Licensed small business investment companies-Debt security financing disbursements for the 3 months ended June 30, 1963, by stated rate of interest, 620 reporting companies Under 6 percent: Amount 1.. 6 to 6.9 percent: 7 to 7.9 percent: 8 to 8.9 percent: 9 to 9.9 percent: 10 to 10.9 percent: 11 to 11.9 percent: 12 to 12.9 percent: Amount. Amount 1 14 to 14.9 percent Number. 15 percent: 1 Reflects principal amount of related financing instruments, including any discount, fees, or other charges. Liceused small "aes_instments companies-Loan and equity financing disbursements for the 3 months ended June 30, 1963, by size of disbursement—620 reporting companies Num- Amount 1 Num- Amount Num- Amount Num- Amount 1 ber 1 Loan and debt security amounts reflect the principal amount of related financing instruments, including any discount, fees or other charges; capital stock amounts reflect cost. Licensed small business investment companies-Loan and equity financing disbursements for the 3 months ended June 30, 1963, by borrower size 620 reporting companies 33-440-64-13 1 Loan and debt security amounts reflect the principal amount of related financing instruments, including any discount, fees, or other charges; capital stock amounts reflect cost. The CHAIRMAN. Mr. Kelley, I listened to your statement with a great deal of interest, and you certainly have a positive approachthat they are succeeding, that they are making progress, and that they are serving their intended purpose declared by Congress, possibly with some few exceptions. You also indicate the trend is toward probably a $2 million size small business investment company to be effective, and therefore that there will be mergers of the smaller ones. The committee has been concerned that the truly small business enterprises do not have access to long-term loans and equity capital and, therefore, if these small enterprises merge into larger ones, the difficulty will be present again. Do you envision that the small local development companies will fill this gap, that this is an area in SBA where truly small businesses can be assisted? Mr. KELLEY. Mr. Chairman, I think the The CHAIRMAN. Of course, this is for some other purpose. The CHAIRMAN. I realize they are to fill another purpose also, but I wonder whether you think local development companies could serve to make credit available in this gap to some extent which is not now being made available to the truly small business concerns? Mr. KELLEY. Well, sir, I think the local development companies can be of very definite assistance to the growth of small business in various communities throughout the country. They make available long-term financing of plant and equipment. I think we still, even with the local development company program, have a need for the SBIC's also, because they can provide the longer term equity type money which would support inventories, accounts receivable, and that type of financing as the business grows. So I think the two are paired. I do not really think that the growth of small business investment companies into somewhat larger units would of necessity result in the smaller businesses not being as well served. I think that the problem we have today is that many of the smallest SBIC's now are restricting their activity to lending rather than taking the equity capital type of approach, because they are too small to support the staff that would allow them to take equity investments. And this is why I think as the SBIC growth takes place it will actually make more true equity capital available to the small business. The CHAIRMAN. These hearings are provided to form a broader view of the operations of a number of small business investment companies, including the small ones, the medium size, and the larger. I, in my own experience, have had in mind one formulated in my State which had a broad base and a fine opportunity for service, and later on it merged with, or grew into, a larger one in another State, and then we saw possibilities for it going into orbit all over the United States. And Í had a personal feeling that they were getting off base or off the ground or so far removed that they were not really serving the declared purpose of Congress. And I for one would like to see these small business investment companies served in the area in which they are chartered, in which they are located. And with the broadest possible base within that area. If they merge and get so large that they are not really serving their purpose, by reaching the truly small business, then they do not fill the program need. I like to see them grow and make progress. You do not have any fear that this giving up of ownership or control of the small businesses will inevitably prevent SBIC's from the making of loans and the purchasing of interest in the small business companies? Mr. KELLEY. I am not sure I understand your question, Mr. Chair man. The CHAIRMAN. Well, you stated in your statement that there was concern, or one of the problems was that they were fearful that the small businessman would have to give up or lose his business through control by the SBIC. You do not feel that this is Mr. KELLEY. Well, this has been one of the criticisms. It is a common misunderstanding; that is, many of the smaller firms in approaching financing, I believe, are thinking of an SBIC as being the equivalent of a bank, which it really is not. I mean it is a source of equity capital money, and consequently the concern is going to want a portion of the capital in the business. I am sure there have been some situations where small business investment companies have perhaps been a little unwise in the way they have approached some of the businesses, and there has been some misunderstanding with respect to a desire for control. I think most of the companies, the great majority of them, want to take a minority position and do not want to take a majority position due to the pure economics of the situation. They do not want to operate these companies, they want to be investors. And that is the program that we are attempting to foment-to get more of an understanding of this and to encourage the small business investment companies to take an equity interest. The CHAIRMAN. You pointed out, quite propertly, that once these funds are made available in Government loans and tax advantages that the SBIC's should be able to stand on their own feet, so to speak, and not of necessity have to be continually financed by the Government; and, while making funds available to small business, that they do not take undue advantage of their clients. They are not doing that, in your judgment, as a supervisor? Mr. KELLEY. No, sir. We have isolated incidents of this, but the vast majority are not, in my opinion. The CHAIRMAN. Mr. Harvey, do you have any questions? Mr. HARVEY. Mr. Chairman, I have one question I would like to ask that has to do with management assistance to the SBIC's and, through them, to their borrowers. Is it the policy of the Small Business Administration to lend their talent to the SBIC's, and, through them, in turn to their borrowers? Mr. KELLEY. We have not done a great deal in terms of management assistance to the SBIC's, but we are planning to do more in the future. We are planning some management clinics where experienced members of the industry will pass on to other SBIC's experiences in their particular operations which would include means of assisting the small businesses through management advice. Mr. HARVEY. One of our witnesses yesterday, in his testimony, stated that, as he screened the potential borrowers, it was his observation that the biggest single problem, in attempting to help the small business, was that of management capability, and that he felt in many in |