[Sixteenth Progress Report, December 1944-January 1945] [From the U.S. Government Publishing Office, www.gpo.gov] SMALLERWARPLANTS CORPORATION SIXTEENTH Progress Report December 1944—January 1945 On THE front cover of this report appears the seal of the smaller war plants corporation. With the exception of the words in the outer rim and on the base of the Pyramid it is identical with the reverse side of the Great Seal of the United States. Although the Great Seal was officially adopted by the Continental Congress in 1782 the Smaller War Plants Corporation is the only organization ever to use the reverse side. Its symbolism is little known to the general public, although it appears on all dollar bills. The Pyramid in thirteen layers represents the New Republic. “Novus Ordo Seclorum” means The New Order of the Ages. “Annuit Coeptis” indicates the New Republic was favored by God. The Eye of God is shown at the top of the Pyramid. This Seal was adopted by this Government Agency because: 1. The incompleted Pyramid was a symbol set by Congress to mean the Nation would always expand under the Eye of God. Therefore, we have adopted it as symbolical of small business and free enterprise which must always expand. 2. Our corporation is charged by Congress with representing small business and free enterprise. 3. The Pyramid signifies “Strength and Duration.” The strength and duration of small business is the foundation of our American way and must be preserved. 4. Our official Seal expresses the credo of the Corporation in representing the small business interests of the Nation. SMALLER WAR PLANTS CORPORATION Washington, D. C. Board of Directors MAURY MAVERICK Chairman James T. Howington Vice Chairman Patrick W. McDonough Laurence F. Arnold LETTER OF SUBMITTAL Office of the Chairman, War Production Board, Washington, D. C., February 21, 1945. My Dear Mr. President: Pursuant to Section 5 of the Act approved June 11, 1942 (Public Law 603, 77th Congress), I have the honor of submitting herewith the sixteenth report on the operations of the Chairman of the War Production Board under that Act. For this purpose I am transmitting a report to me from Maury Maverick, Chairman of the Board of Directors and General Manager of the Smaller War Plants Corporation. This report covers the period from December 1, 1944, through January 31, 1945- Respectfully, J. A. Krug. The President of the United States, , The White House, Washington, D. C. LETTER OF TRANSMITTAL February 16, 1945- Mr. J. A. Krug, Chairman War Production Board, Washington, D. C. Drab Mr. Krug: Lately in France with other Vice Chairmen of the War Production Board, we saw underground factories the Nazis had built in French fortifications. We got enough information to realize that Germany is using every available facility, large or small. In England, too, I have seen numerous factories, and I can personally say that every available little plant is being used. From the knowledge I have gained on this subject in Europe, I offer you two conclusions. 1. The war can be won sooner if every facility, little or big, here or in an allied country, is used because the ammunition and tanks and planes and radar will get to the battle fronts quicker. 2. Expanding this point, I suggest you offer the service of the War Production Board to be used in France itself to assist in the rehabilitation of French industry in order to increase war production there, and to better conditions which will hasten the end of the war and benefit the position of the USA in Europe, especially with France. Here in America, we must not build additional facilities unless absolutely necessary. Not only should we not waste time, money and manpower, but there should not be greater concentration of industry in large industrial areas where concentration already exists. If America does not make full use of her resources, it will be a serious mistake from a war production standpoint, AND in the end it will have a serious economic effect on the country. Some of the matters I discuss in this letter, and in the report that follows, may seem a far cry from the technical operations of the Corporation. But everything that affects the destiny of the nation affects “little business”— and hence the Smaller War Plants Corporation. Just as the world is fighting one battle, so it is that in this country we have one economy, of big and little plants. That economy must be kept going, and we must see to it that the facilities of small plants are preserved by their use either in military or civilian production. Otherwise, our small plants will be forced to close, our economy will be dominated by monopolies and cartels, and with little business knocked out, the bottom will fall out of our economy. Then it’s anybody’s guess what will happen; our democracy will then be whirling right, and left, and in a circle. Before I left for France, it was announced in the newspapers that new ordnance facilities to cost $500,000,000 would be built. To increase the production of ammunition, the Smaller War Plants Corporation presented the names of 237 existing facilities, which we felt should be considered in the program. As of January 1, 1945, the War Department had scheduled for awards 26 of the plants recommended at this time. Twenty-six other small plants which had been recommended on previous programs were also scheduled for awards. Since January, there have been changes and we are working with the Ordnance Department with the hope that when the program is completed more small plants will be used. On behalf of the loyal small manufacturers I have expressed appreciation for the letter which you, Mr. Krug, wrote the War and Navy Departments and the Maritime Commission, on February 6, 1945- Your letter very clearly set forth the importance of making full use of all small plants. We have written a letter to the Secretary of the Navy, a copy of which is attached to the report as Appendix A, highly complimenting him on the cooperation of the Navy Department. The Corporation has four active war programs. They are: (1) Procure ments; (2) Loans; (3) Technical Advisory Services; (4) Plant Assistance. In all these we have made big gains. The total progress in procurements and loans during the last six months has been especially striking. In my last report, I discussed the need for additional capital funds to carry on the work we are doing. Since then, Congress authorized an increase in the capital stock from $150 million to $350 million. We are helping chop the little people’s wood, by loans, advice, and representation. Congress is treating us all right. Sincerely yours, Maury Maverick, Chairman and General Manager. CONTENTS Page Letter of Submittal.............................................................. i Letter of Transmittal....................................................... n I. Small Plants and War Production.................................... 