(a) Licensing of small business investment companies.-One of the basic purposes of the Small Business Investment Act of 1958 is a provide a source of needed equity capital for small business concerns through licensed, and regulated, investment companies. For fiscal year 1961, 356 new proposals for establishing these companies were received, which is 78 percent greater than the total originally estimated. As of June 30, 1961, 225 proposals were pending final action. Based on the upward trend, and other factors, the estimate has been revised to 400 new proposals in fiscal 1962.

Proposals during fiscal 1961 were received at a monthly average of 30, compared with a monthly average of 12 for the preceding 18 months. During the initial formulation of the 1962 budget, this marked increase was not apparent, with only 49 proposals received during the first quarter of fiscal 1961. Proposals in the second and third quarters doubled the experience of the first, with 94 and 97 submissions, respectively. There were 116 proposals received in the last quarter of 1961. Prior to the issuance of a license, a proposal requires two phases of processing. The first is a review of the proposed methods of operation, initial capital structure, and the need to finance the type of small business indicated in the proposal. If a proposal is found satisfactory, appropriate notice is sent to the proponent. The second phase is the review conducted after the proposed company has been duly chartered by a State and the initial capital has been secured. This review determines the sufficiency of the charter and capitalization pursuant SBA regulations.

An outstanding feature of the program is investor acceptance of public stock offerings by small business investment companies. The capital structure of the 298 companies operating at June 30, 1961, reveals the extent of this acceptance. Of the total capital of $240 million, only $36 million has been committed for investment by the Federal Government. However, the number of new proposals requesting such participation in the capital as provided by section 302 of the Small Business Investment Act of 1958, is also increasing and this occasions an expanded scope of processing.

The 11 additional technical positions requested for fiscal year 1962 include 6 for the Licensing Branch for the estimated workload increases. Additionally, experience indicates that once an SBIC is licensed, it is likely to make repeated requests for rulings, waivers, and approval of amendments to its proposal found necessary in the light of actual operating experience. Many of these requests are of considerable business urgency, as for instance a request for ruling on eligibility of a new client eager to receive and put to use the proceeds of an SBIC financing. They must be handled with dispatch. Also, it is not uncommon for amendments to be of such scope and complexity, as for instance where a change to public ownership is planned, as to require more analytical time than had been devoted to the original proposal. Accordingly, it is often necessary to detach higher grade technicians and reviewers from original proposal work in order to provide answers for operating companies. To assist the technical staff six additional clerical employees are estimated to be required.

(b) Loans to small business investment companies.-Loans to SBIC's are authorized under sections 302 and 303 of the Small Business Investment Act of 1958, as amended.

Under section 302 such funds are advanced through the purchase of subordinated debentures of the SBIC's as an aid to their initial formation. For fiscal year 1962 it is now estimated that $45 million will be committed for such loans as compared with the initial estimate of $15 million.

Under section 303, loans up to 50 percent of their capital and surplus may be made to licensed SBIC's for operating funds. At June 30, 1961, the total potential for such loans was approximately $120 million. Loans are estimated at $27 million for fiscal year 1962.

(c) State Development Company Loans (sec. 501).-Under section 501 of the Small Business Investment Act, the agency is authorized to lend funds to State development companies for general use purposes, in an amount equal to the amount of a company's outstanding borrowings from all other sources. The proceeds of such a loan may be used for the purchase of equity in or long-term loans to small business concerns.

The number of State development corporations eligible to borrow from Small Business Administration under the section 501 loan program now stands at 19 with borrowings of over $42 million-which SBA sould be prepared to match if the 501 loan program is utilized to the full extent by these companies as a source of funds. The availability of this program has been made known not only to these companies but to interested agencies and individuals in the other States, and it is expected that loan applications will continue to increase. During fiscal year 1961 four loans for a total of $2.5 million were granted. Economic factors, and the increased knowledge of the program on the part of State development companies, support the projection of a total of 11 loans for $15.6 million for fiscal year 1962. It should be noted also that other States in addition to the 19 mentioned above are making progress toward the establishment of State development companies which will be eligible to borrow from SBA under the 501 loan program.

