There is a strong balance existing between a productive industrial base located within and near our large urban areas and a strong agricultural area found throughout the entire region. Not only with a sense of pride in the past accomplishments of these six states, but also because we are all very optimistic about the future progress of this same region, we believe it is entirely fitting that your Subcommittee meet here for the high purpose of your inquiry.

We are also very mindful that this Subcommittee meets under the Chairmanship of a proud son of the State of Illinois whose record in Congress has brought great distinction to him, to the City of Chicago and to the State of Illinois.

The record of accomplishments of the Small Business Administration for Fiscal Year 1970 are included in the statement our Administrator, Hilary Sandoval, Jr., made before the Select Committee on Small Business, House of Representatives, July 20, 1970. We support the observations and recommendations in that statement.

We also support the message which President Richard M. Nixon made to the Congress on March 20, 1970 in which he detailed a number of legislative proposals to improve the services provided to the small business community by the Small Business Administration. These proposals are embodied in H.R. 16644. In addition, we support the President's recommendations concerning certain small business tax measures which are before the House of Representatives to supplement the benefits contained in H.R. 16644. We agree with Administrator Sandoval's statement that, "Taken together, these proposals represent the most significant legislative program presented to the Congress since 1958".

For the purposes of this meeting of your Subcommittee, we are particularly mindful of the importance of that portion of the House Bill which would provide authority for the Small Business Administration to guarantee sureties against losses resulting from the breaching by small construction firms of bid bonds, payment bonds or performance bonds on contracts amounting up to $500,000.

On behalf of the outstanding SCORE and ACE men who work with us in the Midwestern Region, we join with the Administrator in noting, with gratification, that six members of the Select Committee on Small Business (Congressmen Brovhill, Button, Horton, Conte, Kluczynski and Stanton) sponsored H.R. 15376, which when passed by the Congress will provide a greater sense of flexibility to this most important effort.

Although I realize that the purpose of your meeting is to investigate the Impact of Crime, Crime Insurance and Surety Bonds on Small Business in Urban Areas, I would like to take this opportunity to report to you the progress of the Small Business Administration in the State of Illinois. With your kind permission, I would like to make the following 1970 Fiscal Year Report of the Chicago Regional Office of the Small Business Administration a part of the official record of these proceedings.

STATE BOUNDARIES

At the beginning of the fiscal year, July 1, 1969, the Chicago Regional Office had jurisdiction over the fifty-nine counties in Northern Illinois. The balance of the State was serviced by the SBA Office in St. Louis, Mo. On September 29, 1969, the office boundaries were modified to give the Chicago Regional Office jurisdiction over the whole State of Illinois.

SPRINGFIELD BRANCH OFFICE

On April 6, 1970, the Chicago Office opened a Branch Office in Springfield, Illinois and installed Warren Keith as Branch Manager. This office has been staffed by three loan specialists, one appraiser, one attorney, and five clerical support positions. This Branch is unique in the Agency's program throughout the country in that it is the only one which has been delegated authority to approve loans up to $100,000.

During the first three months of its existence, while organizing itself and training its new employees, the Springfield Branch Office approved thirty-three loans for a total dollar amount of $1,987,000. It is apparent that this office is growing rapidly by the fact that, in July 1970, it approved twenty-two loans totaling $2,026,000. This growth justifies the expansion of the Springfield staff to include a fourth Loan Specialist and a Management Assistance Officer.

The organization and staffing of this office is the prime indication of the Agency's desire to see that SBA's programs are carried to all corners of the State.

THREE-DAY LOAN PROGRAM

The most often heard complaint about the Small Business Administration is the tremendous time delay required to receive approval for a loan. On September 8, 1969, Illinois became the experimental office for implementing a new program for the Agency, called the Simplified Blanket Loan Guaranty-Automatic, or three-day loan program. Under this program, banks who sign special loan agreement with us submit the loan application on special forms. This agency has three days after receipt to approve or decline a loan request. If the bank is not notified of a decline within three days, the loan is authorized automatically. In Illinois, banks used this program to receive guarantees for 100 loans totaling $3,458,700. Because of the success of the program, SBA has implemented a similar program in Washington, New York, Boston, San Diego, San Francisco, Los Angeles and Houston. They are in the process of implementing it in twelve additional cities throughout the country.

