But there are special

Mr. ROBBINS. Regularly, once a month. meetings more frequently than that, and there are very many conferences between the scheduled meetings.

Senator CLARK. As I understand it, you do not pass on individual loans.

Mr. ROBBINS. Not at all.

Senator CLARK. Could you give us in a sort of thumbnail summary the type of matters which come before you, so we can have a little understanding of just what you do when you meet.

Mr. ROBBINS. If you will permit me to go ahead, I will try to cover that in this statement.

Senator CLARK. All right, go ahead.

Mr. ROBBINS. The National Board of Field Supervisors has about 900 members, and they meet in regional groups, so that the advice of men interested and active in small business at the grassroots level comes through the field advisers and to the National Board of Consultants, and from there to the Small Business Administration and the Loan Policy Board.

Senator CLARK. Are the members of the National Board of Consultants and I think you said there were 50 of them-selected from these regional groups?

Mr. ROBBINS. Well, I am not sure whether there is overlapping or not. But they do come from all over the country.

Senator CLARK. But there is no sort of hierarchy by which they meet in a regional group and then send a representative to the National Board in Washington.

Mr. ROBBINS. No, I think not. My understanding is that they do not. But their recommendations come directly and through the regional manager of the SBA.

Senator CLARK. You spoke of bank representation on the policy and advisory boards. Can you give us some idea of the extent of bank participation as opposed to small business. I realize a lot of banks are small business, but there is a little different philosophy between the banks and small-business men as to whether you should make a loan or not. I was wondering whether the advisory committee was unduly representative of the banking point of view.

Mr. ROBBINS. I do not have that breakdown. Mr. Barnes is expected to testify again before your committee, I understand, and he can give you all the information of that kind.

Senator CLARK. Will you go ahead, please?

Mr. ROBBINS. This method of obtaining such advice is in the opinion of the Treasury Department both proper and desirable. H. R. 7963, which has been favorably reported by the House Committee on Banking and Currency, would substitute for the present Loan Policy Board

a

National Small Business Advisory Boardconsisting of

the Administrator, as Chairman, Secretary of the Treasury, Secretary of Commerce, and not less than two nor more than six other individuals appointed by the Administrator who are familiar with small business needs and problems, and are truly representative of small business interests.

We do not believe that such a board could be effective in assisting the Administrator in the establishment of general policies in the public

interest or in the coordination of SBA activities within the Government.

Senator CLARK. Mr. Robbins, if you will excuse an interruption there, I would like to see whether we are in accord on this. The real' purpose, I would take it, of the House provision, would be to make the SBA Administrator completely independent, so far as decisions are concerned, from the Commerce and Treasury Departments, whereas continuation of the Loan Policy Board makes him in a sense dependent on the joint policy determination of those two departments. So the philosophical public administration question which we have before us is whether it is in the public interest to turn the SBA Administrator loose with only advisory opinions, or whether we should continue to have him pretty well controlled by the joint policy determination of Treasury and Commerce. I wonder if you would just give us a little of your thinking on that.

Mr. ROBBINS. Again, I will try to cover it in this statement, and I shall be more than glad to supplement it if this information is not enough.

It seems appropriate to make a few comments about the present Loan Policy Board, its philosophy, its approach to SBA problems, what it does and how its decisions are reached. The Board concerns itself solely with carrying out the statutory functions of establishing general policies, particularly with reference to the public interest and with reference to the coordination of SBA functions with other activities and policies of the Government. The Board does not supervise the administration of SBA nor take any part in its management or operations nor pass on any individual loan application. These functions are solely the responsibility of the Administrator.

In its interpretation of the public interest, the Board seeks guidance from the legislative history of the Small Business Act and from the hearings and reports of this and other committees interested in small business. When the agency was established, the Board agreed on a loan policy statement which defined the areas within which financial assistance, in its judgment, would be and would not be in the public interest. That statement, as new developments have occurred and conditions have changed, has been revised from time to time, always in the direction of increased flexibility. It has proved to be, as is should be, a fluid document.

In addition to the establishment of general policies in the public interest, the Board provides a liaison with the Departments of Treasury and Commerce and makes available to SBA the knowledge, experience and facilities of both departments and the benefit of studies and analyses of their technical staffs in the fiscal, economic and commercial fields.

Senator CLARK. Could I go back just a moment and ask you whether so far as the establishment of general policies are concerned, they are represented by this statement, which, as you point out, is constantly under revision. If we had that statement before us, would we have a pretty good understanding of the general policies which you speak of in your testimony and just what the Loan Policy Board does in that field?

