Evening star., 1939-11-21
R. F. T.. Chairman
Discusses Lendinu
Program on Forum
Emil Sehrom Speaks
On Aeency's Function
In Aiding Business
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In Aiding BUSINESS
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for each 500 of securities marketed
where the issue exceeded 81 ,000, 900.
This disparity is striking. The
smaller the requirements of the busi-
ness the greater the sacrifice neces-
sary to obtain required funds
through the medium of the securi-
ties markets. The difference in cost,
however, is no more important than
the common lack of faith in the
future of small business. That is one
Of the primary reasons for granting
the r. F. c. the power to make
direct loans to industrial or COM
mercial businesses.
Pursuant to this general authority
and the amendments thereto the
r. F. c. has authorized loans aggre-
eating $500, 100000 to 8,700 separate
businesses. 1t is highly significant
that almost 40 per cent of these bor-
fowers received loans of $1,000 or
less. More than half received loans
in amounts of 100000 or less.
Further evidence that the little
fellow is taking advantage of this
opportunity for credit Is the fact
that approximately go per cent of
the applications received are from
enterprises which have less than Is
persons on their pay rolls. r. F. c.
also recognizes the problems of the
large operator, but knows that he
has competent conSultants on his
pay roll to help him cope with
them-with us it is the little fellow
who gets the most sympathetic con-
/. sideration. These loans are mani
fold-and each represents the differ
ence between success and failure to
the owner of modest business.
Job Not Finished.
The job of providing funds for
small business is by no means
finished. The R. F. C. is prepared
to meet whatever legitimate demand
there may be for financing in this
period of accelerated recovery. The
r. F. G. is not in the business, how
ever, simply of lending money. It
recognizes that to justify its exist
ence it must perform-in the exer-
else of its authorized functions-a
useful public service.
Frequently, when local banks have
been unable to initiate a loan, the
r. F. G. has, by reason of it's vast
experience, been able to suggest i'm
proved methods and practices which
when placed in operation, made the
loan attractive to local financing in
stitutions. The stimulation of pri-
vate lending is to r. F. c. as impor-
tant as is its own lending program
The yardStick for measuring the Sue
cess of this function is not the num-
ber of loans on the books. It Is not
the aggregate amount so invested
It Is the great volume OF loans-the
number of which can only be
guessed-made by private lenders
because of the countless hours OF
preliminary work by our staff.
A requirement of our law is that
loans be made only for the purpose
of encouraging the employment OF
labor or maintaining and promoting
the economic stability of the country
These factors are kept constantly In
mind and information is required
from prospective borrowers as to the
number of people who will receive
employment if the loan is approved
The R. F. G. is anxious to extend
credit where such action will prove
helpful rather than harmful. This
may appear to be an anomalous
statement, but all credit is not per se
helpful. It's indiscriminate exten.
sion serves no useful purpose. Ex.
perience has taught its lesson vel
in this respect. An applicant is moi
helped If he IS permitted to assume
an Indebtedness which he cannot
hope to pay.
The best criterion of q desirable
loan Is the likelihood of the con-
tinued success of the borrower. The
r. F.. G. Is unwilling to encourage
Indebtedness which can only be re-
paid through an eventual liquida-
tion proceeding such as bankruptcy
To this end the terms and conditions
covering a particular loan are care
fully drawn to meet the needs of the
special situation involved. Banks
prefer to give go or 80 days credit,
but business requiring an extended
program for rehabilitation is not
aided IN the least by a loan for SO
short a term.
No Unsecured Loans.
There has never been authority
for r. F. c. to make unsecured loans
to business. The law requires that
such loans must be so secured as
reasonably to assure their repay
ment. However, it should be noted
that there is no power to make a
grant-only loan. The very term
loan" connotes repayment.
Since the latest amendment of its
authority, the R. F. C. has found it
possible to approve about two out
OF every three formal applications
filed for business loans. Unfavorable
consideration is Influenced by such
factors as inefficient management,
insufficient past earnings with no
prospect of profits in the future, the
promotlonal or speculative nature
OF the enterprise, topheavy debt
structure and insolvency. In equity
and good conscience, the Govern
ment should not be asked to SUBJ
sidize a submarginal enterprise and
thus enable it to compete upon an
unfair basis with a successful busi-
ness.
There is tendency on the part of