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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 percent 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.

In conclusion, Mr. Chairman, I would like to make the following statement:

As Administrator Sandoval stated in his report to the full committee on July 20, 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. KLUCZYNSKI. Thank you, that was a job well done, Mr. Dwyer. And you can tell your top brass here from the regional office-I am sure that they know you did a fine job.

I think you have answered all the questions, but some of the members may have some technical questions here. I think you touched upon

this, but I want this for the record, what improvements can be made in SBA's role in helping small business fight crime?

Mr. DWYER. Well, I think, Mr. Chairman, that the FAIR plan, which has already been discussed earlier today by another witness, in my opinion is a new approach. I don't know really that enough time has been given to see whether it can actually work.

I think I would be, because I am formerly an insurance man involved in the business for over 20 years, aware of the problems of insurance; but I am very much aware, as a result of my involvement in this most important program, that the small businessman really can't purchase insurance that he needs to provide protection for himself.

And as I said in my report, it is both the fact that insurance is not available or if it is available it is available at such a high cost that he really can't afford it.

Now, if the FAIR plan cannot work, then I would assume that this committee and the Congress will and should, I am sure, seek new and more adequate ways of answering this need. We recognize the fact that this is a need at this moment; the need to provide better insurance protection for the small businessman. I don't really know Mr. Chairman, or members of this committee, that I could cite any one specific answer to the total problem.

I think it is, frankly, more than a crime problem as such. We realize that there are sociological factors at work in this Nation in our large cities that have to be met; we recognize, I recognize individually, that good economic growth within the areas in question, particularly urban areas, will largely answer, to a great extent at least, this crime problem that we are experiencing today.

I don't think we can necessarily afford to wait for this grand experiment to come to a completely successful conclusion. As I said, it is this committee's responsibility, as I am sure you view it, to find some more adequate way of answering this insurance need, and it is there; we know that.

Mr. KLUCZYNSKI. Well, you answered my next question. I asked the witness, Ralph Metcalfe this question, and I will direct it to you: Do you think that the Federal Government should write direct insurance or subsidize the premiums?

Mr. DWYER. I think, as Mr. Metcalfe answered it, I don't know frankly, Mr. Chairman, that I have a direct answer to that question in the sense that I am either for or against the proposal.

I think there could probably be arguments in favor of such an approach. I think there are also other arguments that could be employed against that type of approach. I think that the small businessman places a monumental problem in this area, but I think he is not alone in that case.

Again, drawing on my own insurance background, I recognize there are other large groups that have trouble providing themselves with adequate insurance protection. I noted, for example, before the Senate Committee on Small Business inquiry that when this particular subject was raised, one of the Members of the Senate said to the witness "You are proposing to the Federal Government to provide insurance of this type."

In my own State, doctors are finding it difficult to provide malpractice insurance to protect themselves. I think it was his attitude

that if we enter the area of providing this protection, the end result would be that many other institutions would ask for similar protection.

I think that is probably something that you will obviously concern yourself with. I am not, as an individual, against the concept if it is absolutely necessary that we do this. I believe that, as the alderman said, the insurance industry will have to be encouraged more strongly, than they have been up to now, to meet these needs of the small businessmen. I think they will be. I think they can be very responsive to us providing that the Congress and the administration offer an opportunity to them to meet this need as I see it.

Mr. KLUCZYNSKI. We will have to do something to keep that small businessman in business, because year by year they are just dying away and they need help. And if you can't get insurance, how can you operate? I think that the Federal Government should either write the insurance or or subsidize it.

You know, most of these insurance companies take the cream; just skim the cream off the milk, and if there is a risk they don't want any part of it.

I think the Federal Government should do something about it. And I am going to follow that up. We want to help; we want to keep that small businessman in business.

Mr. Horton.

Mr. HORTON. Mr. Chairman, thank you. I want to express the committee's appreciation to you, Mr. Dwyer, for coming and bringing the members of your staff here. I realize you haven't been in the responsibility for a long time, but already the efforts which you have extended, as expressed to me, seem highly commendable. I think you are doing an excellent job.

I think if you are aware of the problems of the small businessman and are trying to help, as you indicated in the distribution of the pamphlets and the workshops in trying to bring that information to him firsthand, especially the SCORE program and some of the other programs, to try to bring that information to him then you are doing a great service. It is not always legislation that is needed, but sometimes we only need to take the facilities of the office to the people.

A lot of people don't realize what facilities we have at the Small Business Administration, so you have the job of getting this information disseminated. And I think it is important, as you have indicated, to be aware of that and to get that information out.

We want to thank you for being with us and also thank the members of your staff.

Mr. DWYER. Thank you.

Mr. KLUCZYNSKI. As I have said time and time again, this committee is neither Democratic nor Republican. This is an all American committee. We are trying to help the man who needs help, and I am telling you that you are doing a very, very fine job here, you and staff, in this region.

your

I want you to continue your good work and take care of the fellow who needs help.

Mr. Hungate.

