Mr. FINE. Mr. Chairman, on December 31, 1959, there were 61 companies licensed and 44 notices to proceed that were outstanding at the time. That is, the initial papers were processed, and we were waiting for applications for licenses.

On December 31, 1960, there were 175 licenses that had been issued, and 99 notices to proceed outstanding.

On July 27, the close of business last Friday, there were 328 licenses. There were 131 notices to proceed outstanding.

As of last Friday afternoon we had received a total of 620 proposals since the start of the program.

Senator PROXMIRE. So that in every respect the expectation is that the program is going to move ahead under the present act? That is, you now have 328 SBIC's. You have 131-what was the category? How did you describe it?

Mr. FINE. Notices to proceed.

Senator PROXMIRE. Which is more than you have ever had before? At least it is more than you had on the dates you gave me?

Mr. FINE. No, sir; because in May of this year there were 144 notices to proceed outstanding. In June there were 133.

There is a timelag in between the issuing of the notice to proceed and the filing of the application papers. That figure would fluctuate somewhat. The licensee figures increase.

Senator PROXMIRE. What is the amount of equity capital furnished by SBA to date?

Mr. FINE. Again as of July 27, in section 302 (b) funds-that is the subordinate debentures-the Small Business Administration had committed $39 million. We had actually advanced as of that date $18.5 million in subordinate debentures.

There was a potential section 303 borrowing of $129 million, 50 percent of the total capital in the program, and actually advanced on July 27 were $12.7 million, or a total between the two of $31.2 million actually advanced and another $20.5 million committed but not advanced.

Senator PROXMIRE. What is the amount of long-term loans furnished by SBA?

Mr. FINE. That would be the figure I gave before, $39 million committed and $18.5 million actually advanced.

Senator PROXMIRE. I see. Reconcile all that with the statement of the Administrator where he says: "The amount so authorized for this purpose under the existing provisions of section 4 (c) is $250 million." Then he goes on to say that loans or investments outstanding against the $250 million limitation would total approximately $186 million, leaving a balance of $64 million.

You go on to say if this bill is passed you are going to need another $150 million authorization.

Mr. HORNE. Mr. Chairman, Keith Hanna is the budget person. He might review that satisfactorily.

Mr. Hanna, will you explain that?

Mr. HANNA. Mr. Chairman, outstanding on June 30, 1961, we had a total of $81.9 million.

Senator PROXMIRE. Say that again?

Mr. HANNA. As of June 30, 1961, we had a total of $81.9 million outstanding against the $250 million authorization. We have estimated

Senator PROXMIRE. You had $81 million outstanding against the $250 million of authorization? All right. Go ahead.

Mr. HANNA. This includes not only section 302 and section 303 loans but also includes the State and local development company loans. Senator PROXMIRE. All right.

Mr. HANNA. It is estimated on the basis of the recommendations contained in this legislation that during the current year, fiscal year 1962, we would have a total of $219.5 million in additional commitments for debentures, loans, and State and local development company loans, and that there would be repayments during the year of $3.3 million, leaving outstanding next June 30 $298 million.

I might comment, Senator, of course, that as you know we have very little experience as yet to go on as to the extent to which the section 303 loans, for example, will be requested by the small business investment companies. A potential commitment over and above the $298 million would be probably in excess of $200 million for which we could be called upon in the form of section 303 loans by the small business investment companies.

Senator PROXMIRE. This all assumes that this legislation or legislation similar to it is passed?

Mr. HANNA. Yes, sir.

Senator PROXMIRE. I see.

I would like to get back to Mr. Horne to see if I understand exactly how this is going to work out.

At the present time I understand that if an SBIC is formed with minimum capital of $150,000 they can get $150,000 of Government funds, SBIC funds.

Mr. HORNE. They get $150,000 in the form of subordinated debentures. Then they may borrow another $150,000.

Senator PROXMIRE. Then they can borrow 50 percent of capital and surplus, which is another $150,000?

Mr. HORNE. Yes, sir.

Senator PROXMIRE. Meaning the SBIC can get $2 of Government money for every dollar of private money if they are of minimum size? Mr. HORNE. Yes, sir.

Senator PROXMIRE. However, under the present law, as they grow and put in more private money their ratio of public money diminishes? Is that correct?

Mr. HORNE. That is right, sir.

Senator PROXMIRE. In other words, there is a flat limit on how much they can borrow from the Federal Government in long-term loans? Mr. HORNE. There is a limit, Mr. Chairman, in the subordinated debenture provision of the act.

Senator PROXMIRE. There is what?

Mr. HORNE. There is a limit as to what they can get from the Government for the subordinated debentures.

Senator PROXMIRE. Subordinated debentures; that is right.

Mr. HORNE. In the subordinated debentures part (sec. 302) of the act. But in the other part of the act (sec. 303) there is no limit. Senator PROXMIRE. I understand. The limit is $150,000 of subordinated debentures they are able to get?

Mr. HORNE. Yes, sir.

Senator PROXMIRE. Under the proposed legislation that would be increased to $1 million?

Mr. HORNE. Under the proposed legislation; yes, sir.

Senator PROXMIRE. A million dollars?

Mr. HORNE. Yes, sir.

Senator PROXMIRE. In addition, there would be more Government money potentially coming in that way.

Under the present law there is a limitation of 50 percent on capital and surplus they can borrow, but no dollar limitation?

Mr. HORNE. That is right, sir.

Senator PROXMIRE. And under the proposed legislation that would be increased to 100 percent?

Mr. HORNE. Yes, sir.

Senator PROXMIRE. And you propose a dollar limitation of $5 million? Is that correct?

Mr. HORNE. Yes, sir. I propose that with reference to the first part of your question that the Government's maximum on a dollar-fordollar matching basis be $500,000 instead of $1 million.

Secondly, I propose that, instead of increasing the lending authority from its present 50 percent to 100 percent of that amount, that the present legislation stay in effect at 50 percent instead of going up to 100 percent.

Senator PROXMIRE. Thirdly, you propose a $5 million limitation? Mr. HORNE. Thirdly, I propose that the limit any one company could borrow from the Government would be $5 million.

Senator BENNETT. Does that $5 million include the subordinated debentures?

Mr. HORNE. No, sir.

Senator BENNETT. That is apart from that?

Mr. HORNE. Yes, sir.

Senator PROXMIRE. What is the largest loan you have made so far? Mr. HORNE. Mr. Fine.

Mr. FINE. Mr. Chairman, we have committed a $3 million loan to a company in Florida. We have actually disbursed under that loan $1.5 million.

Senator PROXMIRE. Have you had applications for large loans that you have had to reject?

Mr. FINE. No, sir, that is the largest application we have had. Senator PROXMIRE. Is it your experience that there is a need, that there is a desire, a wish to be able to exceed this 50 percent limitation? Mr. FINE. I think the answer to that is that there is probably a desire on the part of the companies to get the 100 percent. But in the opinion of the administration the 50 percent is adequate when you add it to increasing the 302 funds to $500,000.

Senator PROXMIRE. I have asked you questions on how much Government money is involved. How much is in this whole program of Government and private funds? How big a program has it become? Mr. FINE. Senator, let me answer that by doing it in two parts.

I indicated that there were notices to proceed outstanding. We have received as of July 27, 620 proposals for licenses. Those 620 proponents stated there would be a total investment in the program, including everything, of

Senator PROXMIRE. First, how much is in the program right now? Mr. FINE. There is presently in the program $258.2 million in capital and subordinate debentures and $12.7 million in section 303 loans. Senator PROXMIRE. $258.2 million private and public funds all together? This is the whole program?

Mr. FINE. Plus $12.7 million.

Senator PROXMIRE. About $270 million?
Mr. FINE. Yes, sir.

Senator PROXMIRE. I see. Now, go ahead.

