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H.R. 5892, a bill
To clarify the eligibility of certain small businesses for loans under the
Small Business Act, to aid, protect, and preserve small businesses in meat pro-
duction and marketing, and for other purposes.

Although entitled the Small Business Meat Producer and Marketer Production Act of 1975, would not be limited to meat producers and marketers and would, in fact, make eligible for SBA assistance many, if not all, firms presently ineligible for SBA assistance because they are eligible for financial assistance from other Federal agencies. This effect is created by section 1 of the bill.

Section 7(a)(1) of the Small Business Act presently bars financial assistance to an applicant "unless the financial assistance applied for is not otherwise available on reasonable terms." SBA has interpreted this language to mean that where a program of Federal financing exists, for which the applicant is eligible, it cannot be said that the assistance sought from SBA is not otherwise available on reasonable terms. Section 1(a) of the bill would add the words "from private sources" at the end of section 7(a) (1), thus making eligible for SBA financial assistance a firm that is also eligible for financial assistance from some other Federal agency.

This, we believe, would bring about shopping and competition between Government agencies. They would ask where is the best deal, where is the best rate, where are the best terms, and we can go here and we can go there. So, they would be eligible all over and that would just add excessive administrative decisions to the process.

The proposed amendment would forbid duplication only of "the work or activity of any other department or agency of the Federal Government which has promulgated and is operating and administering a loan program under which all qualified applicants are being granted loans" unless specifically authorized under the act.

It is not clear whether the term “private sources” is intended to be read literally so as to exclude assistance from State and local agencies, or to be read as meaning only "non-Federal sources." Also unclear is whether “private sources" include personal resources of the applicants principals, that is, its owners, officers, directors, stockholders, and their close relatives.

Generally speaking, agriculture enterprises are not eligible for SBA financial assistance. When SBA extends financial assistance to "agribusiness” enterprises engaged in activities closely related to agriculture, it does so on the theory that they are more in the nature of business enterprises than agricultural enterprises.

The language of this bill would give SBA an implicit mandate to duplicate the activities of other Federal agencies unless the activity consisted of offering loans to all qualified applicants. The proposed amendment would encourage some small businesses to engage in comparison shopping, so to speak, among Federal agencies.

Legislation of the sort contemplated in section 1 of this bill could well interfere with the accomplishment of the objectives sought by the creation of lending porgrams in other agencies and would foster many instances of SBA working at cross purposes with them.

SBA therefore recommends against enactment of H.R. 5982.

Mr. Chairman, this completes my statement. I would be pleased to answer any questions you or the subcommittee may have.

Mr. Smith. Mr. Kleppe, as far as shopping is concerned, there is shopping right within SBA, isn't there? You have four or five different loan programs, don't you

Mr. KLEPPE. We have 18. Mr. SMITH [continuing]. That some people can qualify under and others cannot. They can qualify under four or five different ones and they do shopping right within the SBA, don't they?

Mr. KLEPPE. I am not sure I can agree with that. I don't consider that shopping

Mr. SMITH. You mean if it is within the agency, it is not shopping, but outside the agency

Mr. KLEPPE. No, that is not why I said what I did.
Mr. CONTE. You've got different rates and different categories?
Mr. KLEPPE. We've got different categories.
Mr. CONTE. And different rates?

Mr. KLEPPE. And different rates in some instances, yes. So, if you want to call that shopping, all right. I think the eligibility question is what I was thinking about. If it is a small businessman and he is an eligible small businessman and he has an opportunity to shop within SBA to fit under one of our programs, I don't find any problem with that. If it is a farmer shopping within SBA or within FHA, the Farmers Home Administration, or something else, I think that very categorically is shopping.

Mr. Smith. I don't see what difference it makes whether it is FmHA or SBA or a combination of the two. If you are shopping, it seems to me you are shopping.

Mr. KLEPPE. I would assure you that if you were the Administrator of SBA, you would see the difference.

Mr. SMITH. But anyway, as a matter of fact, we can talk about FmHA having a program, but as a matter of fact that program is not being made available?

