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EXHIBIT B.-Reconstruction Finance Corporation-Business loan applications, by size, by State, calendar year 1949 (number only)

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96

Puerto Rico

Virgin Islanas

EXHIBIT B.—Reconstruction Finance Corporation—Business loan applications, by size, by State, calendar year 1949 (number only)—Con.

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Oregon

Pennsylvania

Rhode Island

South Carolina

South Dakota

Tennessee

Texas

Utah

Vermont

$100,000

Over

$100,000 Over $100,000 Over $100,000 Over $100,000 Over $100,000 Over $100,000 Over $100,000 Over $100,000 Over or less $100,000 or less $100,000 or less $100,000 or less $100,000 or less $100,000 or less $100,000 or less $100,000 or less $100,000 or less $100,000

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Received.

38

393

137

43

114

14

435

29

827

98

99

5

21

Withdrawn.

86

15

25

3

69

169

Declined.

142

42

58

4

6

181

16

3

100

12

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Mr. GUNDERSON. The application figure is about 1,200 a month. The CHAIRMAN. About five to six hundred a month, or about half the applications, are approved?

Mr. GUNDERSON. A little higher than half.

The CHAIRMAN. Why aren't the other half approved?

Mr. GUNDERSON. Because we do not think there is a basis for making the loan.

The CHAIRMAN. Do you think this bill would give you the basis for making loans that you would not make now?

Mr. GUNDERSON. There are cases-not a large number

The CHAIRMAN. We would not want to pass the bill to give you the right to make as many loans as you are making now when you yourself say that the loans are not ready to be made.

Mr. GUNDERSON. I think the bill would certainly clarify the basis on which we consider loans. I believe it would have a tendency to have us make a few more loans.

The CHAIRMAN. Just a small proportion?

Mr. GUNDERSON. I do not believe it would be very many more because there is nothing in this bill, as I understand it, that would eliminate collateral requirements or would eliminate the necessity for finding that it was a good loan.

The CHAIRMAN. I am glad to hear you understand it that way.
Mr. GUNDERSON. That is the way I understand it.

The CHAIRMAN. What about the 15-year provision; would that help you any?

Mr. GUNDERSON. The 15-year provision—well, I wouldn't say it would not help. You see, for 11 years we made loans without any limitation at all. During that time the vast bulk of business loans were made from 3 to 5 years, and that is still true.

The CHAIRMAN. Three to five years for the average business loan? Mr. GUNDERSON. Three to five years is the average business life of all the business loans that we make, and I do not see any particular reason for making a loan for a longer period than it takes to work it out and repay it. There might be cases-and there have been in the pastwhere a longer maturity would be helpful, but my experience is that the longer maturities usually apply to the bigger loans.

The CHAIRMAN. In other words, a small business would need 15 years?

Mr. GUNDERSON. Well, I wouldn't say there couldn't be cases, because when you deal with capital improvements you might very well get in to a situation where you would need a longer period of time; but, by and large, I would say 99 percent of all the business-loan applications we have are fully taken care of by a period of less than 10 years. That has been our experience in the past.

The CHAIRMAN. Do you know the percentage of borrowers who go to the bank for loans first that are approved or disapproved? You say you turn down half or approximately half. I wonder how many the banks would turn down that ever came to you. Do you have any idea on that? I am speaking about the regional offices, now.

Mr. GUNDERSON. You see, we do not permit our regional offices to decline any application.

The CHAIRMAN. Well, they can make them under $100,000 themselves; can they not?

Mr. GUNDERSON. That is right. The figure I gave you includes all the loans.

The CHAIRMAN. Oh, I see.

Mr. GUNDERSON. Most of these loans of $100,000 and less are made by the loan agency offices without our assistance.

The CHAIRMAN. I see, but they must agree, of course, with the banks. Mr. GUNDERSON. Yes, sir.

Senator BENTON. Would not this bill get you more applications, Mr. Gunderson?

Mr. GUNDERSON. It has already. We have had as many as 100 calls in one day just on the newspaper accounts of this bill.