This program, with its simplified forms and automatic features, is a giant step in meeting the often heard complaints about the time delay and paperwork involved in obtaining an SBA guaranteed loan.

REORGANIZATION

In December 1969, the Small Business Administration in the Midwest, went through a major reorganization. Under the reorganization, the responsibilities of the Regional Director in Chicago were greatly expanded. He continued to be the primary official responsible for implementing the Agency's programs in Illinois. In addition to this, he was given supervisory responsibility for implementing the Agency's programs in the States of Minnesota, Wisconsin, Ohio, Indiana and Michigan. This territory contains approximately twenty percent of the population and twenty-five percent of the economic base of the whole country. The main purpose of the reorganization was to design a more efficient organization by the elimination of various layers of supervisory personnel which had developed over the past eight years. For example, the number of SBA employees in Chicago has decreased from 103 to 98 while the number of Loan Specialists working on processing or servicing loans has increased from 16 to 24. This was accomplished by merging the production staff concerned with Illinois activities with the supervisory staff for the whole Midwest territory and other structural rearrangements.

FINANCIAL ASSISTANCE

There has been a tremendous increase in loan activity throughout the State of Illinois. This is most noticeable by comparing the past fiscal year (ending June 30, 1970) with that of two years ago, fiscal year 1968. In 1968, 145 loans representing a total of $6,245,000 were authorized in Illinois. In fiscal year 1970, in comparison, 463 loans representing a total of $25,467,000 were authorized. This is a 388% increase in number of loans and over a 400% increase in dollar amounts. Much of the credit for this increase should go to the banks of Illinois. Even during the "tight money" situation during the past year, the Illinois banks are living up to their commitment of helping the small businessmen throughout the State. The Chicago Office continues to be one of the leading offices of the country in the percentage of loans that are guaranteed bank loans. This means that we are able to be one of the most productive in helping the small businessman while involving a very low expenditure of tax funds.

Under the current Administration, SBA's committee to help the minority and other disadvantaged small businessmen is continuing to grow. In 1968, out of the 145 loans, 45 were made to members of minority groups for a dollar commitment of $1,100,000. In 1970, out of the 463 loans, 267 were made to minority entrepreneurs for a total dollar commitment of $11,790,000. This is a six-fold increase in number of minority loans and more than a ten-fold increase in dollar amounts lent to minority entrepreneurs. At the same time, there is no reduction in the number of loans or dollar amounts committed to non-minority lending. Since a vast majority of these loans were guaranteed bank loans, this is another indication of the tremendous commitment of the Illinois banks towards solving the problems faced by small businessmen in all segments of our community.

COMMUNITY DEVELOPMENT

Section 502 of the Small Business Act authorizes the Small Business Administration to make loans to local development corporations which are chartered under State law for the primary purpose of assisting small businesses. These loans are made to buy land, acquire buildings, build a plant, convert, modernize facilities or purchase machinery and equipment. The facilities, so built or renovated, are in turn rented out to a small business concern.

The following loans to local development corporations were approved in 1970:

During 1970, a relatively new program began in Illinois. This is the Lease Guaranty Program. Under this program, the Small Business Administration, in cooperation with private insurance companies, helps small businessmen obtain leases in choice business locations. A small businessman is often excluded from prime commercial space, such as that provided by new shopping centers or industrial parks, because they lack the AAA credit rating required by developers. SBA is working with the private insurance companies to make available this new type of insurance to fill this credit need. The Agency anticipates that most lease guarantee policies will be written by the insurance companies, backed by SBA re-insurance agreements. A number of insurance companies are participating in the program. Where private participation is not available, SBA may guarantee leases directly.

