Page images
PDF
EPUB

Our biggest year was in the fiscal year 1956 when the total approvals amounted to $42,423,000, largely because of the tremendous disasters which occurred in the New England States.

That, of course, was an exceptional year and we, of course, hope that we will not see recurrences of disasters of that magnitude. Nevertheless, our approximately $80 million probably would provide, as a minimum, for our needs through the fiscal years 1958 and 1959 and perhaps considerably beyond that period.

The third change is in section 103 (d). This section abolishes the loan-policy board and establishes a policy board consisting of the Administrator, Small Business Administration, an official of a small bank, and an official of a small business concern. This board will establish administrative programs and general policies in the financial assistance, disposal, and general-assistance programs to small business. My comment on this is in part covered by what I said earlier about the loan-policy board.

However, with specific reference to this section, this section would substantially, in my opinion, curtail the basic authority of the Administrator to operate the Small Business Administration in that it would enable individuals who are not full-time Government appointees to establish general policies for the Small Business Administration and by majority rule control all of the activities including the lending policies of the Small Business Administration.

I do not feel that that is quite the situation where other full-time Government officials are on the board, and who have responsibilities toward the Government and are available at any and all times to consult on lending matters.

The rest of my comments would be the same as I made earlier, with reference to 6645.

The fourth change occurs in section 103 (e). This section requires the establishment of regional offices in Alaska, Hawaii, and Puerto Rico.

We now have branch offices in each of these Territories, and have had them for less than 1 year. We are presently studying the desirability of increasing the authority of these offices to approve loans. The present workload does not appear to justify the necessary expenditures for establishing regional offices in each of these areas. I have already given a substantial increase in authority to the branch managers in some of these offices to make loans, themselves, and other than that delegation, which can be made without actually changing the status of the office from a regional to a branch, the principal result in changing the status of a branch to a regional office would require that a considerable staff be added, clerical staff, in order to keep the records there, and in my opinion, it is not in each of these instances, justified.

However, I think that this committee will wish to consider the relative cost between keeping the offices as a branch, as they are now, and increasing delegations of authority to the branch managers, over making them regional offices.

As near as I can estimate, the cost of making these three branch offices regional offices, would result in an increase in administrative expenses of about $198,000.

I think it would be possible, administratively, to provide the same service without changing the designation of the offices, and I am will

ing to provide the same services, I should add, as employees and funds for administrative expenses are available.

The fifth change occurs in section 106 (a) (4) which establishes a maximum rate of interest at 5 percent, or the prevailing rate within the appropriate Federal Reserve district, whichever is lower.

It is my opinion that any Government lending program should take into account two factors: (1) the rate should not be lower than that charged by private banks, unless it is desired-I mean, if one wishes to avoid competition with private lending institutions in the making of these loans. Since obviously, if you fix the interest rate lower than that charged by private banks, the tendency will be to attract borrowers from sources of private funds to try to obtain loans from the Government and using Government moneys, merely because of an advantageous interest rate.

I think this, of course, is an issue that is largely up to Congress, but it has been the legislative history on this that on business loans, which is different than the home-lending field, there has not been a desire, insofar as I have been able to ascertain, to make the interest rate lower, and thus to attract borrowers away from private enterprise, the banks. The second factor to be considered is whether Congress wishes to have the interest rate the same in all sections of the country, or have it at a different rate in various areas of the country.

The problem here, it seems to me, if Congress desires to have it different in various areas, must be met and the suggestion proposed by this bill is probably the most workable and the most practicable. However, this would create a type of situation that I would be immediately faced with.

In such areas as Texas, Oregon, and certain parts of the South, the interest rate is higher than it is in New England, and we have felt that in dealing with the Government on a business loan, if it is possible to establish a rate that is generally fair, that no matter where a man lives, if his business status is such that he is eligible for a loan, that he should be able to get it at the same rate.

Now, under this wording, we would, no doubt, have to make some difference between the different sections of the country, and we would, of course, be guided by what Congress feels about this. But my recommendation would be that we stay at the same rate, and that it be a rate, as we have had, which at least is fair and does not tend to attract loans away from private enterprise.

The sixth change occurred in section 106 (a) (7). In this section it is provided that all business loans shall offer reasonable assurance of repayment. This is a very important change in the light of the legislative history of this type of business lending program. This section would change the present collateral requirements for small-business loans which stem from the language that all loans shall be of such sound value or so secured as reasonably to assure repayment, and it would substitute, therefor, a standard that all loans made, shall, in the judgment of the Administrator, offer reasonable assurance of repayment.

The language of the present Small Business Act, which is contained in the Hill bill, 6645, is substantially the same as that contained in the Reconstruction Finance Corporation Act and provides an objective standard of Government lending which has existed for many years.

If the Government desires to substitute a subjective standard, as provided in the bill, H. R. 7474, I certainly urge that there be legislative history established by Congress that would indicate exactly what guidelines should be followed in making loans under this standard.

Under the present standard, under the present bill, we, as did the RFC, require that there be collateral in connection with all loansthat there not be an unsecured business-lending program.

