct appropriations. The annual budget submission will contain estimated annual borrowing requirements which will be justified to the Appropriation Committees, and passed upon by the Congress. Because requests for direct appropriations must be established as closely as possible to anticipated needs, there has been very little flexibility for handling unforeseeable business and disaster loan program increases. On several occasions it became necessary to suspend the approval of loans until the Congress could appropriate additional funds.

Under the borrowing system, however, we intend to request that the annual borrowing limitation be set at a level high enough to permit a reserve for handling unanticipated program increases. In this connection, sums will be borrowed and placed to the credit of the fund only in such amounts as are necessary to meet current lending requirements. With respect to committing or obligating funds, we adopted the policy, in the fiscal year 1956, of committing funds for our share of deferred participation loans on a 15 percent basis rather than 100 percent. At the time this policy was established, we were being called upon to purchase only 5 percent of the total deferred participation loans disbursed by banks. Thus, this policy prevented the reserving of funds, against which there were contingent liabilities, in sums substantially in excess of possible need. Because of an upward trend in requests from banks for SBA to purchase its share of the participation loans, the fiscal year 1957 supplemental appropriation (Public Law 85-19) provided for adjusting the 15 percent reserve upward to 20 percent.

Under the borrowing authorization, participation loans will be committed on a 100-percent basis, but funds will be borrowed only to the extent necessary to cover the purchases requested by banks. This method will keep funds in line with actual requirements, and assures borrowing adequate to meet any unanticipated demand and at the same time avoid a confusing element in our accounting for deferred participation loans.

Due to difficulties in estimating precisely the lending workload, the Congress will be requested to authorize the Bureau of the Budget to approve a limited amount of additional administrative funds to meet unpredictable workload increases.

As an example of our difficulties in making accurate estimates, the 1957 budget was predicated on a business loan application level of 350 loans per month.

Through April, the applications averaged 569, with 702 received in March. When such increases occur, backlogs develop and many small businesses suffer seriously due to our inability to handle their requests promptly. The proposed authority will permit the Bureau of the Budget to provide additional administrative funds immediately to process loan applications, closings, and so forth, which exceed the budgeted level, thereby preventing the accumulation of large backlogs. You will note that H. R. 6645 establishes a uniform interest rate on the Small Business Administration share for all business loans.

Similarly, a uniform rate exists for all disaster loans. In the case of business loans, including pool loans, the interest rate is fixed at a maximum of 6 percent on SBA's share. That portion of section 207 (a) (4) of the Small Business Act of 1953, as amended, which states that any loans "shall bear interest at the rate prevailing in the area where the money is to be used," has been deleted.

It is our opinion that in the case of business loans, interest is not established as a fixed rate in particular areas, but varies depending upon the circumstances of each particular case.

The rates to be charged in business loans will depend on such things as financial condition of the borrower, his management ability, the liquidity of his assets, the term of the loan, the amount of servicing that would be required, and other factors.

Under this legislation, the bank may still fix the rate of interest for the loan, which may be less than 6 percent, but in no event may the interest rate on SBA's share of the loan exceed 6 percent per annum. We recommend that this committee give favorable consideration to H. R. 6645.

Other bills which affect the Small Business Administration are H. R. 5650, 5651, and 5693, introduced by Congressman Frank M. Coffin of Maine; H. R. 6144, 6145, and 6146, introduced by Congressman Charles O. Porter of Oregon.

H. R. 5651 (Coffin) and 6145 (Porter) are identical bills which direct the Small Business Administration to make extensive studies of certain problems of small business and to report on such studies.

Section 208 (n) of H. R. 6645 (Hill) would amend the Small Business Act to authorize the Small Business Administration to make studies of matters materially affecting the competitive strength of small business, or the effect on small business of Federal programs and regulations.

It is believed, therefore, that favorable consideration of H. R. 6645 will eliminate the necessity for the changes proposed in H. R. 5651 and 6145.

H. R. 5693 (Coffin) and 6146 (Porter) are identical bills which would authorize the Small Business Administration to make loans to local nonprofit organizations promoted to assist and expand the economy of the area. Under these proposals, loans would be made without regard to the direct needs of small business and without limit as to the amount.

Under its present authority the Small Business Administration has made loans to Development Credit Corporations where there has been a clear showing that the proceeds of the loans will be utilized to assist an ascertainable small business.

The program contemplated in H. R. 5693 and 6164 may have merit; however, a preferable approach would be the enactment of the Administration's Area Assistance Act, H. R. 5459, introduced by Congressman Carrigg.

H. R. 5650 (Coffin) and 6144 (Porter) would enlarge the present authority of the Small Business Administration to make disaster loans and would authorize such loans in those cases where the President determines that such loans are necessary to alleviate a serious economic disaster, depression or dislocation.

Here again, enactment of H. R. 5459, the Area Assistance Act, is recommended since this legislation is designed to deal with the problems of economic distress in its broader aspects.

I have, in this statement, covered only the high points of the progress that the Small Business Administration has made in each of its programs of assistance to small business concerns.

These are primary for the use of the staff, and I would leave it to the committee what portions might be reprinted, in the committee's report, but there is a complete detailed and statistical analysis of all the SBA's program. I would offer them as exhibits 1 and 2.

Subcommittee No. 2 of the House Small Business Committee introduced, I believe under the name of Mr. Multer, but I believe some of the other members of the committee joined in or introduced identical bills, a bill which came in over the weekend, or yesterday. At the request of the subcommittee, we have made a study of this bill, in order to try to make what helpful comments I could, at the hearing this morning.

Needless to say, I have not had a very long time to study this bill. My comments must be understood in that light.

However, for what they may be worth, I will comment on that bill the number of which I do not have.

Mr. MULTER. It is H. R. 7474.

Mr. BARNES. 7474.

Mr. MULTER. It appears in full in the Congressional Record, delivered this morning.

The mimeographed copy sent to members indicate the changes from existing statute as proposed by that bill. There were nine members of the Small Business Committee who joined me in introducing the bill. Mr. PATMAN. May I make an observation? I think it is important. Mr. Multer is chairman of the Small Business Subcommittee with instructions to investigate this matter, and present a bill to the whole committee. Mr. Multer expressed the hope it would be ready last

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