It should be noted that the loans made to small businesses do not necessarily carry the maximum interest rate. During fiscal year 1976, the weighted average interest rate on guaranteed loans was 10.12%. There also was a geographical pattern to the interest rates on guaranteed loans with SBA Regions I, II, IX, and X generally having weighted average rates close to the maximum and Regions VI and VII having weighted average rates well below the maximum.

The interest rate on direct loans is by statute based on the cost of money to the Government at the end of the fiscal year. The rate for direct loans during 1976 was 6%%.

Financial Community Liaison

SBA continued its program to develop private lender participation in its loan activities. This effort included SBA participation in bank meetings and seminars and conducting workshops to familiarize lenders with the advantages of using SBA programs. Particular emphasis was placed on familiarization with the advantages of the secondary market for the guaranteed portion of SBA loans.

The educational program for the American Institute of Certified Public Accountants continued with high acceptance. A total of 16 workshops attended by 528 CPAs servicing small business clients were held during the year.

If others credit his success to perseverance, Pearsall gives the bows to his fellow workers, old and new. He is known as an "employees' employer." His management is people-oriented, his style informal and participative. He believes in giving employees a chance to grow with the company into management positions. He pays high wages, and shares his profits. There are no time clocks. He assembles all the employees monthly for a chat about what goes on in the company. He attracts above-average people. He gets aboveaverage response in ingenuity and productivity.

"Indeed, I have gained so much," reflects Pearsall.

Secondary Market

SBA continued to stimulate activity in a secondary market for the guaranteed portion of SBA loans. A bank can sell the guaranteed portion in the investor marketplace, and the proceeds from the sale can be reinvested in other small businesses. Being able to liquidate such loans quickly can influence banks to be less reluctant to make the longer term loans needed and desired by small business. The difference between the market rate for the guaranteed portion and the rate paid by the borrower creates an attractive profit to the lender.

New document review guidelines and a new secondary participation guaranty agreement were announced during the fiscal year to make transactions easier and less time consuming. Additional investment banking firms became active in developing and increasing the secondary market.

Activity during the year showed results of these efforts. Despite high liquidity in the banks, with a resulting disinterest in selling the loans, volume of sales increased to $111.6 million in contrast with the $92.9 million in 1974 and $94.6 million in 1975.

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finance and investment programs and to specify appropriate corrective

measures. Operations are conducted from Washington, D.C., Atlanta, and Denver. In order to strengthen and broaden the examination of all field activities during early fiscal 1977, the Atlanta office will be absorbed into the Denver office.

Program Changes

In December, the President signed S. 555 (P.L. 94-63) changing the interest rate on SBA disaster loans made under Section 7(b)(1), (2) and (4) of the Small Business Act so that the rate charged on all direct disaster type loans made under Section 7(b) would be the same.

At the same time, the President signed H.R. 5541 (P.L. 94-190), the Small Business Emergency Relief Act, to provide emergency relief for small businesses suffering serious financial loss because of the energy crisis or rapid and unexpected rises in Government contract costs. The law authorizes the head of any executive agency to terminate for the convenience of the Government any fixed-price contract or to modify a contract under certain limited circumstances. This law applies only to contracts entered into from August 15, 1971, through October 31, 1974. The authority to grant relief terminates on September 30, 1976.

Proposal for Small Builders

In a June statement before a joing hearing of the Senate Select Committee on Small Business and the Small Business Subcommittee of the Senate Committee on Banking, Housing & Urban Affairs, the Administrator outlined a change in SBA's policy of not providing assistance where the real property would be held by homebuilders primarily for future sale. The Administrator announced SBA's intention to structure, by regulation, a non-duplicative business loan program which would allow assistance to small business concerns for residential or commercial construction for future sale, and for public underground and surface improvements to land when related to such construction. The proposal would also permit the guarantee of loans for the acquisition and rehabilitation of existing residential and commercial structures. To implement this change, amendments to regulations governing SBA's 7(a) business loan program are to be published in the Federal Register for public comment.

SBIC Investment Program

Under the Small Business Investment Act of 1958, as amended, SBA licenses, regulates, and provides financial leverage to privately owned and operated investment companies formed for the purpose of providing venture capital and other financing and management assistance, to small business.

The firms assisted by such Small Business Investment Companies (SBICs) tend to be newer, innovative-type firms and the financing of them can subject an SBIC to risks substantially higher than those inherent in businesses financed under the Agency's regular lending program.