and proper development to a considerable extent during World War II when a great industrial expansion was undertaken as the united effort of all of our people. However, it has continued since the war. Our risks have continued

to grow, as they must with the growth in the volume of enterprise, but by our efforts to escape them as individuals or small groups, we have assembled more and more of them in the national public debt where we hope they will somehow cease to plague us, or cancel one another out, or in any event, await the coming of future generations for their settlement.

Where the Government lends to fill such a credit gap as this, it is assisting unsuccessful competitors. The risks are the normal risks of conventional lending. But, in addition, the Government assumes responsibility for launching the projects which the borrowers could not launch through their own contacts in the private economy, and it does so without curing the defects which stood in the way.

When loans are made to business enterprises under these circumstances, the borrowers and their business associates are assisted in their competition with others who do not have the backing of the Government. This raises in each case the question of whether the general public gains more benefit from helping the otherwise unfortunate loan applicant than it loses by hindering his otherwise more fortunate competitor. It is not possible for the Government to assist one competitor without placing handicaps in the path of another.

The principal cause of business failures appears to be poor management and not lack of credit. Dun & Bradstreet, Inc., in classifying failures in 1955 listed incompetence as the underlying cause of 49.4 percent of all failures for that year, followed by unbalanced experience in 16.2 percent of the cases; lack of management experience in 15.3 percent; lack of experience in the industry in 10.4 percent. Thus 80 percent of the failures of business concerns in that year were due to incompetent or inexperienced management.

We are not cognizant of any recent developments that would cause us to change our position taken before this committee in 1953 and again in 1955, that there was no demonstrable need for the creation of a Government agency such as the SBA in the first instance nor for its continuance. The banks and other private lending institutions of this country have demonstrated clearly their readiness and ability to supply the justifiable credit needs of business enterprises, small as well as large.

The reports of the lending activity of the SBA indicate that the costs to the taxpayers of this activity are far out of proportion to the benefits received by the small number of businesses that borrow from the SBA.

Other reasons why we believe that the lending function of this agency should not be continued are (1) that the funds to be employed are raised by taxation of all citizens and used for the benefit of a selected group; (2) such Government financing is conducive to making loans in many cases to poorly managed or marginal producers who, as a result, are kept alive in uneconomic competition with other well and soundly managed small-business concerns; and (3) the existence of such financing authority in a Government agency places the Government in a position of being able to dictate to whom credit is to be extended, for what amount, and for what purpose.

Most of the other functions of the Small Business Administration could appropriately be transferred to the Department of Commerce where they could be carried out just as effectively and at less expense to the taxpayer. The Department of Commerce is already staffed in Washington and in the field with personnel qualified to carry out a program of this character. In fact, the Department has long spon

sored programs designed to meet the need for better management and higher standards of competency in the field of small business.

We are in sympathy with Federal aid to small businesses suffering loss from natural disasters, but we do not believe that it is appropriate to lodge a disaster-loan program in the SBA which was set up to make business loans to small enterprises. It is within the jurisdiction and wisdom of Congress as to what other Government agency should be charged with furnishing this assistance.

The Small Business Administration should not be made permanent, as proposed in several of the bills before your committee. If Congress determines that this agency should be continued it should be for only a temporary period. We believe it desirable that Congress review from time to time the activities of the SBA, to determine if there is further need of such an agency and if so, what changes should be made in its programs and methods of operation. While it is recognized that Congress may conduct a review of the activities of any governmental agency at any time it sees fair to do so, a definite statutory termination date would assure such at review. We also believe that, if the Congress does continue the SBA, the Loan Policy Board should not be eliminated as is proposed in several bills before this committee. This board, in our opinion, has performed effectively and has served a valuable purpose.

I wish to thank the committee for this opportunity to present the views of the American Bankers Association.

And further, we would like to request permission to file a supplement to this report, due to the fact that the Multer bill was only introduced this week and we have not had an opportunity to make a study of it.

We further understand that Mr. Patman proposes to file a bill somewhat along these lines which has, as I understand it, not even been presented yet.

So we would request permission, Mr. Chairman and members of the committee, for the privilege of filing a supplemental statement. The CHAIRMAN. You have that permission.