Mr. HUNGATE. Mr. Chairman, thank you. I too would like to join the committee in congratulating you, Mr. Dwyer, on the work of the Small Business Administration.

I know of few agencies in the years I have been in Congress that I have found more cooperative and helpful in meeting the needs within its jurisdiction.

Is that part of your region, let's say the extreme southern part of Illinois, eastern Illinois, served out of St. Louis?

Mr. DWYER. No, Congressman. As my statement will show, soon after I became regional director of SBA in Chicago my responsibilities at that time, although I have the total now, was regional director of strictly the State-Illinois. As you know, we reorganized ourselves. But at that time southern Illinois was serviced by our St. Louis, Mo., office.

We have changed that. We have opened a Sprinfield, Ill., office and that now serves six counties of the State of Illinois, from approximately central Illinois all the way south to the very bottom of the State.

Mr. HUNGATE. I see. Do you know in what area Quincy, Ill., would be?

Mr. DWYER. That would be serviced out of our Springfield office. Mr. HUNGATE. Out of your Springfield office?

Mr. DWYER. Yes, sir.

Mr. HUNGATE. I mentioned the agency's help, and I say that Mr. Sandoval's interest in the field of improving minority enterprise development is most commendable.

As a man in a responsible position with small business, and with an insurance background, is it correct that a man must have some insurance of the type we are discussing, casualty, burglary, robbery, this sort of insurance, if he is to operate as a small businessman?

Mr. DWYER. I think it is most essential that he have a form of this type of insurance.

I point out in my statement that unfortunately there are some of the borrowers that we have approved loans to just can't really have this protection at the moment. I don't suggest that a business would fail of itself simply because they cannot have this coverage, but it makes it much more difficult for them.

What is interesting to me as I study our facts and figures, although the problems of the inner city are much more unique than in other areas of the community, that are other areas that are not high crime rate areas that are also having similar problems in securing that type of insurance. I think it is a general reluctance, apparently on the part of the insurance companies, to provide that type of insurance.

In the past, glass coverage, as we commonly talk about it, was not a unique type of insurance to secure. Almost any businessman could have it. Retail establishments with large plate glass windows obviously need that type of protection. Again, we find that a type of protection such as that is very difficult to obtain, particularly in the city areas.

So, I would say that it makes it very difficult for a retail establishment or other types of businesses to operate without that type of

coverage.

Mr. HUNGATE. Returning to Mr. Metcalfe's testimony, in some instances a chainstore can purchase this coverage because it has a large volume of business in the safe areas as well as the unsafe areas. Mr. DWYER. That is right.

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Mr. HUNGATE. Do you think it would be desirable if in some way the Federal Government could see that perhaps small businessmen could be pooled, and thereby obtain insurance under these conditions by spreading the risk through the companies?

Mr. DWYER. Quite obviously you sense the freedom that the large insurance company has in providing insurance.

Take a large grocery store operation. They have stores throughout the Nation, rural, city, and some stores in very protected areas. They don't have any real problems against that type of store. They have other stores, obviously in marginal areas, what we call ghetto areas. But they are spreading the risk; they are buying a package insurance protection, and it is built in the factors to provide the total cost for it. Now, the small operator, as the Alderman said, really can't do this. He has to protect his one establishment, or perhaps two or three, no bigger than that.

Perhaps the answer, the one you are suggesting is to find a way of pooling this type of business.

I don't know the answer, frankly, but I am wondering whether the associations that represent various types of businesses have proposed a way to the insurance industry as a whole in finding a way to buy coverage on a pool basis for companies operating in their particular sphere of business.

I don't really think that we have investigated this as carefully as we probably should.

Mr. HUNGATE. As times become more difficult, and I alluded previously to the stock brokerage business, they only come to the Government to provide some form of backup insurance.

As a lawyer, I am acquainted with malpractice suits. Doctors probably carried insurance for years, but as soon as lawyers developed skill in handling these cases, the insurance company does not want to insure them anymore.

The two problems are related. If the Government is going to be in on the crash landings it wants to be in on the takeoffs, and most inevitably I believe it will lead to Government regulation of the industry.

I thank you, very much. Your background has been most helpful to us.

Mr. KLUCZYNSKI. Let the Chair state at this point that Jack Webb of the television show "Dragnet" was to testify before this committee. He called me in Washington the other day and said he was making a new series on drug abuse and couldn't be here, but he sent a film that we intend to show sometime this afternoon, between 3 and 4 o'clock. So, if anybody wants to see that film, you can come back here.

Are there any further questions of Mr. Dwyer?

Mr. DWYER. I think Mr. Roe

Mr. KLUCZYNSKI. Oh, yes, our counsel wanted a question or two. Mr. ROE. Mr. Dwyer, with respect to guaranteeing loans or making direct loans, does SBA, as part of its criteria in evaluating the loans, investigate the potentiality of the small business being a victim of crime?

Does this play a part in your decision as to whether or not you make a loan?

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