(The Loan Policy Board statement, and amendments, follows:) SMALL BUSINESS ADMINISTRATION, LOAN POLICY BOARD

LOAN POLICY STATEMENT

(Revised as of December 31, 1955)

I. INTRODUCTION

This General Policy Statement is established by the Loan Policy Board of the Small Business Administration pursuant to Section 204 (d) of Public Law 163, 83rd Congress (Small Business Act of 1953), as amended by Public Law 268, 84th Congress, 1st Session. It sets forth the principles and policies which will be followed by the Small Business Administration in the granting and denial of applications by small-business concerns for financial assistance. It is not intended that this General Policy Statement provide answers to all questions which may arise in connection with specific applications. This General Policy Statement supersedes the Consolidated Loan Policy Statement dated August 16, 1954 (19 F. R. 5440).

II. BUSINESS LOANS

Basic Principles Governing the Granting and Denial of Applications for Financial Assistance.

A. Applications for financial assistance may be considered only when there is evidence that the desired credit is not otherwise available on reasonable terms. The financial assistance applied for shall be deemed to be otherwise available on reasonable terms, unless it is satisfactorily demonstrated that— 1. Proof of refusal of the required credit has been obtained from(a) the applicant's bank of account,

(b) if the amount of the loan applied for is in excess of the legal lending limit of the applicant's bank or in excess of the amount that the bank normally lends to any one borrower, then a refusal from a correspondent bank or from any other lending institution whose lending capacity is adequate to cover the loan applied for, and

(c) not less than two banks in cities where the population exceeds 200,000.

Proof of refusal must contain the date, amount, and terms requested, and the reasons for not granting the desired credit.

Bank refusals to advance credit should not be considered the full test of unavailability of credit and, where there is knowledge or reason to believe that credit is otherwise available on reasonable terms from sources other than such banks, the credit applied for cannot be granted notwithstanding the receipt of written refusals from such banks.

2. The funds required do not appear to be obtainable on reasonable terms through the public offering or private placing of securities of the applicant. 3. The funds required do not appear to be obtainable through the disposal at a fair price of assets not required by the applicant in the conduct of its existing business or not reasonably necessary to its potential healthy growth.

4. The funds required do not appear to be obtainable without undue hardship, through utilization of the personal credit or resources of the owner, partners, management, or principal shareholders of the applicant.

5. V-loan, or other applicable Government financing, is not available to the applicant.

B. All loans made shall be of such sound value or so secured as reasonably to assure repayment. No such loan shall be made unless there exists reasonable assurance that it can and will be repaid pursuant to its terms. Reasonable assurance of repayment will exist only where the loan is of sound value, or is adequately secured in the judgment of the Small Business Administration. It will be deemed not to exist when the proposed loan is to accomplish an expansion which is unwarranted in the light of the applicant's past experience and management ability, or when the effect of making the loan is to subsidize inferior management.

C. It is the policy to stimulate and encourage loans by banks and other lending institutions.

1. An applicant for a loan must show that a participation by a bank or other lending institution is not available; no immediate participation may be purchased unless it is shown that a deferred participation is not available.

2. Agreements by the Small Business Administration to participate in any loan on a deferred basis shall not obligate the Administration to advance in excess of 90 per cent of the balance of the loan.

3. No agreement to participate shall establish any preferences in favor of the bank or other lending institution participating in the loan with the Small Business Administration.

D. Financial assistance will not be granted by the Small Business Administration:

1. If the direct or indirect purpose or result of granting such assistance would be to

(a) pay off a creditor or creditors of the applicant who are inadequately secured or are in position to sustain a loss, or

(b) provide funds for distribution or payment to the owner, partners, or shareholders of the applicant, or

(c) replenish working capital funds theretofore used for either of such purposes:

2. If the direct or indirect purpose of the result thereof would be to effect a change in ownership of a business:

3. If the financial assistance will provide or free funds for speculation in any kind of property, real or personal, tangible or intangible;

4. If the applicant is an eleemosynary institution;

5. If the purpose of the loan is to finance the construction, acquisition, conversion or operation of facilities which are or will be used for recreational or amusement purposes; provided, however, that this subparagraph shall not prohibit financial assistance for such facilities when they are or will be incidental and appropriate to the business of the applicant:

6. If the applicant is a newspaper, magazine, radio broadcasting company or television broadcasting company or similar enterprise;

7. If any substantial portion of the gross income of the applicant (or of any of its principal owners) is derived from the sale of alcoholic beverages; 8. If any part of the gross income of the applicant (or of any of its principal owners) is derived from gambling purposes;

9. If the loan is to provide capital to an enterprise primary engaged in the business of lending or investment;

10. If the effect of the granting of the financial assistance will be to encourage monopoly or will be inconsistent with the accepted standards of the American system of free competitive enterprise.