(d) Loans to local development companies.-Under section 502 of the Small Business Investment Act, the agency is permitted to lend up to $250,000 for each identifiable small business concern which either a local or a State development company proposes to finance. Proceeds of such loans must be used for plant construction, conversion, or expansion. This may include the acquisition of land. This together with actions taken to give greater impetus to the program, including the lowering of the interest rate, from 51⁄2 to 4 percent in areas of substantial unemployment, is expected to increase the activity. During fiscal 1961, 69 loans for a total of $8.4 million were approved. The projection for fiscal 1962 is 150 applications with 100 approvals for a total of $19.4 million.

The increase in all SBIA lending activities are estimated to require five additional professional and five clerical employees in the Washington office.

Seven additional technical positions and seven additional clerical are required for regional offices to counsel and advise in the formation of development companies and to process loan applications, as discussed above.

The examination and servicing workload will continue to increase as additional companies are licensed and loans are disbursed. Staff requirements are geared to the estimated workload. This amendment provides for one additional examiner and one additional clerical employee for the Washington office.

3. Financial assistance—transfer to salaries and expenses from the revolving fund

Subsequent to the preparation of the original 1962 estimate for financial assistance, program changes have been approved which are expected to contribute to an increase in the business loan application rate to an average of 1,000 per month in 1962 (initial budget estimate based on 900) with fewer withdrawals and cancellations than were previously estimated. As an indication of the higher level next year, during the first 8 months of this fiscal year (July 1, 1960 to February 28, 1961), a monthly average of only 746 applications was received. For the 4 months March through June, 1961, a sharp increase to an average of 1,225 occurred. Two major program changes which have been initiated are:

(a) Increased lending authority to the field offices in order to shorten the "time gap" and expedite loans to small firms.

(b) Intensification of financial assistance to small firms in areas of substantial unemployment, including the lowering of the interest rate from 52 to 4 percent in such areas.

While the higher estimated 1962 volume of 1,000 per month 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 budget estimate since the contingency reserve of $1,845,000 included in the estimate would be available to finance workload resulting from applications in excess of the budgeted level of 900 per month. This contingency amount is sufficient to provide for the processing, closing, and administration of an additional 250 (total 1,150) applications per month.

On the basis of 1,000 business loan applications per month, it is estimated that there will be a net increase of approximately 4,300 business loans, to a year-end total of 18,750, to be serviced in addition to 7,400 disaster loans and about 500 former RFC loans.

GRANTS FOR RESEARCH AND MANAGEMENT COUNSELING, SMALL BUSINESS ADMINISTRATION

Funds were available for fiscal years 1959 and 1960 to finance grants to any State government, or agency thereof, State-chartered development credit corporation, land-grant colleges and universities, and other schools for research and counseling concerning the managing and financing of small business enterprises. The amount established in a special fund for these grants, pursuant to section 602 of the Small Business Investment Act of 1958, was derived from repayments by each Federal Reserve bank of the aggregate amount which the Secretary of the Treasury had heretofore paid to such banks under the provision of the Federal Reserve Act.

Only one grant could be made within any one State in any year, and no grant could exceed an aggregate amount of $40,000. In 1959, 52 grants were awarded and in 1960, 53 grants were made. These grants resulted in 225 different research studies. The unobligated balance in the fund for this purpose was rescinded at the end of fiscal year 1960. It was determined that an appropriation would not be requested until results of a representative number of studies could be evaluated. Fifty studies were selected as follows:

Based on findings summarized below relating to the evaluation of these 50 projects the supplemental request for 1962 provides $500,000 for 13 or more grants to be made during fiscal year 1962.

The criteria used in evaluating each report with the weight of each is:

Thus, using this evaluation, two-thirds of the reports completely evaluated at this time are classified as very good or excellent. Considering the fact that this is research into an area of the social sciences that is relatively new to researchtrained professionals, the results are outstanding. If we add projects classified as good, the total rises to 82 percent.