1 II. Medium Shell Program............... '................................ 4 III. SWPC and Servicemen’s Guaranty Loan Program........................... 6 IV. SWPC Loans........................................................... 11 V. Financial Position of Small Business........•....................... 14 VI. Merger Movement During the War....................................... 16 EXHIBITS I. Distribution of Prime Contracts Awarded with assistance of Smalley War Plants Corporation according to Regions and Size of Plant............... 21 IL Subcontracts placed by Smaller War Plants Corporation, December 1, 1944 through January 31, 1945............................................... 22 III. Number and dollar value of contracts awarded by Government procurement agencies, shown by months......................;.......................... 22 APPENDIX A Letter of Maury Maverick, Chairman and General Manager, Smaller War Plants Corporation to Honorable James V. Forrestal, Secretary of the Navy, dated February 5, 1945.... 25 APPENDIX B SWPC Agreement with Veterans Administration.....,............................... 26 Procedure Relating to Loans for Business Purposes, under Title III of the Servicemen’s Readjustment Act of 1944........................................................ 29 SIXTEENTH BIMONTHLY REPORT OF THE SMALLER WAR PLANTS CORPORATION December 1, 1944 through January 31, 1945 I SMALL PLANTS AND WAR PRODUCTION Soldiers Need Help; Use Small Plants Our soldiers, sailors, coastguardsmen, and marines need heavy reinforcements of men to help them, and they also need enormous supplies and equipment. The necessity for more war production is clear. In order to accomplish these ends, we find that more than 900,000 men will have to be drafted before June. That’s an exceptionally big order to fill in such a short time. It means a heavy draft on the labor force and makes the war production job far more complicated and difficult. For getting the necessary supplies and equipment, our American strategy must include rapid and widespread adjustments in production on the home battlefront in industry. More and more small plants must be used to get the speedy output to finally beat down our enemies. The War Effort has been helped considerably in the past, but must be much more greatly helped in the future, in three ways: (1) Small plants can be put to work in a hurry. This saves time in delivery of munitions. (2) Small plants are to a great extent in noncritical labor areas. This helps solve manpower problems which are far more difficult in the heavily industrialized areas where the large plants are. (3) Using small plants will do away with the need for additional facilities , the building of which will waste manpower and materials—and much money. Small Plants Got More Business in December and January In December and January the Smaller War Plants Corporation got prime contracts directly for small plants to the extent of $432,155,000. This is an increase of $139,000,000 or 47 per cent over the previous two months. Note: This $432,155,000 does not include subcontracts obtained for and by small plants. Further, substantial increases in this record are projected for the first two months of 1945, on the basis of January reports of prime contract awards. (See Chart No. 1.) Chart No. 1. Procurement Record of Small Plants Rising The two-year effort of the Smaller War Plants Corporation to get more procurement contracts for small plants is showing better results. In 1944, $2.1 billion of prime contracts were awarded to small plants with the help of the Smaller War Plants Corporation, as compared to $1.2 billion in the previous sixteen months (roughly latter quarter of 1942, all of 1943) of the Corporation’s activities—an increase of 66 per cent. (See Chart No. 2.) This was helped by: First, a new working agreement concluded with the War Department on April 21, 1944* and, Second, a directive from Secretary of the Navy Forrestal, issued on April 17, 1944, at the recommendation of our Chairman, instructing all Navy Bureaus to carry out and develop the Procurement Development Plan. Both of these steps showed beneficial results. This is indicated in the accompanying Chart No. 3 which shows the percentage share of prime contracts awarded by the Army and the Navy to small plants during three periods: (1) prior to the appointment of the present management in January 1944; (2) from January to April 1944 when thp new working arrange- * Printed in our Twelfth Bimonthly Report. Chart No. 2. ments with the Army and Navy were adopted; and (3) from May to the end of 1944. As can be seen from Chart No. 3 the share of total prime contracts going to small plants rose in the case of the Army, from an average of 13 per cent prior to 1944 to 22 per cent in the last seven months of 1944. In the case of the Navy, prime contracts to small plants rose from 8 to 24 per cent. ARMY AND NAVY CONTRACT AWARDS TO SMALL PLANTS AS PERCENT OF TOTAL OF ALL AWARDS Chart No. 3- Plenty of Unused Capacity in Small Plants But there is plenty to be done, because nearly everywhere in the country there are small plants with idle capacity. We are going after war business for these small plants and will continue to do so. This is to win the war, of course. At the same time, we want to prevent bad spots of unemploy-ipent from developing in places, and avoid increased pressure for production on the concentrated industrial areas. Our objectives are to prevent artificial and harmful concentration, and to help the natural spread of the economy over the country as the right and sensible thing to do, and to maintain the fundamental structure of a broad, national, free enterprise industry. II MEDIUM SHELL PROGRAM Urgently, one of the most critical war production programs for medium shells was presented by the Army on November 25,1944. The day this new requirement was presented, the Smaller War Plants Corporation went to work. It was found immediately that this was a most difficult schedule to put on top of the previous production program. When the new program was announced the known production facilities, 71 small and 156 large plants, already were producing at capacity. Most were bn a 7-day-a-week-24-hours-a-day-schedule. It was found that there were only three ways to get this additional program: (1) By finding new plants, small or large; or (2) By constructing large new plants which would not be completed for a long period of time and would involve heavy outlays of manpower and material; or (3) By the addition of new facilities to previously established producers, large or small. 