Evening star., 1938-02-02

there are but two
ways that the Government can be
OF help in curing recession and that
Il by spending or lending.
Spending. or pump priming," has
seemed to run its course. Now the
idea OF lending is uppermost. 1t is
the principle back of the housing
bill and it is on top of the pile of
plans just now for the rehabilitation
OF business and the increasing OF the
national income.
Small loans are of so many types
that 1t Is very easy for the bankers
to be right and for the business men
to be right, too. 1t all depends on
what kind OF loans are meant and
what the money Is to be used for.
Demand for Capital Loans.
Certainly the ordinary type Of bank
accommodation - the six months or
nine months credit either on good
assets or good collateral--is available
In as large a quantity as any sound
business could ever want But the
real need, according to preliminary
surveys, is for capital loans. Banks
which are primarily reservoirs of
demand deposits do not feel that they
should be making capital loans with
demand deposits, and they are right
about it.
Yet there is need for long-term or
intermediate credit-capital loans Of
two to seven years. The commercial
banks do not make that type of loan
As for the investment bankers, they
usually do not float loans for less
than $l,000,000. So in a sense there
Is no place where the small business
can hoat capital loans. Not only is
this true of companies that want
100000 to sl,000,OO0, but it is even
more true Of the small businesses
which need capital ranging from
$4,000 to 100000.
1t is easy enough to say that a busi-
ness with sound position can borrow,
let us say $4,000, from a bank and
can get one or two renewals so that
the credit extends over a couple
years or so. But the borrower knows
that if business conditions change
suddenly or II the bank examiners
descend on a bank and begin to
criticize loan, the $4,000 credit
begins to be milestone around the
neck Of the borrower.
New Credit Machinery Planned.
What now is proposed is that a
business which. for example, is earn
ing $4,000 year wants to borrow
$4,000 and can begin to amortize it
on a five or seven year basis at a
relatively low interest rate shall have
the opportunity to do it through some
new credit machinery that is being
planned
Both the Federal Reserve and the
Reconstruction Finance Corp. have
been dealing with the small loan
problem heretofore and while the
number Of loans is not large, it is
significant that as soon as these
two Government agencies approved
certain applications, the commercial
banks made the loans even though
no guarantee or insurance was in
volved. From this it Is reasoned that
II the Federal Government would
set up an agency to insure small loans
and if part of the fee paid by the
borrower were to be devoted to in
surance, just as is the case with
housing loans, there would be greater
now Of capital into small businesses
and more employment would be
created.
Certainly if local banks were to
investigate these capital loans and
recommend them for insurance there
would be little chance of unsound
loans being made. On the other hand.
the insurance feature would permit
three or five or seven year credit as
the case may be and the insurance
fund would presumably cover the pos
sible losses. A monthly amortization
plan for these loans something like
the housing loans would necessarily
be involved.
Monied Friends Hesitant.
The insurance idea ordinarily would
hot be necessary, but the small busi-
ness man who must rely on his friends
Tor capital finds these friends fright
ened and hesitant. What is the Gov
ernment planning? What does the fu-
ture hold in store? Lend money for
i've years-why. that's a long time
of. and at what interest rate? All
oGN <IaN