He has had broad experience as an attorney in helping to handle small-business problems. He is now a thriving small banker in Alabama of recent months. I think he has something that will be helpful to you, Mr. Chairman, in your work in conducting the hearing. Thank you very much, sir.

Senator CLARK. Thank you, Mr. Horne.

Mr. Wilbanks, we are happy to have you here. Will you proceed in your own way?

STATEMENT OF SIM S. WILBANKS, PRESIDENT, PEOPLES TRUST & SAVINGS BANK, GOODWATER, ALA.

Mr. WILBANKS. Thank you, sir.

Senator CLARK. Do you have a long statement there?

Mr. WILBANKS. No, sir, Senator. Mine is very short, in fact.
Senator CLARK. Good. You go right ahead.

Mr. WILBANKS. My name is Sim S. Wilbanks, and I am president and chairman of the board of directors of the Peoples Trust & Savings Bank of Goodwater, Ala. It is certainly a pleasure to appear before this committee this morning in behalf of the small-business measures designed to assist the small businesses of America.

I hope you will not be discouraged if I start with the frank admission that I am no expert on the manifold problems of small busi

But, as a small-town banker and a country attorney who has represented a number of small-business concerns and groups, I am vitally interested in them, and find myself dealing with them almost daily. I am quite familiar with many of the problems faced by our small businesses, and I know some of their vast complexities. So, while I cannot pose as an expert, I am hopeful, however, that my experience, limited though it has been to only certain of the issues of concern to small and independent concerns, will be of assistance to you as a part of a larger pattern in developing what steps can be taken to advance the position of small business in our economic life.

I am certain that I need not take up your time with a defense of our small-business community. As members of the Banking and Currency Committee you are certainly aware of the constructive and significant place of small business in our industrial democracy, and you know that, if properly nourished, this vital segment of our economy holds the key to a continued expansion in our standard of living. I feel that the story of small businesses in America, while maybe not as spectacular as that of big business, is largely the economic story of America.

As political leaders who daily observe and look into the business life of our Nation, I feel confident, too, that you are keenly aware that small business faces serious and very real problems in playing its rightful role in our economic state. You know, as all of us do, that small concerns find it difficult to obtain adequate financing, particularly on the same favorable rates enjoyed by their larger competitors. The inability of small firms to utilize the public securities markets and the lack of long-term lending sources have created a chronic capital-shortage for small business which slows their rate of economic growth, and, in some cases, even chokes them out entirely.

Too, all of us are aware, that by their very size, small concerns cannot possibly have in their employ the management technicians, procurement technicians, legal and financial counselors which are standard to their larger rivals. It seems to me imperative, then, that wherever appropriate, the Government should seek to redress this lack of balance.

I was pleased, therefore, that the Federal Government saw fit in 1951 to establish a separate independent agency to advise, assist and promote the welfare of small business. I feel that an independent executive agency has proven its worth to the small business. I appear today, therefore, in support of a continuation of the Small Business Administration. While I do not feel competent to testify as to how long a charter you should grant to such an agency, I do believe that much work remains to be done. In fact, I do not foresee the day when we can safely abandon vigorous support and assistance for our smallbusiness community.

I should also like to put in a plug today for title II of the Small Business Act providing an insurance scheme for loans to small business. I recognize that as currently operating many banks participate with the SBA in making loans to small business. It seems to me that this insurance scheme would serve as an inducement to many bankers to increase their percentage of loans to small concerns. The guaranteed-loan approach is a familiar one to mankers from FHA and VA. It has worked in these other areas, and I believe it might be a powerful incentive for a banker to extend the number of his small-business loans.

I am sure that you gentlemen, even if you are not bankers, are aware that the amount of research, investigation and administrative expense is as great for a small loan as for a large one. Expenses connected with servicing the small business loan can be even greater. I believe that it is possible that an insurance device would encourage some bankers to make a series of small loans instead of tying up their funds into a single large loan. It might well be that the insurance approach would make possible a small-loan package as attractive to the banker as the single, large one. At any rate, I am convinced that it is an approach deserving of exploration and trial.