Mr. KLEPPE. I understand that. Mr. Smith. To dairy farmers, is it? Mr. KLEPPE. I understand that is correct. Mr. Smith. So, just because there is a program over at FmHA under which FmHA could make financial assistance available if they wanted to, why should that prohibit small business dairy farmers from getting and using SBA assistance as do other small businessmen? They are small businessmen and so why should they be excluded from the use of the programs available to other small businessmen?

Mr. KLEPPE. Well, do you categorically say that they are small businessmen ?

Mr. SMITH. Yes.

Mr. KLEPPE. You see, I consider them farmers. That is the distinction I was trying to make.

Mr. Smith. Well, you can say a chemical manufacturer is a chemical manufacturer rather than a small businessman.

Mr. KLEPPE. But we don't have a chemical manufacturer department in the Federal Government.

Mr. SMITH. But we do have price supports for chemical manufacturers and we have tariffs that hold up their prices. We have Government price supports for chemicals. We have Government price supports

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in two ways for various kinds of metals. We not only buy and stockpile, but in addition to that, we have tariffs to hold up their prices. I don't understand what price support has to do with this. What does that have to do with this?

Mr. KLEPPE. Well, since I became Administrator, Mr. Chairman, when I looked at it and our people looked at a product raised by the American farmer that was supported by a program at any level, we then just said that they are not eligible for ŠBĂ assistance. They are not eligible as SBA businesses.

Mr. SMITH. But, what about the dairy farmer who is not selling in a market?

Mr. KLEPPE. That would make no difference, because milk is supported and he is producing a milk crop which is a supported product.

Mr. SMITH. Grade A is supported.
Mr. KLEPPE. Yes.
Mr. SMITH. But suppose he is not selling Grade A ?
Mr. KLEPPE. Well, we make no differential in that.

Mr. SMITH. So, he is excluded because some other farmer is being supported ?

Mr. KLEPPE. He is excluded because—as a small business, because he is a farmer.

Mr. SMITH. But, what about a cattle feeder?

Mr. KLEPPE. The same thing. A commercial cattle feeder that doesn't feed his own cattle is eligible as a business with us because he does not have a supported price by the Federal Government.

Mr. SMITH. What about a hog farmer?
Mr. KLEPPE. Same thing.
Mr. SMITH. You mean they are eligible?
Mr. KLEPPE. A hog feeder that is a commercial hog feeder is eligible.
Mr. CONTE. What about a hog farmer?
Mr. SMITH. What about a pig producer?
Mr. KLEPPE. A pig producer? No.
Mr. SMITH. But why?

Mr. KLEPPE. Because he is a farmer. He raises a product that is agriculture and we don't make him eligible.

Mr. Smith. So it is not because they are price supported ? It is because they are farmers?

Mr. KLEPPE. Well, it is both. We have an SOP that defines, as best we can, eligibility and ineligibility. One category is those that raise a product that is price supported and another category is

Mr. SMITH. Well, a fellow that raises pigs is not price supported.
Mr. KLEPPE. That is right.
Mr. Smith. It is just because he is raising a farm product?

Mr. KLEPPE. That is right. He is also ineligible. That doesn't come under the same definition as a price supported product, no.

Mr. Smith. It just seems like to me it is discriminating against the farmers or people who produce farm products. In the end, what we really get down to is the price support thing isn't the crucial determinate. It is just the fact that they are producing a food product. If they want to produce tobacco and if they have a tobacco manufacturing plant, or if they want to produce chemicals and drugs or metals, or something else, why that is great. You will help them. But, if they are going to produce a food product, they are going to be excluded. I just don't understand the rationale.

Mr. KLEPPE. Well, if I could add something to that, I don't understand it either, except as it pertains to the Small Business Administration. You see, what do we have the Department of Agriculture for? I don't know of any provisions that you are talking about that haven't been granted to Agriculture. Now, I don't think SBA should be whipped in their eligibility standards because Agriculture hasn't or doesn't do what the Congress has indicated.

Mr. Smith. Well, the EPA requirements are across-the-board.
Mr. KLEPPE. Yes.
Mr. Smith. They don't exclude agriculture.

Mr. KLEPPE. No, but they hit farmers, they hit small businesses, big business. They hit everybody.

Mr. SMITH. And the equipment which they are required to install to control pollution is nonproductive, as far as the small businessman is concerned?

Mr. KLEPPE. I agree.