237 Small Plants Submitted in 10 Days The Corporation had only 10 working days in which to conduct a nationwide search for competent sources of production and submit the names of small plants who could contribute to the program. After a rapid but thorough canvas by the regional offices of about seven or eight hundred likely small plants, the Corporation submitted 237 screened nominations. The Ordnance Department accepted for consideration only 120 small firms proposed by us, including 16 plants for percussion primers, a separate part of the program. However, the Army, in the meantime, had decided to allocate certain parts of the shell program to various areas of the Country. That is, they would not accept facilities to produce certain parts of the program except in designated areas. This action was taken only six days before the plants were to be submitted. Thus, the Corporation was in the position of recommending plants for work which was never allocated to the areas in which the plants were located. Small Plants Received 25*Per Cent of Program As of January 1, 1945, the condition was this. There have been changes since that time, but as of January 1, 1945, this is the record. The results show that 60 per cent of the number of awards were scheduled for 75 large plants. This would represent awards of $209,000,000, or 75 per cent of the total contract value involved. Twenty per cent of the number of awards were planned for 26 small plants recommended by this Corporation, amounting to the value of $34,000,000, or 12 per cent of the program. Another 20 per cent of awards and 13 per cent of the value were scheduled for 26 other small plants which were not recommended by Smaller War Plants Corporation at this time, but most of which had been recommended to the Army previously. Program Going Mainly to Big Plants in Tight Labor Areas In view of the critical manpower situation and of the stated desire to place production where labor is available, an examination of the way in which awards are scheduled according to labor areas is of interest. It is to be noted that of the 52 small plants scheduled for awards 27 are in critical labor areas; 25 are in non critical labor areas. Of the 75 large plants scheduled for awards, 55 are in critical labor areas and 20 are in noncritical labor areas. Of the 78 small plants designated by the Smaller War Plants Corporation, which were approved by Ordnance District Offices but are not getting contracts, 43 are and 35 are not in critical labor areas. However, the Corporation’s field studies indicate that even in the case of the 43 plants in critical areas, (1) no additional manpower is required, or (2) the number of workers needed is so small as to be readily available locally without disturbing other war production. • So far there has been a fair increase in the use of small plants. But that is not enough. Available small plants capacity in noncritical labor areas is still not being properly utilized. To win this war we will continue to attempt to spread the business around because it’s faster and better. Moreover, it is the best assurance we can have that a free enterprise economy will be maintained. Ill SWPC AND SERVICEMEN'S GUARANTY LOAN PROGRAM Important Appraisal Functions Assigned to Corporation General Hines, Administrator for Veterans’ Affairs, has designated the Smaller War Plants Corporation as an agency to process guarantees on business loans to veterans under the Servicemen’s Readjustment Act of 1944. (Appendix B). The Corporation will assist the Administrator in determining approval or disapproval of guarantee applications and will make recommendations, but the responsibility for final action rests with the Administrator. The Smaller War Plants Corporation will process guaranty applications originating from lenders other than banks or other federal or state supervised credit institutions. These will probably comprise the greater proportion of applications and will include sellers of businesses, manufacturers, distributors, and individuals. (The Reconstruction Finance Corporation will process applications from banks.) The Servicemen’s Readjustment Act provides for a 50 per cent Government (Veterans’ Administration) guaranty, up to a maximum guaranty of $2,000, on loans made to veterans by others. In many cases the veteran may find a man or a firm who is ready to sell him on credit a business or a building, or machinery and equipment. Or he may find a private individual or firm who is ready to lend him money to start up in business. If the prospective lender wants to use the benefits of the GI loan guaranty, the application is to be routed through the Smaller War Plants Corporation. The Smaller War Plants Corporation estimates, from a survey conducted by the Army,* that more than 700,000 service men have definite -plans to reenter or establish businesses qf their own. Of this number, about 550,-000 expect to start new businesses, while 150,000 will go into enterprises that they had before the war. In addition, there is another four per cent, or 400,000, who have tentative plans for businesses of their own, making a total of 1,100,000 with definite or tentative plans. *Information & Education Division Headquarters, Army Service Forces, Report No. 13-130, January 15, 1945. On top of this there is another 4 per cent, or 400,000 with vague plans for a business, as well as a further 20 per cent, or 2,000,000 more, who are interested in owning a business but have no plans for achieving this objective. In short, some 3,500,000 servicemen, comprising one-third of the total, hope to have a business of their own. As the war continues and the number of potential war veterans increases, these totals will rise considerably, not only because of the greater number of veterans but also because of their desire to be free from regimentation. The Army report says that ‘ * men in the Army a longer time are somewhat more apt to plan businesses of their own than are men with a shorter period of service.” This does not mean that all these millions will go into business. However, it remains a fact that hundreds of thousands will want to, and we should be