(The supplemental statement referred to was not submitted in time to be included in this print.)

The CHAIRMAN. Mr. Maxwell, are there already restrictive provisions in the national banking laws that would make it difficult for the banks to furnish the needs of small business?

Mr. MAXWELL. I don't think so.

The CHAIRMAN. You are not suggesting anything along that line? Mr. MAXWELL. I think the national bank laws are adequate. We think we are doing a good job in supplying the needs of small business. Of course, I come from a small country bank. All the loans that we make are to small business. Our total loan limit to any one borrower is $50,000, Mr. Chairman, and that, of course, is small business. All of our loans are in that category.

We have no complaints to make with reference to the national bank laws.

The CHAIRMAN. Do not a good many of the new small businesses fail because they have not established the credit line of old businesses? Aren't they at a disadvantage with a business that has been established for a long time and has an established credit line?

Mr. MAXWELL. Of course, every new business has to struggle for its growth, just the same as a human being does. A baby has to be nourished and a boy of 15 years has to be taken care of and when he gets to be 25, he can pretty much stand on his own feet. I liken human experience to that of small business. Business starting out, of course, has sudden problems, problems of growth, but primarily the difficulty with new business seems not to be the lack of capital but rather lack of proper management.

The CHAIRMAN. You think that is the greatest cause of failure— lack of proper management?

Mr. MAXWELL. Yes.

The CHAIRMAN. Mr. Talle.

Mr. TALLE. No. questions.
The CHAIRMAN. Mr. Multer.

Mr. MULTER. What is the capitalization of your bank?

Mr. MAXWELL. $200,000.

Mr. MULTER. I think you have already said the maximum amount your bank can lend to any one person or firm is $50,000?

Mr. MAXWELL. That is right.

Mr. MULTER. How many banks

Mr. MAXWELL. The surplus is $300,000.
Mr. MULTER. The surplus is $300,000?

Mr. MAXWELL. Yes. That makes the $500,000, and 10 percent is the $50,000.

Mr. MULTER. Therefore, the maximum you can lend to any one person is 10 percent of your total capital structure, or $50,000?

Mr. MAXWELL. That is the general rule. There are certain exceptions in the national bank law.

Mr. MULTER. Has your bank ever made a loan in excess of $50,000 to any one person, firm, or corporation?

Mr. MAXWELL. Not knowingly.

Mr. MULTER. I am not trying to indicate you have violated the law. I am trying to find out if the exception has ever been availed of by your bank?

Mr. MAXWELL. There are certain exceptions which the national bank law permits.

Mr. MULTER. Yes.

Mr. MAXWELL. And we have exercised privileges under those exceptions on occasion. We have also made loans in excess of $50,000 and participated in the excess on other institutions.

Mr. MULTER. How many banks are in Biddeford, Maine, where your bank is located?

Mr. MAXWELL. There are 2 commercial banks and 2 savings banks. Mr. MULTER. Is the other commercial bank a State bank or a national bank?

Mr. MAXWELL. A State bank.

Mr. MULTER. What is the limit of its lending power in any one instance?

Mr. MAXWELL. Under our Maine banking laws, the bank is permitted to lend 10 percent of its undivided profits as well. That is not the case with the national bank law and that is around $60,000 to $65,000, as I recall it.

Since World War II, commercial bank lending practices such as term loads, accounts receivable financing, installment repayment equipment loans, field warehousing financing, and consumer installment financing have been particularly significant from the standpoint of small-business concerns.

Term loans, by making credit available for a period of 1 to 5 years or longer, have enabled many small and medium-sized businesses to finance the purchase of facilities, equipment, and machinery with funds, the repayment of which is more closely related to the life of the asset acquired.

Greater availability of accounts receivable credits, installment repayment equipment loans, and field warehouse financing, by broadening the categories of acceptable loan collateral, has provided a broader base for small businesses to obtain credit. The further spread of consumer installment financing and personal loans has provided some very small business concerns, the majority of which are unincorporated, with sources of short and intermediate-term credit.

According to a survey of business loans of Federal Reserve member banks conducted by the Board of Governors of the Federal Reserve System in October 1955, the member banks had outstanding on October 5, 1955, credit to business totaling $31.6 billion. This total amount of business loans outstanding was 21/3 times as large as in 1946 and the number of loans was twice as large.