Senator CASE. Mr. Chairman, I wonder if I could ask a question to clarify this.

You make the point, and I think it is undoubtedly correct, that a small loan takes as much investigation, costs as much for that purpose and servicing as a large one. I do not quite understand how you feel that insuring these loans would reduce that expense.

Mr. WILBANKS. It wouldn't exactly reduce it. But if it were insured, it would make it much more attractive. You would still have to go through that. But if you went through this with small business, those people would do part of the research for you, which is vitally necessary in making any loan, regardless of how small.

Senator CASE. Your thought is not that these loans would be made with less investigation and less care than if they were not insured, but rather that the cost of the investigation would be shared to a degree by the Federal agency.

Mr. WILBANKS. Yes, sir, that would be the assistance.

the other day, by some witness, that small businesses do not want to let stock be sold in their companies because the people in charge don't want to share the control. I just wonder whether it is equity capital we are talking about or a rather special kind of loans at a moderate interest rate, and perhaps even subordinate interest payable only if earned, and all that sort of thing, which would in effect be a kind of special assistance to small business. I am not at all sure that that kind of special assistance should not be given. My question is whether equity capital is what these people need, and if they do need that, whether providing loans to them would be really a service, or whether we ought to try to think of some kind of special equity capital that does not involve control, and authorize or make that one of the major points of this bill.

Mr. WILBANKS. I feel that they definitely need equity and working capital. And I feel that you people up here will impose those necessary safeguards so that this is not a giveaway program. None of us in the banking field want to pass off any bad loan on this investment company or investment companies. We feel that they have a measure of safety-but due to the very existence or due to the very rules of our bank we cannot help those fellows. And there is a definite need, there is a place for them in the community. But they just cannot come to us at the bank and get help from us.

Senator CASE. In other words, they need more capital than can be provided by the banking system as it exists today, and as it probably should exist. By the commercial banking system.

Mr. WILBANKS. Yes.

Senator CASE. My question is, broadly speaking, is the need for capital represented by fixed obligations or is the need for capital to be represented by a share in the business, so that it does not have to be paid if the business is not profitable. What is your judgment about this?

Mr. WILBANKS. I feel that they do need a place to get equity capital. I also feel that they need a place that they can go and get other types of financing as well.

I take the position, however-maybe I misunderstand you-but I don't feel that we should be any party to a giveaway. It is a loan.

Senator CASE. By that I take it you mean, when you say "loan," something to be repaid in dollars and at a fixed interest rate, and with a definite term of maturity, though it may be a long term.

Mr. WILBANKS. Yes.

Senator CASE. My question really is that I am trying to get guidance as to the degree to which particular kinds of capital, what kinds of capital, are the most necessary. Whether we ought to consider a special kind of loan, which insofar as its repayability is concerned, is very much like stock rather than a fixed obligation, though not carrying a vote, except maybe in certain circumstances-something like preferred stock, perhaps.

Mr. WILBANKS. That possibly would be helpful, that plan.

Senator CASE. I am not very articulate this morning, but what I am trying to get is your experience as to what people coming to you in the business you have known in your area in your judgment really need for the sound development of their business.

Mr. WILBANKS. Yes, sir. A small concern, a new concern, cannot come to my bank and get the help sometimes that it is entitled to. I would subject myself to a world of criticism from the banking department, and from the FDIC, for making a loan. Just last week I had a man with a $200,000 paid-in capital, paid in in cash. And I was criticized for making a loan to that concern. "Well, you don't know whether he is going to be in business." "No, I don't. And he didn't know how long I was going to be in business, either."

Now, that business concern is entitled to some assistance. I felt that he was going to make it. We could come to this investment company, investment bank, banking company, and make maybe a loan over a 5- or 10-year period. I couldn't do it over a 5- or 10-year period. Mine is temporary-in a small town. The smaller the town, the more temporary the loan.

Does that answer you, sir?