prepared to help them. Industries Must Expand Greatly to Absorb Veterans The economy will have to expand greatly if any substantial proportion of these servicemen are really going to be able to set up their own business. The 530,000 small businesses which disappeared during the war will not even take care of the 550,000 service men having definite plans for starting a business—to say nothing of those whose hopes for their own business have not crystallized into concrete plans. Therefore, we cannot be satisfied unless the returning owners of small businesses and the veterans who want to start new ones should cause altogether the establishment of at least a million new businesses. In all of this we must keep in mind the fact that, as the Army points out, ” the veterans who plan to start new businesses will be competing with a large number of non veterans who will have had previous experience as business owners.” In order to achieve the necessary goal of over a million new businesses, there must be broad, bold action. Government, big business, labor unions, the professions, military forces—everyone—should encourage this. Technical Guidance Needed It is obvious that many returning soldiers will require technical guidance in the businesses they choose to start. Without such help, thousands of veterans will surely fail, and their business mortality may prove both a personal and a national catastrophe. According to the Army Survey, roughly one-quarter of the servicemen who plan to start businesses are without ‘ ‘ any pertinent experience, ’ ’ and “feel the need for more training or experience to help them succeed in a business venture.” It is the Corporation’s viewpoint that while veterans should be encouraged to start new independent enterprises in accordance with the intnte of the GI Bill of Rights and the Surplus Property Act, financial assistance without technical advice, when needed, may do more harm to the veterans than good. Capital and Loan Requirements Among the most important questions relating to veterans’ problems are: 1. How much money will the veterans planning small businesses need to borrow? 2. How much of their loan requirements will be supplied by private sources, and how much should the Government be prepared to extend? No one can tell now how much money the veterans will need. The GI Bill of Rights sets an operating figure of $4,000 per loan, but we know that many veterans who will want to start businesses of their own will require larger loans. Many loans will be for $25,000, $50,000 or $100,000. According to the Army Services no less than 25 percent of all servicemen definitely planning a new business have in mind an investment of over $4,000. If only 500,000 veterans (and it may well be more) will need loans for business, the amount of credit required will run into billions. But this is credit and not spending, and will be insignificant compared to the approximately $8,000,000,000 a month we are spending on war. Extent of Private Capital Aid for Veteran How many of these veterans will be accommodated and how much of their estimated requirements will be supplied by private sources? On these points a few general observations can be made. Private financial institutions, such as commercial banks, will probably have little interest in the veterans who can’t supply at least 50 per cent of the capital required by their new businesses. They will probably not be regarded, under current commercial banking standards, as good risks, despite the willingness of the Government to guarantee 50 per cent of an individual loan up to $4,000 of total credit. According to the Army Survey at least 42 per cent of the servicemen with definite plans for businesses expect to borrow more than half of their capital and even this is probably an understatement. The Army itself has called attention to the ‘ ‘ small amount of capitalization planned by some men who want to start businesses which usually require costly equipment in order to survive competition.” If these returning servicemen are to have a chance to start their own businesses, as they have been encouraged to do by Congress, and as they are now planning, the Government will have to provide more assurance of adequate financing. The weakness of the present system is that a separate guarantee is extended to the banks on each individual loan. Under this system the banks realize that they will surely take losses. We urge consideration of a blanket insurance system ¡comparable to the Federal Housing Administration. A blanket insurance system which protects the banks against loss of up to 50 per cent, or even a smaller proportion, of all the GI loans will induce much greater liberality in the banks and carry out the intent of the GI Bill of Rights. Conclusion: Servicemen Need Technical Guidance, Direct Government Loans, and Loan Insurance Program To sum up, the servicemen’s loan program, while off to an excellent start, has already revealed the need of additional measures of three kinds: (1) Technical advice and guidance must be provided to returning veterans starting new small businesses. Otherwise large proportions will fail, their savings will be dissipated, they may be burdened with a continuing mortgage on their future income, and their attitude toward government will be antagonistic. (2) Additional legislation should provide for direct Government loans to veterans to start their small independent businesses if they cannot otherwise obtain adequate financing on reasonable terms. (3) A blanket insurance system comparable to the Federal Housing Administration should be substituted for the present method of partial guarantees on individual loans to servicemen. Such measures would make possible the establishment of an “industrial homestead’’ for the returning soldier who wants to run his own business and be his own boss. They would provide more jobs for others. They are necessary in a national program leading to full production and full employment in a free enterprise economy. Chart No. 4. LOANS AND LEASES Chart No. 5. IV SWPC LOANS In the past year, 1944, the Corporation has granted about three and a half times more financial aid tô small business than in the previous sixteen months of its existence. (Chart No. 4.) The next chart, No. 5, shows the substantial increases in loans and leases in each successive half-yearly period. Demands on the Corporation are still rising, and in December and January, 1,422 inquiries for loans were received, an increase of 19 per cent above the prior period of October-November. Loan Activities Four important conclusions stand out from a review of the Corporation’s lending activities. 