During 1970, the following lease guarantees were approved in Illinois:

Of growing emphasis in the Agency is the area of management assistance. Management assistance may be provided to any small business concern whether or not they have a loan or have applied for a loan with the Agency. In addition to staff employees work in this program, the Agency has two groups of volunteers who provide invaluable time and expertise. The largest volunteer program is the Service Corps of Retired Executives, composed of retired business and professional men from all walks of life. They provide manpower and a degree of expertise which would be impossible for any Government Agency to afford. This Chicago SCORE Chapter is composed of fifty-five men, in addition to twenty members in a Peoria Chapter and individual SCORE members throughout the State. A newer program being implemented in the State is the Active Corps of Executives composed of men still involved in business and professional life. There are currently 12 ACE members in Illinois.

During 1970, the SBA Offices in Illinois provided management assistance to the small businessmen through 1,772 management assistance interviews and 2,207 management counseling cases.

In addition to these one-to-one management programs, the SBA runs various workshops, courses and conferences. The workshops are one-day programs aimed at the individual going into business or newly-entered business. During 1970, SBA in Illinois sponsored 20 workshops that were attended by a total of 1,071 businessmen or potential businessmen.

Management courses are six or eight week programs which businessmen attend two nights a week to discuss management problems. In Illinois, during 1970, SBA sponsored or co-sponsored 18 management courses attended by 1,407.

This statement will now address itself to your study on the Impact of Crime, Crime Insurance and Surety Bonds on Small Business in Urban Areas. The record of accomplishment for the Small Business Administration both nationally and in Region V is one of increased commitments on a massive scale to the small businessmen in our cities and rural areas. An example is that in 1963, the Small Business Administration made a total of less than 60 business loans for the State of Illinois and during the Fiscal Year 1970, we made 463 loans.

As our program has increased in size and scope, we have become aware of the problems faced by the small businessman due to the increases in crime which are visible throughout this Region. The increase in the crime rate, which is particularly noticeable in the large urban areas, directly increases the cost of doing business, especially for the small operator. The higher the crime rate in a given neighborhood, the harder it becomes for the businessman to stay competitive. Shoplifting, pilferage, theft and burglary are on the increase.

For the majority of SBA applicants and borrowers, crime insurance is either not obtainable at any cost, or the cost is prohibitive. Theft, burglary and glass coverage in the inner city and in other urban neighborhoods with a high crime rate is almost non-existent. Not only is crime insurance unobtainable, but we estimate that 10% of our applicants in Cook County cannot even obtain normal hazard or extended coverage insurance.

We support the following conclusions of the Menswear Retailers of America: "... the impact of crime losses on small businesses (with receipts of less than $100,000) averaged 3.2 times the losses experienced by large businesses with receipts in excess of $5 million.

.. that for years center city businessmen have experienced difficulty in obtaining crime insurance. The shortage of crime insurance, however, is not confined to the blighted sections of cities. It affects businessmen everywhere." Their study further revealed that a membership of 3,500 retail establishments in the country, 23% of those responding to a questionnaire were having difficulty in obtaining some form of insurance essential for the protection of their businesses. Among those with problems in obtaining coverage, 55% have experienced cancellation of some part of their insurance.

We believe it is fair to state that the problems inherent in an increase in crime throughout Region V play a profound role in determining the potential success of the small businessman.

The Mayor's Committee for Economic and Cultural Development reported in May, 1970 that of the Chicago firms interviewed, crime and vandalism were the major problems they were experiencing.

As a result of these pressures being experienced by the citizens of our nation, together with the small businessmen, we noted the Wall Street Journal article of September 10, 1970 which suggested that federal pressure is mounting on insurance companies to make crime insurance more readily available in our American cities. I further point out to this distinguished Subcommittee and article which appeared in the New York Times on Sunday, August 9, 1970 titled, "Insurance Often Not Sold", which describes the problems of the various insurance commissioners in our Eastern states in motivating the insurance industry to provide protection with a greater degree of frequency than they had been until now.

The Small Business Administration was not designed to protect our citizens against this rampart crime which is prevalent in our society today. Rather, the policing organizations of this nation have this responsibility. Let me assure you that we have taken the steps to cooperate fully with the Illinois Bureau of Investigation, the Police Department of Chicago, the Chicago Crime Commission and other governmental and private organizations to establish a base of communication between our organization and theirs. The assistance of these organizations has provided us with the type of information necessary to prevent us from making commitments to businesses which should not have the aid and assistance of the federal government.