Senator CASE. I think you are being quite helpful indeed. I would like, if I could, to get a little bit more definite information-maybe the answers are not here--whether the greatest need of small business is for long-term loans or for equity capital, in your judgment.

Mr. WILBANKS. I think there is a need for both.

Senator CASE. Is there a preponderance of need for one as against the other in your experience?

Mr. WILBANKS. I am not in a position to say that. There is a very definite need for both. One business would need one thing and would want one thing, and the other one would need the other.

Senator CASE. What is your judgment as to this suggestion made to us the other day by some witness-that small business doesn't want to share control and therefore would not accept equity capital?

Mr. WILBANKS. I don't believe that to be true. I think that would vary with the applicant. Some concerns would entertain an idea of getting some help that way. They feel like it would be of great assistance to them. Others "This is my business and I want to borrow your money, and you stay out of it." It all depends.

Senator CASE. This would be true, would it not. If we conceived of this as an instrument for making large investments in capital stock, then there would have to be, I suppose, considerable supervision by the agency, as a stockholder would have to watch his investment.

Mr. WILBANKS. Yes. And the Federal Reserve is in an excellent position to take those precautions and to service an operation such as this.

Senator CLARK. I would like to call to Senator Case's attention that section 106 of the act we are discussing permits the national investment company not only to make loans, but also to buy stock.

Senator CASE. I know that is contemplated, and I was trying to get an idea of what kind of financial assistance is the most necessary and what were the implications of one kind as against another.

I noted with real interest your statement here that assistance by the investment companies would be largely to the realtively stable elements of the small-business areas, those corporations which do not rely exclusively on one mortal being. In other words, you would leave the single operation, the single man or family operation, largely outside, as you see it. What is your reason for that suggestion?

Senator CASE. And I take it, in addition, since the guaranty would be there, it would be a safer loan, and therefore more attractive on that score.

Mr. WILBANKS. Yes, sir.

Senator CASE. But that you do not feel that the investigation would be any less complete or the consideration any less careful than it is now.

Mr. WILBANKS. No, sir. You wouldn't want to waive that.

Senator CASE. I agree fully, and I just wanted to be sure. Thank you very much.

Mr. WILBANKS. I wish to reserve my warmest endorsement, however, for S. 2160, a bill creating new capital banks for the purpose of making long-term loans and for the purpose of investing in small, independent enterprises.

As a banker, I would welcome this new institution to our financial area. Again, let me emphasize that I do not pretend to be an expert on the details of this legislation. In reading it, I have readily seen that it is a pretty complex piece of legislation. I know that you have here in Washington experts who can answer your technical questions far better than I. I do want to discuss small-business financing with you in a general way, based on my personal experience and to leave with you my reasons for feeling that a bill of this sort would fill a very real need.

First, let me say that I see no conflict whatsoever between the proposed investment companies and the commercial banking system. This is a new program creating new financial institutions to make a type of capital investment which is not now being made. Commercial banking facilities, because of the requirements of demand deposits and existing banking law, simply cannot, do not, provide for this need. As I see it, the proposal reflects an extension of existing banking functions. In operation, it would make use of existing banks and through cooperation of the existing banking system with the investment companies provide a total service to the small independent concern.

I know from my personal experience how helpful it would be to have some place to forward loan applicants who desire and need a type of long-term loan or investment capital which we cannot provide. It would be a means for counseling small business on the type of financing most suitable for their requirements. As I see it, it would also be a means of providing management assistance and technical advice not now available to our small concerns.

In working with small business, I have observed how great their need is for adequate financing if they are to keep pace with their larger competitors. I have seen many small firms who are in dire need of long-term capital if they are to promote existing programs to their maximum efficiency. Many firms also require additional capitalization to promote additional lines which would supplement their existing operations. This need is for both long-term loans and equity capital and in many cases their primary requirement is for guidance as to which type of financing should be sought.

There are many cases in which the small firm must be relieved from the burden and uncertainty of expensive, short-term loans. This uncertainty is particularly depressing as many a small concern has