1. The Corporation has followed a careful policy. This is indicated by its extremely low loss ratio of less than 1 per cent. All these loans had been turned down by the local banks of the borrowers. From our small losses this looks as if the banks, have beea turning down good loans. 2. The Corporation has loaned most of its money to distinctly small plants. Plants employing less than 250 workers received 95 per cent of the total number of loans and 79 per cent of the value of loans actually drawn against. The Corporation has only made 13 loans to plants employing over 500 workers. 3. The Corporation has advanced the bulk of its money in the form of relatively large working capital loans to small war plants. Most of these loans have been comparatively large in relation to the size of the small business. Loan authorizations to all plants employing less than 250 employees averaged $79,000. The very size of these loans needed by small businesses to finance war production presented various difficulties to the local banks. One reason was that such loans were well in excess of the amount customarily obtained by the small business from its local bank. 4. The Corporation has found it necessary to grant most of its financial assistance in the form of direct loans. Although the Corporation makes every possible effort to have the local banks take all or part of the loan, the banks’ liability on loans made with the Corporation amounts to only 4 per cent of the total value of loans drawn against. Banks’ participation has thus been extremely small. This leaves little doubt but that small business will have a continuing need during the reconversion and peacetime periods for direct loans. General Policies Section 4 (0 °f Public Law 603—77th Congress— which established the Corporation, states: “The Corporation is empowered (1) to make loans or advances, ... to enable small business concerns to finance plant construction, conversion, or expansion, or to finance the acquisition of equipment, facilities, machinery, supplies or materials, or to supply such concerns with capital, to be used in the manufacture of articles, equipment, supplies, or materials for war or essential civilian purposes; and such loans or advances may be made— directly or in cooperation with banks or other lending institutions . . . (2) to purchase or lease such land, to purchase, lease, build, or expand such plants . . . equipment, facilities, etc. . . . (3) to lease, sell, or otherwise dispose of to any small business concern any such land, plants, equipment, facilities, machinery, materials, or supplies.’’ A relatively small proportion of the Corporation’s loans ha’ve been for long-term capital purposes. Only the 4.6 per cent of total loans which went for plant equipment and machinery as well as part of the 11.8 per cent which went for supplies, land, buildings, debt retirement, and miscellaneous expenses could be classified as loans for long-term capital purposes. Working capital loans amounted to 83-6 per cent of the total value of authorizations. The Corporation regularly receives applications which are, in fact, suitable for commercial banks. The local bank is offered the opportunity to take the entire loan or any part of it. In fact, even after the bank has turned down this initial request, it may at any time during the processing of the.application undertake the loan fully or partially. Banks sometime assume loans which they have initially denied, after the Smaller War Plants Corporation has completed a detailed financial and engineering investigation of the applicant. In many cases the Corporation performs the function more or less of “breaking the ice” by lending money to a small business, which then performs satisfactorily, and in that way demonstrates its acceptability as a credit risk for subsequent loans from its local bank. Type of Financial Aid On all direct loans the Corporation charges interest at the rate of 4 per cent per annum. Where the bank participates by assuming part of the risk, the interest rate on the banks’ portion of the loan is generally 6 per cent, while that on the Corporation’s share is 4 per cent. When the Corporation agrees to repurchase from the bank the entire balance due on the loan on demand, the bank does make and service the loan at interest rates not exceeding 4 per cent. SWPC Loans by Size of Plant Perhaps the best indication of the extent to which the Corporation has rendered financial aid to small business is provided in an analysis of its loans by size of the plants to which they have been made. Such a distribution is presented in Chart No. 6 for total loans drawn against, as of December 15, 1944, amounting to $153,860,000.* LOANS TO SMALL PLANTS * DISTRIBUTED BY SIZE OF PLANT ACCORDING TO Chart No. 6. That the Smaller War Plants Corporation’s loans have gone chiefly to small plants, namely those employing less than 250 employees, is clearly evident. These small plants have received 95-5 per cent of the number and 79.4 per cent of the value of all of the Corporation’s loans drawn against. Meaning for the Future From its few years of wartime experience in making loans to small business, the Corporation has arrived at certain definite conclusions regarding the future: (1) Small business will have a great need for legitimate sound loans which will probably not be supplied by banks or other private institutions, and therefore Government credit must be available. (2) In addition, a loan insurance program, on the order of the Federal Housing Administration, should be put into effect to stimulate lending by private banks to small business. *The figure of $197,000,000 shown in Chart 4 represents authorizations as of December 31, 1944, whereas $153,860,000 represents authorizations against which borrowers had actually drawn funds as of December 15, 1944. 632654—45------3 1 3 . V FINANCIAL POSITION OF SMALL BUSINESS Do small business enterprises have the financial resources to meet the problems of readjustment after Victory in Europe? Our own investigations and the studies of responsible research agencies indicate that little business, on the whole, is not prepared for readjustment. Unless little business has adequate financial resources, millions of workers will be out of jobs for 'an extended period. Reports received by the Corporation from the officials of its 110 field offices throughout the country indicate that: (a) Most small manufacturing plants which have obtained war contracts have made money. However, a large proportion of those unable to get into war or essential civilian work have suffered and some have been forced out of business. (b) Small plants which have expanded their plants and facilities for war production have done so largely at their own expense. On the other hand the big plants got Government financing in the billions for their new facilities. (c) Such small plants with expanded facilities for war work have also found it necessary to carry a much higher than their peacetime volume of raw materials and goods in process which have been obtained primarily through loans which must await contract settlement for liquidation. (d) The tax structure and renegotiation provisions have borne more heavily on little than on big business. RESULT: Small businesses have been unable to accumulate the reserves necessary to tide them through the readjustment -period. In fact, many of those small businesses which have expanded almost violently during the war, to a size all out of proportion to their normal character, in many cases have been renegotiated out of so much working capital that they are in no shape to reconvert without substantial help. (e) A very considerable number of small businessmen are not fully aware of the financial stringency they face nor of the threat to their economic existence. This is because their current sales volume is very high, the inflow of cash—often through the help of advance payments on war contracts—is sufficient to meet current obligations, and they are using for current operations cash which is owed to the Government for taxes and should be reserved for this purpose. (f) Immediately following the end of the War in Europe these small concerns will be shocked into an awareness of their predicament, and the first tax day following VE-Day will present many of them with an almost insurmountable obstacle to continued solvency. These are broad statements, but seriously important ones. There are thousands of small firms which are exceptions, but there are many more thousands to which they do apply. It is interesting to note that the same general conclusion has been reached by the National Industrial Conference Board, an organization not particularly associated with small business, from a study of the working capital position of a carefully selected sample of small metal-working plants. For the entire group of companies examined, current asssets exceeded current liabilities by only 17 per cent and for the smallest group by only 17 per cent. In the words of the National Industrial Conference Board report, ‘ * Analyses . . i suggest that small corporations may encounter considerable difficulty (in the postwar period) from inadequate amounts of liquid working capital—particularly the smaller corporations now engaged heavily in war production.” The condition calls for effective remedies by Congress. Reconversion financing must be provided to small business. If banks and other private agencies cannot satisfy the total financing demand, public financial institutions must be authorized and directed to meet the contingency. The Smaller War Plants Corporation is vitally concerned with the continued financial health and strength of little business. During the war its lending authority has been used to provide the financial sinews for war production and to help maintain in the manufacturing field a strong small business economy. Under the Surplus Property Act, the Corporation was given the power to make or guarantee loans to small business enterprises in connection with the acquisition/conversion and operation of surplus plants and facilities. Under the Contract Settlement Act it was given the power to make or guarantee loans on contract termination claims. Under Public Law 603, its basic statute, it may, of course, make or participate in loans for essential civilian, as well as war production. However, the Corporation does not have the power to make or guarantee reconversion loans generally. A bill authorizing it to make, guarantee, or insure reconversion loans generally, in behalf of small business concerns, is now pending in the House. Early consideration of the problem is urged, in order that a constructive program may be started in time to ease the shock of wholesale terminations and permit adjustments to peace-time operations with minimum interruption and unemployment. VI THE MERGER MOVEMENT DURING THE WAR Small businesses are being gobbled up by big businesses. This conclusion is indicated by a survey just completed by the Smaller War Plants Corporation, of mergers and acquisitions of smaller mining and manufacturing firms during the war years. This trend will be increased by victory and the strategy of big business to get set for peace. Our interest is in freedom of choice for small business—a freedom as great as that possible for big business. Some small businessmen will, from time to time, voluntarily sell to or join with others. Small businessmen should not be exposed to conditions which bear so unequally on them, merely because of their relative smallness, that by far the most desirable alternative is to sell out. At the end of the first World War there occurred a wave of mergers and gobble-ups which extended through 1919, 1920 and the early part of 1921, until it was interrupted by the postwar depression. Again in 1925, when prosperous conditions returned, the absorption and purchase of small businesses was renewed. This tendency expanded at fever heat to reach all-time peaks in 1928 and 1929. This history of what happened after the last war should at least give us an inkling of what we are in for after this war. It can be much worse. In the early stages of the present war there was little incentive for large concerns to acquire small businesses. They were presented with an opportunity to take on all the war orders they could handle and a wide open U. S. Treasury, and certainly did not need to buy up small firms in order to secure war contracts. The big ducks swam in the government’s financial ocean and liked it. However, as prospects for the production of civilian goods have improved, the elements of competition and control over markets have again become important, and there has occurred a revival of interest in mergers and acquisitions. Postwar Prospects Are the Dominant Cause Here is the record—the number of companies absorbed by acquisition or merger since 1939 is shown on Chart No. 7. Notice that the upward trend in acquisitions did not take hold until the latter part of 1942. Since then the increase has been marked. Incomplete records for the last half of 1944, when optimism over a quick victory in Europe and hopes for early reconversion to peacetime production reached a peak, show acquisitions and mergers at'the highest level since 1931- MERGER MOVEMENT DURING THE WAR NUMBER OF MANUFACTURING AND MINING CONCERNS NUMBER OF CONCERNS________ ACQUIRED OR MERGED____________NUMBER OF CONCERNS Chart No. 7 Big Concerns Have Plenty of Cash Right now and after the war the large companies will have billions of liquid capital that can be used to buy up small companies, like so many bags of potatoes. A recent report of the Securities and Exchange Commission* on the Working Capital position of 1,271 large companies in all types of industries, except banks, insurance, and investment companies, revealed that between December 1939 and June 1944 these large concerns increased their cash and *Securities and Exchange Commission “Working Capital of 1,271 Registered Corporations,” December ’39-June ’44- government securities from $5.6 billion to $21.5 billion, nearly a quadruple advance. The details are shown in the following table: Changes in Current Assets of 1,271 Large Companies December 1939—June 1944 [Millions of Dollars] December 1939 June 1944 Change. Amount Percentage Cash on hand in banks $4,375 $7, 771 +$3, 396 + 77.6 Government Securities, etc . 1,247 ,13, 766 + 12, 519 + 1,003.9 Other notes and accounts receivable 4,302 4,166 —136 -3.2 Inventories 6,241 10, 502 +4,261 + 68.3 Other Current assets 63 255 + 192 + 304. 8 Total Current Assets 16, 228 36,460 +20,232 + 124.7 Total Current Liability (including renegotiation provisions) 5,153 19,011 + 13,858 +269. 9 Net working capital 11,075 17,449 + 6,374 +57.6 On the other hand, it appears that the financial position of a considerable segment of small business will be precarious—dangerous and shaky—in the readjustment period, as already shown in this report (Chapter V, “Financial Position of Small Business). Many such small businesses may consider it more advantageous to sell out than to try to fight through with their limited capital, reconvert their plants, establish sales forces and marketing outlets, and meet all the other problems and costs of reconversion, all of which means they will really be forced out of business. War Acquisitions Mostly of Small Firms During the five years, 1940-1944, there have been about 650 recorded cases of acquisitions or mergers.1 Most of them represent the swallowing of small businesses by large concerns; ninety-four percent were acquisitions of capital stock or assets. Only six percent took the form of mergers— where the two or more parties to the transaction usually approximate one another in size. Food Industry Going Large-Scale By far the largest number of acquisitions occurred in the food industries. This part of the economy, which has been one of the last to develop a 1 “The record is neither complete nor accurate. Some consolidations or acquisitions may never have reached the public press or the trade journals, although it is difficult to believe that many important cases would have been kept secret ... At any rate the records are probably correct as to trend.” (Temporary National Economic Committee Monograph No. 27. “The Structure of Industry.” P. 232.) trend towards large-scale organizations, apparently is now following the path of the conquest of the little and independent industries. Grocery chains, distilleries, dairy companies and specialty food companies are all actively represented in the gobble-up movement. One of the country’s largest grocery chain systems has not only increased the number of its retail outlets during recent years, but also has entered the meat packing field for the first time, with the purchase of three such concerns early in 1944. The usual pattern of integration in this field has embraced retail stores and warehouses, as well as bakeries, meat packing plants, coffee roasting plants, canning plants, general factories and printing plants. Distillers Active Large liquor concerns have been very active in acquiring small distillers. Recently they have entered the winery field on a large scale. In fact, the “Big Four’’ of the distillers now control more than half of the country’s winery capacity. Also they have bought into the eastern importers, wholesalers and retailers of wine. From 1940 through 1944, 10 alcoholic beverage companies acquired 37 small firms, or an average of nearly 4 acquisitions per company. Two of the largest concerns between them now control 15 companies, consisting of 8 distilleries, 5 wineries, 1 brewery and 1 carbonated water firm. A third large company has acquired a total of 9 separate distilleries in the past 5 years. Most of the small distilleries absorbed were located in the bourbon producing districts of Kentucky, while the acquisition of wineries has spread through California. Nation-Wide Marketing Systems Important In specialty food products, two nationally-known concerns have conquered 15 small businesses since 1939. The acquisitions include yeast, vinegar, dairy products, cereal, food, soft drink and toiletries concerns. One large scale dairy corporation has acquired 12 small companies in this period including a brewery, a fishery and a canning plant. In the chemical industry, as in foods, the greatest number of acquisitions has been made by concerns with well established nation-wide distribution systems, particularly in drugs and pharmaceuticals. One large pharmaceutical house has absorbed 19 concerns during the war, including 2 dairies, 1 coffee plant and 1 bakery. Other Fields Among the steel fabricators, one of the leading can manufacturing companies acquired 7 concerns, including firms in the chemical, fiber container, paper cup, bottle cap, can, can machinery and plastic industries. Despite the high degree of concentration that already exists in the petroleum industry, acquisitions have been numerous. One firm absorbed 6 smaller concerns during the war period. Finally it should be noted that 35 companies in a wide variety of industries were taken over by 22 concerns in the financial and investment field. Protection and Aid to Small Business The anti-trust law which relates most directly to the merger movement is the Clayton Act of 1914. It outlaws any mergers and acquisitions which have the effect of restraining trade. But the Courts have interpreted the Act to apply only to the purchase of capital stock and not to the acquisition of physical assets. Thus as a practical matter, the intent of the Act has been easily