The Administrator's Message This 1976 Annual Report to the President and the Congress, the Small Business In the same year as the Declaration of Independence, another significant document appeared on the American scene-a book on international economic principles by a Scotsman named Adam Smith,, "The Wealth of Nations". He believed that the best economic policy comprised free competition, efficient production, the incentive of profit, minimum government interference-all within a democratic society. Smith saw the system as being self-regulating and functioning "naturally", led by what he called “an invisible hand". The appearance of Smith's work was coincidental, and the young country did not know it was to become the training ground for the free enterprise, capitalistic system he preached. The American economy has undergone unpredictable changes since 1776-from 13 "united states" of less than 3 million persons in an economy dominated by small scale farmers, merchants, and craftsmen to a Nation with 70 times more people, a $1.5 trillion gross national product, and a reputation synonymous with the world's "biggest" everything. Small Business Survival Threading through this magnificent development—and surviving, so far-are those same kinds of people in "small business"-relatively unorganized, relatively unrecognized-yet still representing a large portion of the Nation's enterprise, productivity, and employment. Numerically, small businesses are 97% of all business, a massive 13 million small enterprises, including approximately 3 million farms. Directly or indirectly, they provide the livelihood for more than one-half of our population. Each year, there is a net growth of those who risk establishing a new business venture. The early American instincts of the entrepreneur are still with us. Despite their numbers, small businesses clearly are in an economically disadvantageous position. Their individual smallness handicaps them in an environment of big government, big corporations, and big unions. Individually, they lack the resources to cope with inequitable taxes, government over-regulation, limited access to credit and venture capital, paperwork, new technology, lack of good management, monopoly and unfair trade practices, and labor organized on a national scale. A National Commitment As we begin our third century, what we need is a new national commitment to small business. We must meet its problems directly and positively, give it the right economic environment for greater impetus and productivity. This Agency and the Administration are responding. The SBA is comitted to small business exclusively, and it is a record of performance, not promises, that shows in this Report. The record reflects the economic upturn that has swept over the Nation during the past 12 months. The Agency made the second highest dollar amount of business loan approvals in its history-more than $2 billion, a rise of 30% over the previous year. These loans assisted in the creation and maintenance of approximately 288,000 jobs. Since 1970, the Agency has approved more than $11 billion in business loans, which is 69% of all the approvals made by SBA since it was created 23 years ago. Some time during the year, the SBA passed the $20 billion mark of all-time loans to business, victims of natural disasters, and Small Business Investment Companies. The amount of SBA's other services in financial, management, and procurement assistance, in help to minorities and other disadvantaged, and in advocating the cause of small business also was at a higher level this year. Presidential Actions President Ford, personally participating in SBA's "Bicentennial Salute to Small Business" in May, told an overflow audience: "To ensure that small business in America survives and thrives in the future, as it has in the past, I have proposed legislation to raise the estate-tax exemption from $60,000 to $150,000, stretch out the payments at low interest rates over 25 years, and exempt from taxation the transfer of your businesses from husband to wife. "To help you obtain the capital you need to grow and create the new jobs America needs, I have also proposed the retention of the $50,000 corporate surcharge exemption, a 2% reduction in the maximum corporate income tax rate, and a 33% increase in SBA's major loan guarantee program". The President is also concerned about "the needless regulations of Government" affecting small business. He introduced legislation for regulatory reform of the Federal bureaucracy to (1) ensure that government policies do not infringe unnecessarily on individual choice and initiative or in the free marketplace, (2) find better ways to achieve our valid economic, health, and safety goals at minimal costs, (3) ensure that government policies and programs benefit the public interest rather than special interests, and (4) assure that regulatory policies are equitably enforced. The President also directed that all Federal agencies cut the burden of paperwork on the public by the end of the year, and I am pleased to report that the SBA responded with a 28% reduction. When President Ford swore me in as Administrator, he at the same time appointed me to the President's Economic Policy Board, which includes his top economic advisers and most of his Cabinet. I am chairman of a new Small Business Task Force on that Board. It is the first time that an SBA Administrator has ever received such recognition by any President. It is a milestone that assures small business a voice at the highest Federal decisionmaking level. Future Plan for Action As for SBA's future commitment to small business, I have a "Plan for Action”. People are losing faith in many of our institutions because they "don't work". In this Plan, we will use every tool at our command to make sure that SBA "works" in the new fiscal year, and that our constituency knows that it works. The Plan is aimed at two crucial issues in our economy. One, there is the immediate challenge to generate productive jobs and reduce the high level of unemployment. Second, we must make more capital available to small business so it can grow and prosper. To help these situations, this Plan is aimed at improving the quality and delivery of our services and at stimulating the private sector-particularly the financial community-to supply more of its resources to small business. We place particular emphasis on those actions which will generate jobs. Loan Acceleration The Agency's major financial assistance effort in recent years has been its Guaranty Bank Loan program, which now accounts for nearly 90% of our annual business loan portfolio. We are dealing with about 8,500 banks, and generating an annual volume of more than $1.8 billion to small businesses. On a pilot basis with selected banks throughout the country, we are speeding up our guaranty loan processing time to permit the issuance of our guaranty to a bank within two working days. We will begin the program with about 20 selected banks, large and small, drawn from all SBA regions. The benefits of this program are exciting. It will speed up the loan payout to the small business person by at least several weeks, It should produce a loan portfolio of relatively sound quality since the credit aspects of these loans are pre-defined and will be certified by the lender. This accelerated plan is intended to supplement our present guaranty program, not supplant it. When fully implemented, we anticipate it will account for at least one-third of our total business loan guaranty activity. SBA has always been in the posture of soliciting the banks to make such loans, and many banks think of the SBA program as only a community responsibility. We must change these conditions. The Guaranty Loan program should be sufficiently attractive to make banks actively seek us out. There should be a conscious decision by bank management to allocate a substantial portion of the bank's resources to small business lending. Additional Bank Incentives We have developed several other new bank incentives to accomplish this: 1. Under a procedure dubbed "Operation Streamline", we have simplified, refined, and accelerated all of our loan processing and closing procedures— cutting down the red tape and paperwork in the system; 2. I recently approved an amendment to our regulations to allow participating banks to apply a quarterly fluctuating interest rate to their SBA guaranty loans, following the cost of money, rather than being held to a fixed rate; 3. I propose to adopt another change in our regulations that will abandon the penalty of terminating the SBA guarantee whan a lender inadvertently fails to give us the required notice of a borrower default. Instead, SBA would honor the guarantee of the principal amount, and the lender would lost only the interest. This change is necessary to preserve the integrity of SBA's guarantee. With such a streamlined operation in the new fiscal year, we have set as a goal a 25% increase in the number of participating banks and one-half billion dollars more in guaranteed loans to small business. National Secondary Market Another important element in the Plan for Action is a new national secondary market program for the sale of the guaranteed portion of SBA-guaranteed loans. We have had a limited secondary market program in operation for several years, restricted primarily to local investors, and it has been plagued by red tape and procedural problems. We are putting into operation a new transfer agreement which does several things: it establishes a more simplified and uniform system for selling the guaranteed portion of a loan; it assures complete guaranty coverage for the innocent purchaser of such a security; it provides a standardized method of lender remittance of the payments to the owner of the security; it defines more precisely both the lender's and SBA's obligations in such a transaction. |