Mr. FINE. What I wanted to point out, sir, was that the 620 proponents indicated there would be a total capital of $237.2 million in their original papers filed with the Small Business Administration, and they indicated that out of the total capital $78.9 million would come in the form of subordinate debentures.

Actually, as the licenses have been issued-and we have issued as of July 27, 328 licenses-there are $258.2 million, of which $39 million was in subordinate debentures either committed or disbursed by the Government. So in fact, as the companies become licensed, there are more private funds being put in and less Government funds than originally stated in their proposals.

Senator PROXMIRE. We have two conflicting forces here. I am sure that Members of Congress and members of the business community too would like to limit the Government funds as much as they can, but at the same time they would like this program to go ahead. The simplest axiom of financial success is leverage. The simplest principle I should say is leverage. If you are going to make money you have to be able to borrow money at a moderate rate and be able to get a greater return and be able to use other people's money. If we do not have that kind of incentive, we would not really have a big program that is going to help small business very much.

The bill provides money quite generously and at the same time provides a kind of incentive that should interest the financial people who understand this principle and who have money and are looking for profitable investments, but would not make one unless there were a sufficiently attractive leverage opportunity so that they feel they can expect a good substantial return.

Is there any way that you gentlemen see that we can reconcile this situation?

We do have certain tax advantages in the law, other advantages perhaps, but we are all very much concerned about the necessity for keeping Government commitments, loans or expenditures, as low as possible, especially now with the Berlin crisis and so forth.

You are aware of my attitude and the attitude of other members of the committee on keeping the SBA authorization as low as we can. How can we meet this problem and at the same time encourage this program to move ahead as rapidly as possible?

Mr. HORNE. Well, Mr. Chairman, of course you pose a very fundamental question about the entire program. It is a new program, as the committee knows. It has a great potential. It has a great

potential because of the inducements for persuading more and more private money to come into it.

If we want to encourage to the maximum more and more private money coming into it, we believe that the legislation as we have recommended it is about as far as we can go, keeping in mind that we want to induce private money and at the same time we want to show that we are aware of our budgetary problem.

Naturally, if we went as far as the bills themselves call for, that would be a great deal more leverage than we are recommending and a great deal more inducement for private money to come into it.

It just depends on what you think. And so far we have not had sufficient experience to do more with this program than to guess to some extent. It just depends on how far we think we need to go now, keeping in mind the budget situation and then at the same time offering enough inducement and enough encouragement to private funds to come in and make this program the workable potential program as a source of financing, long-term financing and equity financing of small business, that we believe it can be.

We believe that this program actually, provided we can keep up with it, give it the proper encouragement, stay on top of it so far as supervision is concerned, can come to the small business community and help fill their needs in somewhat the same fashion that the savings and loan associations fill the needs of people who want to buy housing. At the same time, I think we can do it in the long run with a minimum of Government funds and a maximum of private money. Senator PROXMIRE. Let me be specific. I think that is a a good answer, but I am concerned with two parts of this. I see your position. I am inclined to sympathize in both cases.

But at the same time I think we have to do everything we can to encourage this program to move ahead and commit as little Government money in doing so as we can.

You see, you recommend against permitting investment in long-term obligations by the small business investment companies, and you have a good reason for it; but that is just another restriction.

I am referring to your paragraph on excess funds.

You believe that currently unused funds should not be frozen into long-term investments and thus made unavailable, when the opportunity for lending to and investing in small businesses arises.

The second point is, you are somewhat discouraging stock options. I do not like stock options either. But you do have a situation where this is very attractive to executives and others for whose offices there is competition. If you are going to restrict them in these two ways do you not slow down the program or require more Government money to get an equal effect?

Mr. HORNE. Well, Mr. Chairman, as regards long-term investments, one reason that we took the position there that we did is that the major purpose of this act, if I understand it correctly, is to get funds into the hands of small business companies-that is, small business borrowers. It seemed to us that by permitting this long-term investment it wuold turn out that small business investment companies themselves might tend to put their funds here instead of getting them out into the hands of the small business borrower.