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recall, passed an amendment to the Small Business Administration Act here a few weeks ago, and that bill was signed by the President about 2 weeks ago, I don't recall the exact date.
I had arranged to hold a series of conferences in southeast Missouri and had asked the regional director of the Small Business Administration to come to that area to explain the new regulation and the qualifications necessary to obtain loans from the Small Business Administration.
Those meetings were held this week on Tuesday and Wednesday. There is a tremendous amount of interest in that type of loan for small businesses that have been caught in a squeeze due to the fact that the credit, which they extended last year to farmers to help make their crops, the farmer just did not get any money, he could not pay off.
If all of these businesses were eligible for small-business loans and with the Farmers Home Administration adopting the policy that they have, we could get along very well, but, unfortunately, many of these small businesses are not large enough to qualify for a smallbusiness loan. I am thinking, particularly, of the crossroads grocery, the blacksmith and repair shop, the fellow who distributes bottled gas, the fellow who sells fertilizer, the business which has extended credit in a small way but for the most essential operations of any. one engaged in farming.
Mr. Poage. May I break in there? Those business people are not able to make the application required by the Small Business Administration, are they?
Mr. Jones. They do not have the facilities to do that. They are small business.
Mr. Poage. What do you estimate the cost of making application to the Small Business Administration is?
Mr. Jones. Well, I had experience with one business down there. A fellow started in more than a year ago to try to get a small-business loan, and during the Christmast holidays he had been turned down in the regional office; he had been turned down in the Washington office. Then he had reapplied and they were going to take his application, but they were requiring another audit. And he told me, he said:
Well, the thing about it is I have spent over $700 already with having audits, for legal services in getting this application prepared. And he said:
I don't know whether I want to put another $200 or $300 into this application without any more assurance of getting a loan, than I have at present.
He did go ahead, he spent the other $200. So he had close to $1,000 in the expense of getting this small-business loan.
The type of business I am talking about is the fellow where he might have outstanding accounts of $2,500 or $3,000 or $4,000, which means that that is the thing that determines whether he is going to stay in business or whether he will be out of business. He may be the fellow at the crossroads that runs a little blacksmith and welding outfit. He welds machinery. He makes adjustments on tractors and things liks that, but he has to get somebody to give him some credit to buy these parts. Last year he got all of the credit he could from every place he could, but he has exhausted his credit.
from the representative from Washington, who was in southeast Missouri with the area supervisor. He is a ginner. He says:
Mr. Slack, who was representative of Farmers' Home Administration, said that from the information he has received from me and others in this area that he realized there was a need for some help in addition to what they were now doing. At the same time he said that in other disaster areas in years past they had never done anything about open accounts, and wondered how far the thing would go if it was started here. He also has his doubts as to how the program could be administered.
Then this man operates an implement and tractor place. He said:
“We were just in many areas completely wiped out,” and the need for the credit. This man is a seed and grain dealer and operates a gin. He said:
I have made it clear to their representative that in my opinion the only solution to the problem now facing our farmers was a capital loan over a period of from 3 to 7 years, allowing them to consolidate both their secured and open indebtedness on an individual basis. This is the same view that I expressed in a letter to the local Farmers' Home Administration office on June 18, 1957, and the situation is much, much worse than it was at that time.
Incidentally, Mr. Smith made two trips down to southeast Missouri. One was in the spring, after the spring rains and we thought we were in trouble, and then he made another one back there in the fall when we were in still worse trouble, because we could not get the small crop out after we had gotten it planted.
After I got back to Washington, I talked to Kenneth Scott, down in the Department, and without committing himself of course-I explained to him about the type of legislation which I felt was neededMr. Scott said at that time that they realized that there was an area of credit which was not being met, either by the Small Business Administration or by the enlarged liberalized policies of the Farmers Home Administration. I think the whole thing resolves itself into this: “They say we have never made any loans for open accounts. Well, of course, there are a lot of things we have never done before. But I feel like the group of Senators did who went down to the White House a few weeks ago. And it happened that in that group were Senators who have throughout the years supported this foreign-aid program; some of them who have been most active in that program; and they put it up to the White House in this way: That, as long as they were supporting the program that they were, they were put in a most embarrassing situation of being unable to explain to the people in the States that they represented why it was good business to try to rebuild some foreign economy, where we were making just outright gifts, and trying to take care of, if not all, at least some of their needs, why the administration was unwilling to make available just a small fraction of that much money which was going to be secured by a note which our people who were in just as bad trouble, where they were willing to sign the note and pay back the money, why that could not be done.
I have tried to approach this thing from a businesslike angle. I do know that the need is there. I know that Small Business is not going to take care of the needs of many of these small business firms. Most of them are individual people doing business.
Those people are going to be out of business. I know that the philosophy of a lot of people, including some of the people in the Department of Agriculture, toward those people is like it is toward a lot of our small farmers. They say: “After all, that fellow that ran that little corner grocery down there, he does not have any right to be in business because he is on his way out. He is going to be supplanted by somebody else. This fellow carrying on this little repair shop down there, he would be better off if he would leave and go some place else.”
I am not going to accept that philosophy, because many of those people have been down there all of their lives, and maybe after they die that place will close up and never be reopened. Maybe their sons will not want to continue that business. But as long as they are willing to stay in that community and to render a service which is a vital service and which is important to the community life in that district, I think that our Government and this Congress is justified in at least being as liberal as possible in making these loans.
There will be some money loss; there isn't any question about that. But any time we do not lose the money in this Small Business Administration, in the Farmers' Home Administration, and all of these other programs, if we do not lose some money, we are not carrying out the purposes for which those agencies were set up, because there is some hazard involved. It is not a gilt-edged loan like you make at the bank. And even the banks lose money on some of those loans which are supposed to be made without anticipation of any loss whatsoever. But this is a type of loan which will, at least, restore some confidence and give a feeling of responsibility to the individual borrower.
It will make money available in the community to the small business which will permit them to continue in business and to render a type of service which is needed and which is vital to those small communities.
As that money gets into circulation it will give a lift to the whole economy.
I want to say, in closing, one other thing. I still say I am appreciative of everything that the Department of Agriculture and the Farmers' Home Administration, the Small Business Administration, and everybody else has done there, but our people down there are cooperating and they are doing a good job, too.
I think, as Mr. Smith will tell you, if you put him on the stand a little later, that this policy of permitting a depreciation item in the Farmers' Home Administration borrower's budget has worked out much better than we had anticipated.
Our production credit associations down there, are straining themselves right now to give more credit to the people who need it, and more funds are being made available.
Right now, just this week there was a release put out by the Department of Agriculture about some changes in the soil-bank signup and this is pertinent to this, and I think it should be mentioned here.
I think they realize that with this soil bank signup, at least in my area, we are contributing to a more serious economic condition, and this week they have announced that they were going to give the farmer until March 28 to get out of the soil bank, thereby encouraging him to get out and plant cotton. At the same time they have said that the lack of operating capital is frequently given by the farmers as the reason for their interest in the soil-bank pro ram. Many cotton farmers are eligible for emergency loans at 3 percent interest for the production of 1958 crops available through county
offices of the Farmers' Home Administration, and in addition many farmers are eligible for regular Farmers' Home Administration loans.
Well now, this is a help, too, by extending the time that the farmer can get out of the soil bank up to March 28. And this announcement that some money is available to the individual farmer for making that 1958 crop is good. But that still does not get at this problem of small individual farmers who have that burden of these individual or several debts hanging over their heads, and each one of these people is at him all of the time trying to get some money which they know he does not have. But if that fellow
can get all of his debts into one loan and that money paid into these small businesses, it will just do a great thing for all of those areas where this situation prevails. And I say still that it would be a good loan, there would be very little money lost. And since the loans would be made by the banks, by the PCA's, and by the Farmers Home Administration, we would not disturb the normal channels. I think that everybody would benefit. I don't think anybody would be hurt. There would be very little money spent.
I thank you, Mr. Chairman, for the privilege of trying to explain this.
Mr. Johnson. I have one question I want to have your thinking on. I know during the depression I had the opportunity to work with what they called the Wisconsin Farm Credit Administration. The farmer had a Federal bank loan and the Commissioner loan and maybe a PCA. And we would go out and settle all his debts. But, of course, the businessman had to scale down.
Would you be in favor of any authority at this time for the loaning agency to use their judgment and to scale these debts down in order for the farmer to work out of it that way, if it is necessary?
Mr. Jones. How do you mean "scale it down”?
Mr. JOHNSON. I will give you an example. A farmer that has a $5,000 Federal bank loan and he has a $3,000 Commissioner loan-I am just giving you one whole picture to give you the example-probably $3,000 Commissioner loan, that would
bring him up to $8,000, and then a PCA loan of about another $3,000—that would bring him up to $11,000—maybe he had $16,000 worth of debt. Our job was to go out and settle for the $11,000. We would have to pay off the first mortgage. He would be the man that would not take much of a cut. And the second mortgage would be less, maybe, and the chattel mortgage would take more.
When you got to the end, they sometimes took 50, 60 percent: sometimes they took 10 cents on the dollar.
It was the thinking of the Government, at that time, the farmer could not work out if he was loaded with all of these debts.
I was thinking about that point last session. I wrote to several of my Farmer Home Administrator people in the various counties. A few of them gave me their thinking. And some of them referred it to the State office in Wisconsin.
If I remember what the State office wrote me, they thought that at this time it was not necessary to do any compromising.
Mr. JONES. I would dislike to see us go out and try to compromise with this small-business fellow, Mr. Johnson, because after all, most of these debts I am talking about, they are $50 and $100 and $150 debts. When you ask a fellow to scale that down, he is the fellow that in most cases that is his total income, his profit comes from that business, and it just provides him a bare living, anyway. And he has everything he has tied up in that. Of course, if they want to work out and try to do that
Mr. JOHNSON. I realize what you say, but maybe when you add that man's debts all up, I mean when you get the whole total of everybody he owes, you get to a place where it would be practically impossible for him to pay it off with the way conditions are. Should the authority be there, if he wanted to use it!
Mr. JONES. We do not say that they will pay off all of the debts so far as that is concerned. That would be regulated by the attitude of the banker and the PCA and so forth.
Mr. JOHNSON. Does the Farmers Home Administration need that authority; have they got it now, I mean?
Mr. Jones. I think they have the authority now, yes. But they have never exercised it, and I think that they have indicated that there is no likelihood that they will take up any unsecured debts or pay up any accounts.
Mr. JOHNSON. That is the reason why they do not do it?
Mr. JONES. That is their policy. I think on this, if they had this special authority to make this loan and then, of course, payable over a 3- to 5-year period, if they figured that this fellow could pay, say, $150 a year over 5 years, they would say, “Well, we figure that he can borrow $750 and he can get it all paid back in that length of time.”
So that is the way that would be handled, I think.
Mr. HARRISON. I would like to ask one question. I am sorry that I came in late. If I understand you correctly, this will take up debts that have accrued to this farmer that he cannot get money for from any other organization, is that right?
Mr. JONES. That is right.
Mr. HARRISON. I see in here some place—and I haven't looked through the bill far enough to find out if there is a maxmium here that he could get under this program-is it a program whereby he would go to the bank and this loan would be guaranteed to the bank?
Mr. Jones. Ninety-percent guaranteed loan.
Mr. Jones. Ninety percent of it would be guaranteed by the Government.
Mr. HARRISON. And it may be several thousand dollars, that they do not see fit to carry him any further, that this would guarantee a part of this loan or would it guarantee the whole thing?
Mr. Jones. I do not quite get what you mean. This is a separate loan. In other words, the fellow might have a secured loan at the bank. This would be an unsecured loan. In other words, this would be a character loan. That is all it would be. The reason I put it at 90 percent is so that the bank would have at least a small interest in it and to try to see that it was repaid, if it was at all possible. The bank would be carrying a part of any loss, if there was any loss.
Mr. HARRISON. Would there be any attempt made to find out how many creditors this fellow has?
Mr. Jones. That would be definitely so. Because the ban is only for the purpose of paying off creditors where the account was incurred last year in the making of the crop. This would not go back and pick