Senator BENTON. You see, Mr. Chairman, that is another thing that should be clarified, because if you get 10,000 fellows coming in in a month for advice and consultation, only 1,200 of them putting in applications, the other 9,000 might decide they won't put in an application because it is going to be turned down, and therefore there is no use spending their time or jeopardizing their credit standing by putting in an application that is going to be turned down. I would assume this bill would encourage more people to put in more applications, and your ratio of loans might go down on that basis, actually, instead of going up. You might have a lot more very bad risks come in, so instead of 50 percent on applications you might find your percentage falling.

Mr. GUNDERSON. Of course, any increased publicity has a tendency to increase our own applications. We have had an increase recently. The CHAIRMAN. You said you had as many as 100 calls a day, is that right?

Mr. GUNDERSON. In one office, yes, sir; an increase in calls.
The CHAIRMAN. You mean in the regional offices?

Mr. GUNDERSON. Yes, sir.

The CHAIRMAN. How many regional offices do you have?

Mr. GUNDERSON. Thirty-one.

The CHAIRMAN. Well, you would not have 100 in each office, would you?

Mr. GUNDERSON. I don't know, Senator. I talked to somebody from one of our agencies yesterday who said that when the accounts of this bill were carried in their newspaper somehow they got the impression that it had already been passed and it resulted in about 100 telephone calls.

The CHAIRMAN. Would you have any idea of what those calls were about?

Mr. GUNDERSON. Well, they thought that no collateral would be required and were interested in getting a loan.

The CHAIRMAN. Who said that?

Mr. GUNDERSON. I don't know.

The CHAIRMAN. The bill certainly does not say it.

Mr. GUNDERSON. The bill does not say it, in my opinion.

The CHAIRMAN. If everybody believed there was no collateral needed you would get more than 100 telephone calls, I imagine. Go ahead, Mr. Gunderson.

Mr. GUNDERSON. The loans made by this Corporation to small business have aided eligible enterprises of almost every type in every State in the Union.

The CHAIRMAN. In the hearings we had some time ago I have forgotten now-did you put down the number of loans that you made of less than $100,000. Did you put the total down or did you put the region down?

Mr. GUNDERSON. It is all in there.

The CHAIRMAN. Did you put it regionally, by States?

Mr. GUNDERSON. I was just going to say, a summary which we recently submitted to Senator Fulbright as chairman of the RFC Subcommittee of this committee and to Senator Sparkman's Small Business Committee discloses that 9,578 loans to all classes of industry, by States, totaling $981,799,311, were approved from January 1, 1948, through March 31, 1950.

The CHAIRMAN. Would you put that tabulation in this record, too? Mr. GUNDERSON. Yes, sir.

The CHAIRMAN. Thank you, sir.

(The information referred to will be found in the files of the committee.)

Mr. GUNDERSON. It is to be expected that a number of loans thus made would be considered marginal if tested by usual banking standards. However, with few exceptions, these loans have enabled worthy credit risks to succeed and many times have been the difference between a successful business and bankruptcy.

In addition to the actual loans made, the RFC, by utilizing its personnel trained in solution of business problems relating to management, operations, and accounting. Suggestions are made for possible solutions to the problems as well as sources from which expert technical and consulting assistance can be drawn.

We feel that the aid thus given has been of substantial benefit to the economic stability of the country and has contributed materially to employment of labor and production of goods and services.

Section 303 of the proposed bill amends the RFC Act by extending maximum maturity of loans to business enterprises from 10 to 15 years. This amendment would make effective the recommendation which the President has made in two messages to the Congress. We recommended last year that the Corporation be permitted to make loans with longer maturities than 10 years, in order that RFC in appropriate cases may authorize such maturities as best will serve the needs of the business enterprise to which financial assistance is granted. Section 303 also provides that in any case where a loan to a business enterprise is made for a purpose essential to the national defense, as determined by the President, the maturity may be such as the Corporation determines. We believe that both of these provisions with respect to maturities are desirable.

Senator CAPEHART. Mr. Chairman, if I might interrupt, I would like to ask this question:

Do you feel that RFC, or any new agency, should be permitted to make equity loans or capital loans?

Mr. GUNDERSON. Of course, Senator Capehart, the definition in Webster's dictionary of the word "equity" means the value in a company over and above its indebtedness. I do not think that our loans may be considered definitely term loans, and as such

Senator CAPEHART. Well, let me put the question this way: Do you think RFC or any other agency of the Government should make loans, what we normally think of as capital loans?

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