III. TERMS AND CONDITIONS OF LOANS

A. Maturities: The maturity of each loan shall be restricted to the minimum consistent with sound business practice.

B. Charges and interest:

1. Charges. In deferred participation loans (those made by bank in which Small Business Administration has entered into an agreement with the bank to purchase thereafter a participating share in the loan), a participation charge shall be payable by the bank to Small Business Administration for the latter's agreement to purchase a share in the loan. The participation charges shall be on a sliding scale, depending upon the percentage of the loan which Small Business Administration is obligated to purchase. Such participation charges, which shall not be reimbursable by borrower, shall be as follows:

(a) for an amount not in excess of 50 percent of the loan, 1 percent per annum on the portion of the loan which Small Business Administration is obligated to purchase;

(b) for an amount in excess of 50 percent of the loan, but not in excess of 75 percent of the loan, 11⁄2 percent per annum on the portion of the loan which Small Business Administration is obligated to purchase; and

(c) for an amount in excess of 75 percent of the loan but not in excess of 90 percent of the loan, 2 percent on the portion of the loan which Small Business Administration is obligated to purchase.

2. Interest. (a) Deferred and Immediate Participation Loans: Except as provided in subparagraph 2c hereof, interest on all loans in which the

Small Business Administration participates with a bank or other lending institution, whether the participation is on a deferred or immediate basis, and whether in the first instance the bank or the Small Business Administration makes the loan in which the other purchases an immediate participation, shall not exceed 6 percent per annum, fixed by the bank or other lending institution if not disapproved by the Small Business Administration.

(b) Direct loans: Except as provided in subparagraph 2c hereof, interest on all direct loans which may be made by the Small Business Administration shall be at the rate of 6 percent per annum, except as may be otherwise required by reason of the provisions of the Servicemen's Readjustment Act of 1944, as amended.

(c) Interest on construction loans which may be made or participated in by the Small Business Administration to group corporations shall be at the rate of 5 percent per annum.

IV. LIMITED LOAN PARTICIPATION PLAN

Limited participation loans are authorized for maturity of not more than 5 years with a monthly repayment schedule including interest at the rate of not more than 6 percent per annum with the following limitations:

A. The share of the Small Business Administration participation in any such loan shall not exceed $15,000 or 75 percent of the total amount of the loan whichever is the smaller.

B. The bank shall participate to a minimum of 25 percent of the total amount of the loan which participation shall be composed of new exposure by the bank, provided that there may be included in computing the participation percentage of the bank any short-term loans or long-term loans on which payments have been made according to the original schedule if the bank participates to the extent of its present exposure and if, in the case of a short-term loan, it has been outstanding not more than 6 months.

C. Emphasis shall be on the repayment ability of the borrower as determined from the record of past earnings.

D. All such loans shall be secured; however, the participating bank shall be responsible for obtaining the pledge of collateral as well as determining the adequacy thereof. Security may include, but shall not be limited to, mortgage on real or personal property, assignment of accounts receivable or monies due on contracts, pledge of warehouse receipts, negative pledge agreements, and corporate guaranties or personal endorsements.

E. Except as provided in this Section, all other provisions of this Loan Policy Statement shall apply to loans considered under the Limited Loan Participation Plan.

V. DISASTER AND DROUGHT LOANS

A. Disaster and drought loans will be considered on an individual basis in the light of circumstances of the applicant and of the particular flood, drought, or other catastrophe. Such loans will be made to relieve the distress and hardships attendant upon the disasters.

B. Interest on the Small Business Administration share of disaster and drought direct and participation loans shall be at the rate of 3 percent per

annum.

C. Agreements by the Small Business Administration to participate in disaster and drought loans on a deferred basis shall not obligate the Administration to advance in excess of 90 per cent of the balance of the loan.

D. In deferred participation loans to disaster or drought victims, the participation charge payable by the bank to the Small Business Administration shall be 4 per cent per annum on that portion thereof which the Small Business Administration is obligated to purchase.

Approved by the Loan Policy Board of the Small Business Administration: