II. HALL BROS. FURNITURE, 4309 WEST MADISON, CHICAGO, ILL. A Local Development Company loan to Our Future, Inc., a not-for-profit organization on the West Side of Chicago, was made to assist a minority small business, Hall Bros. Furniutre Company. This was our first Local Development Company loan to be made in the hard-core area of Chicago's West Side. On April 3, 1970, the First National Bank & Trust Company of Chicago made a $50,000 loan, guaranteed by SBA to Hall Bros. Furniture. A SCORE Counselor involved prior to and after the approval of the loan used his trade experience to obtain suitable floor samples for the store's market. On June 22, 1970, the store's windows were broken and merchandise totalling $3,200 was stolen. The cost of replacing the windows exceeded $500. On August 10, 1970, the rear door was forcibly opened in spite of an alarm system. Prompt police response minimized the damage, but $1,400 of merchandise was taken. These losses, totalling $5,100 have made the company's financial status precarious despite the SBA Guaranteed Bank loan, competent management assistance and the cooperation of the SCORE counselor. Because of these experiences, the store has discontinued handling easily transportable items such as television sets and radios. This high incidence of crime resulting in the unavailability of burglary and theft insurance appears to be critical and requires prompt remedical action. Each of the members of this distinguished Subcommittee and its staff have received a kit containing information and materials which are available to all businessmen. The Marketer's Aids dealing specifically with the problem of crime are as follows: In addition, we have available the following seven crime prevention films: Burglary Is Your Business. The Inside Story. It Can Happen To You. The Shoplifter. Plant Pilerage. The Paperhangers. They're Out To Get You. Also included in the kits are examples of other management assistance programs which may lessen the possibilities of loss through criminal activities. In addition to announcements of the two seminars specifically dealing with shoplifting and a newspaper item regarding one of our specialized business clinics which included coverage of the subject of pilferage, we co-sponsored numerous free schools of business management which dealt with recommended means of prevention. The examples of the latter courses are annotated to show (on the list of topics) the subjects which lent themselves to such coverage. We are making available to this committee as part of this statement, a listing of the more recent counseling programs, courses, and seminars of our Management Assistance Division. Data is also included on the SCORE counseling effort. With your permission, I would like to make that information an official part of this record. MANAGEMENT COURSES CONDUCTED, FISCAL YEAR 1970 Seminar for small business mangagement-Northern Illinois University, Free school of business management-Marion Business College, Cortez Free school of business management-Freeport Chamber of Commerce, Free school of business management-Thornton Junior College, Harvey, Management program for small business-Maine Township High School, Small business management-Wright Junior College, Austin, III., Sept. Managing small business for profit-Triton College, River Grove, III., Free school of business management-Marion Business College Jan. 20- Free school of business management-Cortez Peters Business College, Free school of business management-Malcolm X Junior College, Jan. Free school of business management-Illinois Institute of Technology, 212 Free school of business management-Thornton Junior College, Harvey, 106 Free school of business management-Triton College, Feb. 17-Apr. 23, 1970. Export-import business-Central YWCA Community College Chicago, Marketing-Rock Valley College, Rockford, Ill., Jan. 5-May 30, 1970. Management seminar for executives of smaller firms-Roosevelt University, Oct. 14-Dec. 9, 1969. 47 Ladies ready to wear retailing clinic-University of Illinois circle campus Total. 1,407 1, 103 421 1 Must attend 14 of 16 sessions in order to have successfully completed the course for free school of business management Shoplifting, Morton College, Cicero, Oct. 30, 1969– 140 44 Midwest Regional Conference, Chicago, Ill., Nov. 22, 1969. Obtaining of Surety Bond by Small Contractors, The Surety Business Management Seminar, Indian Electronic Service Asso- Total 12 11 92 1, 163 Another very important part of your inquiry concerns the need for providing small businessmen with a more adequate bonding program. Small construction firms have historically encountered difficulty in obtaining bid and performance bonds normally required of those firms seeking construction work. Limited financial resources and lack of experience and knowledge are basic deterrents. The mortality rate is high. As pointed out in Dun and Bradstreet, and other studies, the failure rate in the construction industry as a percentage of total business failures has been increasing . . . going from 14.4% in 1958 to 17.3% in 1968. In 1968, of all construction failures 43.4% had been in business less than five years and 36.8% owed less than $25,000 at the time of failure. An SBA applicant or borrower does not improve his chances for bonding even though his working capital position may be strengthened and his ability to perform under a contract enhanced. Though we make every effort to work out satisfactory arrangements with the Surety, difficulties do arise. Various reasons are given for these difficulties, among which are: (1) the company lacks sufficient