Mr. SMITH. Whether he is running a pig hatchery or whether he is running a dairy farm or feeding cattle or producing some kind of equipment, it is still nonproductive. It is all nonproductive as far as he is concerned.

Mr. KLEPPE. I agree.

Mr. SMITH. And here is a government regulation that says you've got to invest in something that will not return you any greater income. So, why should the people that happen to be in the food business be excluded ?

Mr. KLEPPE. I don't think they should be. I have never indicated that.

Mr. SMITH. They are, aren't they?
Mr. KLEPPE. They are excluded as small business people because--
Mr. SMITH. Where are they going to go, then?

Mr. KLEPPE. They are excluded because they are farmers. They are agriculture people. They can go to Agriculture.

Mr. Smith. But Agriculture is not providing any assistance.

Mr. KLEPPE. Yes, but that is no reason why SBA should be whipped for their interpretation or their definition of eligibility. That is the whole question here.

Mr. SMITH. The only reason for excluding anybody would be if he is able to get it somewhere else, but he is not able to get it somewhere else.

Mr. KLEPPE. Is that our fault? Is that SBA's fault?
Mr. SMITH. Well, it is not the farmers' fault, either.

Mr. KLEPPE. No, but is it ours? I think this is where we begin and where we end. What comes first: the chicken or the egg? It is a matter of eligibility and not a question of whether they are entitled to it or not, or whether they should be treated fairly. It is simply a matter of eligibility.

Now, we have the Small Business Administration
Mr. SMITH. I think it is a matter of availability under the law.
Mr. KLEPPE. Well-
Mr. SMITH. And not eligibility. It is availability.

Mr. KLEPPE. All right, that is something else again. If it is availability

Mr. SMITH. And it isn't available.
Mr. KLEPPE. Pardon?

Mr. SMITH. And it isn't available.
Mr. KLEPPE. Why?
Mr. SMITH. Because the Government doesn't make it available.

Mr. KLEPPE. Well, who is the Government, though? The Agriculture Department and the SBA have got legislative authority that has been given to us. We have made an eligibility determination in SBA, rightfully or wrongfully, and it says that farmers under certain categories are not small business people and they belong in agriculture.

Mr. SMITH. What you have done here, it seems to me, is make it clear that unless we legislate specifically that you shall not deny, except where it is actually available and being made available, then no SBA loans are going to be made available and they are going to be discriminated against.

Mr. KLEPPE. Well, discriminated against is not a fair explanation of the circumstances, I don't think. I would say to you that unless there is legislative action that says SBA should make farmers eligible under all categories, or this category, or whatever it is, then we feel pretty strongly about the fact that there is a separation in the Government, in the executive of the Government, and that SBA is not the Agriculture Department. Mr. SMITH. I don't understand your rationale. Mr. KLEPPE. Now, we tried to

Mr. SMITH. I don't understand this separation in government. There is a Department of Commerce, too. They represent other small busi


Mr. KLEPPE. They do? We never had any trouble there with duplication. That has never hit us, anyway, if that is true.

The whole situation of the Small Business Administration becoming the financing vehicle for farmers—well, if that is what it is going to be, so be it. But, until and unless that determination is made, legislatively, Mr. Chairman, it is just awfully hard for me to accept or to understand that the Small Business Administration is to take the agricultural responsibility when there is a full Cabinet Department of that in the Government to take care of these things. This is the long and short of it. It is a matter of eligibility.

You hang this on availability and you have a point. There is no question about that.

Mr. SMITH. Let me take a hog farmer. He feeds these hogs and he has pollution control problems greater than anybody else.

Mr. KLEPPE. Imposed by the Government.

Mr. SMITH. Imposed by the Government. And so he must invest a substantial amount of money to arrest that. He doesn't have any money available to him, any loans or anything else under Government programs, because you have excluded him because you say that he is a farmer and so he can't get it. Loans are not being made available by FmHA. But, now he takes the hogs and he sells them to a small packing plant, and they are going to process them. Now SBA will make money available. Does that make sense?

Mr. KLEPPE. They are business people in our book. Yes, they are small business.

Mr. SMITH. And so that part of the chain, then, is given the governmental help. I don't understand how you separate the two.

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