The survey also showed that most individual business loans of member banks were to borrowers with relatively small total assets. Almost one-half of all business loans were to concerns with assets of less than $50,000 and 4 out of 5 were to concerns with assets of less than $250,000.

Moreover, the survey disclosed that term loans accounted for 34 percent of a member bank business loans outstanding in October 1955, and further, that the relative importance of term borrowing by small enterprises had increased substantially since 1946. For those concerns with assets under $50,000, the ratio of term loans to total bank borrowing had risen from 29 to 41 percent.

ness.

The findings of this survey indicate that banks and other private institutions have been meeting the credit requirements of small busiSuch information as is currently available supports the conclusion that the proportion of bank loans to small business, both as to volume and type of loans, has not materially changed from that shown in the Federal Reserve Board survey.

Furthermore, the number and amount of business loans approved by the Small Business Administration from its inception through December 31, 1956, are so small relative to the number and amount of bank loans to small businesses during this period that serious doubt is raised as to whether a sufficient demand for credit exists outside of the banking system to warrant the continuation of the business lending program of the Small Business Administration.

There are more than 4 million small-business concerns in the United States: Consider the fact that according to its seventh annual report, the Small Business Administration from its inception through December 31, 1956, had received 13,025 loan applications, had approved 5,610 applications, and had initiated disbursement of only 3,606 loans. In other words, the SBA was making loans to nine one-hundredths of 1 percent of the small-business concerns in the Nation.

A recent news release by the SMA Administrator shows gross total loans approved by SBA since the start of its lending program, September 22, 1953, through April 22, 1957, to be 5,896 business loans for $278,534,000.

On the other hand, the 1955 Federal Reserve Board survey disclosed that member banks had more than 608,000 business loans outstanding to concerns with assets of less than $50,000 in a total amount of approximately $1.7 billion and more than 469,000 loans to concerns with assets between $50,000 and $250,000 in a total amount of approximately $4.5 billion, making a total of over 1 million loans aggregating over $6 billion to the business concerns in these 2 size categories.

Comparison of these figures with those of SBA further illustrates the minor role this agency plays in our economy-a role which entails a substantial financial cost to the taxpayers and some economic cost to well-established and soundly operated small-business enterprises which may suffer from uneconomic competition of marginal operators who have been enabled to continue in business through SBA financing.

On the matter of costs to the taxpayers, it would appear from SBA figures that the cost of processing each loan application has been approximately $784. This figure, of course, would be considerably higher on loans made.

Not only is it costly for the SBA to "put a loan on the books," but the subsequent servicing, which may involve reviewing requests for resetting repayment schedules, extensions of maturities beyond the original terms and passing on secondary loan applications to bulwark the original loan, all add to the overall costs of the business-loan program. The cost of liquidation of defaulted loans and of curing. delinquencies should not be overlooked.

It is disclosed in the 7th semiannual report of the SBA that 78 loans are in liquidation status and 64 have payments due which are delinquent in excess of 60 days. It is indicated that, by reason of inadequate collateral, liquidation actions have thus far resulted in the charge-off of $70,224 of principal on three loans; but, should the economic cycle move downward, the charge-offs could become substantial.

Attention is called to the 1952 report of Joint Committee on the Economic Report in the 2d session of the 82d Congress concerning the monetary policy and management of the public debt. The following quotation is an excerpt from a joint reply made by the presidents of the twelve Federal Reserve Banks in response to the Committee's inquiry as to the availability of capital for small business. It appears in part II, page 795, of the report. It is an opinion from a competent authority which merits careful evaluation.

We believe that the establishment of additional governmental facilities on the national level to provide capital or credit, or guaranties, for small business would not be necessary or desirable. The establishment of additional agencies to provide capital or credit, or guaranties, for small business would, in fact, tend to be harmful in the long run to the American enterprise system and the public welfare for the following reasons.

1. Such agencies are unlikely to have the intimate knowledge of all aspects of the affairs of individual businesses that is needed to enable them to provide the type of service, supervision, guidance, and counsel appropriate to protecting the investment and providing management aid.

2. Those making the final decisions bear no risk and are not penalized for their errors of judgment.