assets to support a bond; (2) the belief that only a weak credit would need Bank/SBA assistance; (3) the belief that under a Bank/SBA term loan, too much of the assets are tied up, leaving too little to support a bond; and (4) the feeling that SBA's priority position in bankruptcy reduces the Surety's possibility of recovery in cases of insolvency. Our policy and procedures are flexible. In order to work out an arrangement with a Surety, we will consider the following: (1) excluding some fixed assets from our lien; (2) exclude or standby on the guaranty of responsible principal; (3) subordinate to the claim of the Surety the SBA lien on an agreed portion of collateral; and (4) agree that the Surety may use the mortgaged equipment to complete the contract in case of default. A factor contributing to the small contractors difficulty in obtaining a bond is a lack of communication with the surety industry. Each of our offices has, to this end, established a working relationship with bond managers of surety houses and, in certain instances, with the central office of surety houses. We will continue our concerted effort to reach practical solutions to the bonding problem of the small contractor. We do so knowing full well that the risk factors are there. Lack of financial resources, assets, managerial experience and a proven track record require that the underwriting approach in such cases be taken with care. H.R. 16644 would authorize SBA to guarantee a Surety against losses up to 90% of the amount of the loss. Contracts so covered could be in an amount of up to $500,000. Under this program, using sound criteria, the risk should be a good one for both SBA and the Surety and at the same time, it provides a vehicle for developing a sound and stable small segment in the construction industry. CONCLUSION As Administrator Sandoval stated in his report to the full committee on July 20th, this year the Small Business Administration is completing its 17th year, its 12th year as a permanent agency of the federal government. During these years, we have noted many changes, both within the structure of our organization and in the way we carry out our obligations. However, the mission of the Small Business Administration has not changed. Our goal has always been to strengthen and expand the small business segment of our economy. Although I am a relatively new member of government, it has been obvious to me that the Congress has great interest in and supports the Small Business Administration. As we involve ourselves in a very aggressive and viable program, we look forward to receiving the continued support and interest of the Congress. We know that as you inquire with respect to these problems of crime and insurance and how they relate to our program, improvements will be proposed and made which will further strengthen our efforts. We look forward to further service knowing full well that we have the support of our President and the members of this Subcommittee. Thank you. Mr. DWYER. Mr. Chairman and other distinguished members of the subcommittee, it is indeed an honor for me to appear before you today as regional director of region V of the Small Business Administration. Region V includes the States of Illinois, Indiana, Michigan, Minnesota, Ohio, and Wisconsin. Within this midwestern region, we find a number of our greatest cities with all of the challenges and problems the larger cities of our Nation face today. We are also blessed with a strong rural economy in these six States. This region includes approximately one-fourth of the population of our Nation; one-fourth of the business population; and one-third of its gross national product. 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, on 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 Broyhill, 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. The next few pages, which I will not read, Mr. Chairman, details our effort in the State of Illinois. I might point out to you and the members of your subcommittee, for many months here in the State of Illinois in our Chicago office we had the challenge and the opportunity to become involved as a leader in our whole agency with the 3-day automatic lending program, which I think most of you are quite familiar with. It started in the State of Illinois in September of last year, and we had it all by ourselves for approximately 9 months before it was offered to other areas of the Nation. I think within that fiscal yearend report you will see the progress that we were able to make with just that particular part of our program. STATE BOUNDARIES At the beginning of the fiscal year, July 1, 1969, the Chicago regional office had jurisdiction over the 59 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, Ill., 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 3 months of its existence, while organizing itself and training its new employees, the Springfield branch office approved 33 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 22 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 3-day loan program. Under this program, banks who sign special loan agreement with us submit the loan application on special forms. This agency has 3 days after receipt to approve or decline a loan request. If the bank is not notified of a decline within 3 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 12 additional cities throughout the country. This program, with its simplified forms and automatic feature, is a giant step in meeting the often heard complaints about the time delay and paperwork involved in obtaining an SBA guaranteed loan. 51-148 0-703 |