Now, in connection with the program such as the limited loan participation plan, I have liberalized this standard, with the consent of the loan policy board, somewhat, in that it permits the banks to make the most of the estimate of the collateral, and thus saves time, we do take guaranties and we depart from any thought that there be affixed a receipt used as collateral.

If this change is made that is in H. R. 7474, it would be proper for a borrower and his counsel to argue and contend that there was no collateral requirement intended by Congress, and that any collateral requirement was merely an imposition of the Administrator.

Unquestionably the collateral requirements do prevent the making of some loans, but frankly, we have placed more emphasis on the earnings ability, than an exact matching of collateral, and I would hope to have very specific guidelines if Congress departs from the present standard which has been in use, and goes in effect to what would be interpreted as an unsecured business-lending program.

Now, that may not have been the intent of this section, but it is the question which the change raises. The seventh change occurs in section 107 (m), which authorizes the establishment of small-business advisory board, "truly representative of small business."

Well, my comment on that is that 98 percent of the members of our present board, or maybe higher, are actually and in fact, small-business men. We do have a few positions where college professors or members of professions which have some relation to small business have been appointed, and in a limited number of cases there have been some who have been employees of large firms, but in each case it has been a man who, it was my opinion, had something to contribute to the small-business program.

Now, for example, I have appointed some of the purchasing representatives from some of the large aircraft companies, who deal mostly with suppliers, and are capable of vastly expanding the amount of subcontracting done by their companies.

I am sure I could demonstrate that this had been effective in keeping before some of these companies the need for ready access to information by small firms.

In other cases, there have been 1 or 2 men that have specialized in management activities with small-business firms. I believe they have made a real contribution. In my opinion they have never expressed a "big business" viewpoint, but because they are serving, have done the things that are necessary to benefit small firms.

The eighth change in section 108 (f) states it is the duty of the Administrator to consult with Government agencies in the issuance of all orders or policies which in any way affect small business and requires, further, that such agencies must consult with Small Business Administration before establishing such policies and issuing such

orders.

A similar provision is found in section 215 of bill 6645. However, this section requires a direction from the President before the section becomes operative. This limitation is most desirable and is in the interest of efficient administration. There are many Government policies which have no special impact on small business, although they affect small business.

Consultatioin prior to issuance of all such regulations or the estab lishment of such policies should be a matter of direction by the President rather than mandatory under the Small Business Act.

The ninth change, in section 113, contains the authority for the small business joint determination program. It is similar to section 214 or bill 6645, except for new language which provides that if the administration and the procurement agency fail to agree on a joint determination, the matter must be submitted to the head of the procurement agency.

My comment is that we now have in regulations a similar type of appellate procedure which in general conforms to that set up in this section.

The tenth change is in section 115 (b) and provides for the transfer of small-business functions not heretofore transferred to the Small Business Administration by the Department of Commerce.

At the time of the creation of the Small Defense Plants Administration, many of the functions of the Department of Commerce relating to small business were transferred to the Small Defense Plants Administration, and then with the creation of the Small Business. Administration, were transferred to the Small Business Administra

tion.

The term "small-business functions" is slightly ambiguous, however, and may lead to difficulties in carrying out the actual intent of this section. If small-business functions were to be transferred, it is preferable the nature of the functions be expressed in the bill.

However, I might add that unless there are specific functions mentioned or called to our attention, I think most of the direct, immediate functions have already been transferred, so I do not know exactly what is the intent of this section, but I do want to say it would be hazardous, in my opinion, certainly without having testimony from the Department of Commerce, because there are some of their departments, such as the ones that obtain technical reports, and the Bureau of the Census, and some of the others, which conduct a number of their activities which are of benefit to small concerns, and of which the principal users are small-business concerns.

And I personally do not think it was probably the intent of this section to transfer those which are major activities of the Department of Commerce.

So I would just comment that this would be a hazardous courseunless there is specific testimony from the Department of Commerce before the committee.

That concludes my comments with one exception. We have distributed, at your desk two sheets, one showing the figures through April of 1957. It was my thought the committee would prefer to have before it the latest figures available. It was possible only to complete these figures last night and early this morning.

So on this sheet, where it refers to selected statistics on financial assistance and procurement and technical assistance activities, there

92432-57--4

are listed the figures for each of these activities, during the first 10 months of the last fiscal year, for comparison with the first 10 months of this fiscal year, in tabular form, which I think will give a very clear presentation to the committee of the increase in these activities between last year and this year, and the figures are very current, since they are through the end of April.

The other sheet which has been furnished is a summary statement of business and disaster-loan approvals and disbursements. The committee has always had questions about the amount of disbursements, percentage, and that sort of thing, so I have had this compiled, which is the latest figures available to us, through April 30 of this year, for the current fiscal year.

(The documents above-referred to are as follows:)

SMALL BUSINESS ADMINISTRATION

Summary statement of business and disaster loan approvals and disbursements, by type, as of Apr. 30, 1957

[blocks in formation]
« PreviousContinue »