We have emphasized this program of coordination within our own organization and have joined with the President and his Administration in their commitment to fight organized crime.

We realize that the problems which are being experienced by the small businessman relate to the question of whether insurance is available to protect him against this crime problem. We believe that the efforts of the Small Business Committee will make a viable contribution.

In the Report on Availability of Crime Insurance and Surety Bonds in Urban Areas dated July, 1970 from the Federal Insurance Administration, the following comments were made:

"The relationship between rising crime rates and insurance costs and availability is evident. A reduction in crime would result not only in reduced premium rates for crime insurance policyholders, but also in increased insurance availability."

We also note from that same report that the Federal Bureau of Investigation indicates that the crime rate more than doubled between 1960 and 1969. During the year 1969 alone, chain-store robberies rose 23%; robberies of service stations rose 10%; and business establishment robberies rose 5%.

We quote from that same report, "In studying the returns by city size, it is apparent that the insurance problem is not unique to just large metropolitan areas. Many report difficulty in small and medium size cities".

Our experience in servicing the 1,167 loans located in those northern counties in Illinois has made us aware that crime and difficulty in obtaining both crime and hazard insurance does have an adverse effect on some of our borrowers, especially minority businessmen. While we are aware of these adverse effects, they are of a nature that makes it difficult to convert to specific statistics. In some cases, those who have been adversely effected do not care to publicly state the effect of the adverse condition. In other cases, the borrower, too, is unable to accurately measure the effect, except to notice that sales volume had been reduced. We all appreciate that small businessmen, especially those starting a new business, have a very difficult hurdle to overcome in the early phases of the business. Any adverse conditions occurring during this early period substantially jeopardizes their chance for final success.

I quote in part from a letter we received in 1969 from a jewelry store owner: "... our store was burglarized. The merchandise that was taken totalled up to the amount of $2,357.90; our cost. Not insured because the insurance companies will not take the risk. Their reason being that this location is a high risk area and they won't take the chance. Our only means of security was burglary bars and alarm system".

I also quote in part from a copy of a letter sent by another SBA borrower in August, 1970.

"For the last four nights there have been constant shooting in the . . . area. On Monday evening, August 10, over sixty rounds of expended bullet casings were picked up on the corner. Four boys were shot and seven to eight automobiles damaged extensively.

"Last Saturday night, August 8, there was an attempted robbery in my gas station. Last night, August 12, about 10:30 while my son was pumping gas, shots resounded again from across the street and the frightened customer pulled away. This turmoil has just about succeeded in putting me out of business. My $300,000 investment is now on the verge of collapse. I cannot blame the public for being afraid to come into the area. My experience is typical as to what is happening to all of the businesses in the area.

"The grocer on the corner has been robbed so many times in the last three months that he too is on the verge of bankruptcy. His life has been threatened and he has been warned not to testify against the arrested suspects".

We are able to furnish some specific examples of situations that have happened to SBA borrowers and in these examples, the borrower has indicated that they would allow SBA to cite the incident and that they would appear before the Subcommittee if requested.

I. WILSON ALEXANDER-ALEXANDER'S EXCLUSIVE FASHION FOR MEN, INC.. 8233 SOUTH COTTAGE GROVE, CHICAGO, ILL.

Wilson Alexander worked as a clothing salesman for a clothing store on Chicago's South Side. Subsequently, he was employed as the Manager of a clothing store at 8233 South Cottage Grove. This store was the outlet of an established clothing store located in the Hyde Park Shopping Center. On October 21, 1968, SBA guaranteed a $50.000 loan from Hyde Park Bank & Trust Company to Mr. Alexander to enable him to purchase this store. A SCORE Counselor visited Mr. Alexander to work with him during this transitional period.

Just prior to the loan disbursement. Mr. Alexander was shot during a robbery of the store. This resulted in his being hospitalized at the critical time when he was to have assumed full ownership of this business. While still under Doctor's care, and possibly needing another operation. Mr. Alexander has progressed toward making this a successful business venture.