and widely circumvented. The Federal Trade Commission has recommended each year over an extended period of time that the Clayton Act be changed to prohibit, specifically, the acquisitions of physical assets which would serve to restrain' trade as well as stock control. In its reports of 1930, for example, the Commission stated that, “ . . . it is possible for a Corporation to substantially lessen or wholly eliminate competition between itself and its competitor or between two or more competing corporations engaged in commerce through the acquisition of assets.” In 1943, the Commission reiterated its recommendations, which were endorsed by the Temporary National Economic Committee,”. . . that the acquisition of assets of competing corporations over a certain size be forbidden without prior governmental approval to insure that the purpose and probable result of such acquisition would be in the public interest.” If we are going to raise great armies and fight global wars to preserve the American economic system, then here at home we must prevent the legalistic infiltration of monopoly controls and the insidious destruction of our basic concept of America as a land of opportunity. We must not allow super-concentration of industry, or free enterprise will cease to exist. Private treaties and secret diplomacy among the giants of industry and the gobbling up of free and independent small enterprises are as alien to democracy on the economic home front as they are in foreign affairs. EXHIBITS Exhibit I.—Distribution of Prime Contracts Awarded with the Assistance1 of Smaller War Plants Corporation, Reported from Nov. 28, 1944 to Jan. 25, 1944 DISTRIBUTION BY REGIONS [Preliminary] Regions Number of contracts Percent Dollar value Percent ' United States 4,069 100.0 $455, 923, 682 100.0 Boston 601 14. 8 46, 745,193 10. 3 New York 504 12.4 62, 928,476 13. 8 Philadelphia 532 13.1 5L 223' 820 11. 2 Atlanta 118 2. 9 14’ 114' 826 3.1 Cleveland 452 11.1 60' 739’ 619 13. 3 Chicago............................. 571 14. 0 78’ 6O5' 326 17. 2 Kansas City 382 9.4 39’ 276' 926 8.6 Dallas 102 2. 5 13, 873, 903 3. 0 Denver 132 3.2 4, 328, 574 1.0 San Francisco 191 4.7 6, 812,429 1.5 Detroit 235 5.8 39,208, 840 8.6 Minneapolis 78 1.9 9, 275, 580 2.0 Seattle 82 2.0 14, 822,082 ' 3.3 Los Angeles 89 2.2 13, 968,088 3.1 DISTRIBUTION BY SIZE OF PLANT Size of plant Number of contracts Percent Dollar value Percent Total, all groups 4,069 100.0 $455,923,682 100.0 1-49 wage earners 1,226 30.1 46, 371, 813 10. 2 50-99 wage earners 847 20. 8 70] 384’ 434 15. 4 100-249 wage earners 1,154 28.4 144, 545,155 31.7 249—499 wage earners 800 ||j| 19.7 179,359, 906 39. 3 500—Over wage earners 42 1.0 15, 262, 374 3.4 1 Includes 114 Prime contracts valued at $11,710,065 which were awarded with the concurrence of Smaller War Plants Corporation. Source: SWPC-6B. Exhibit II.—Subcontracts Placed by Smaller War Plants Corporation, December 1, 1944, through January 31, 1945 Subcontracts for thf manufacture of furniture for the Federal Public Housing Authority Name Address Amount Marietta Chair Company Marietta, Ohio $34, 335. 00 Forrest Furniture Manufacturing Company.. Bellingham, Wash 60,131. 30 B. P. John Furniture Corp Portland, Oreg 24, 900. 00 Doernbecher Manufacturing Company Portland, Oreg 47,407. 50 Phoenix Chair Company Sheboygan, Wis 13, 900. 00 R. Veal and Son Albany, Oreg................ 24, 900. 00 Globe-Bosse-World Furniture Corporation.. Evansville, Ind 41, 244. 00 Forrest Furniture Manufacturing Company.. Bellingham, Wash Naperville, Ill 106,120.00 Kroehler Manufacturing Co, 171, 000. 00 Eisen Brothers Hoboken, N.J .... 39, 250. 00 Chautauqua Cabinet Company Mayville, N. Y 50, 877. 00 Karges Furniture Company. . Evansville, Ind 19,141. 50 B. P. John Furniture Corporation Portland, Oregon 73, 395. 00 Total $706,601. 30 Exhibit III.—Number and dollar value of contracts awarded by Government procurement agencies, shown by months1 [Value of contracts shown in thousands of dollars] Procurement .agency Total contracts Under 100 wage earners Under 500 wage earners Number Value Percent of number Percent of value Percent of number* Percent of value ■ ARMY 1942: November and December.. TOO ■pet cent 65,382 700 percent $6, 575, 8'90 45.9 5.1 67.9 14.0 1943: January to December 241,531 35, 329,396 36.7 3.5 62. 8 12.6 1944: January 12,702 1,571, 806 30.5 5-6 60.4 18.6 February. 12,081 2,498, 926 30.2 3.2 58.9 10.5 March . 13,762 1, 826,353 31.6 4. 8 60.6 18.9 April 14, 472 2, 327,565 33.5 4. 8 62.1 18.0 May 16,066 1,784,979 30. 8 6.2 60.2 23.6 June 14,985 3,151,214 26.4 3.9 59.1 18.5 July 12,028 2, 349,366 27.1 5.1 59.4 16. 9 August 15,643 1, 843,098 28.7 6.6 60.3 23.7 September 12,765 1, 690,050 26.5 7.0 57.0 25. 8 October 12,735 1, 881,402 29.3 8.1 59.1 22.0 November 12,963 1, 836, 737 27-7 6.6 58.2 23.4 December 12, 912 1, 998, 386 27.4 6.4 58.9 25.9 See footnotes at end of table on page 24. Exhibit III.—Number and dollar value of contracts awarded by Government ■procurement agencies, shown by months1—Continued [Value of contracts shown in thousands of dollars] Procurement agency Total contracts Under 100 wage earners Under 500 wage earners Number Value Percent of number Percent of value Percent of number Percent of value NAVY 200 100 1943: ■percent percent April to December 131,359 11,281,740 26. 6 1. 8 48. 4 8.5 1944: ‘ January 18,441 1, 852, 882 29.0 1. 2 53- 0 6.0 February 18,220 1,044, 832 28. 5 2.0 51. 6 8.0 March 19, 920 628’ 576 28.4 3. 8 50. 9 16. 8 April 20’ 351 1,354^ 755 26.4 2.7 48. 8 5. 6 May 19, 813 1,646, 9Ü 25. 2 1. 8 48. 4 7. 3 June 22, 522 1” 080’ 599 27. 6 5. 5 51. 5 15- 5 July 18” 556 1,015,014 30. 0 4. 0 54. 8 12.3 August 19,734 ’ 543,281 24.7 6.5 49.6 22.1 September 26, 873 317, 752 28.1 10. 7 54. 6 33- 3 October 15,’ 389 304, 284 33.7 10.9 58. 8 32. 8 November 26,426 426,398 27.5 6.9 54.8 21. 8 December 15,052 905, 799 32.2 3.2 56.7 9.5 MARITIME COMMISSION 1943: January to December.... 5,022 2,790,889 25.5 4.1 49.0 11.1 1944: January 473 69, 726 22. 2 9. 8 38.1 19. 0 February 282 195Î 503 25.5 5.2 44.7 11.9 March 421 58,555 26.6 13.6 43.5 26.9 April 457 72, 804 30.6 22.5 55.1 40. 7 May 2 June 2 DEPARTMENT OF INTERIOR 1944: February 25 1,034 G) G) G) G) March 60 2, 803 (2) G) g5 G) April 43 776 G) G) X X G) G) May 61 1,531 G) G) G) G) June 70 1,379 G) G) G) G) July 52 185 G) G) G) G) August 69 2,166 G) G) G) G) September 76 1,486 G) G) G) G) October 66 666 (2) G) G) G) November 59 483 G) G) G) G) See footnotes at end of table on page 24. Exhibit III.—Number and dollar value of contracts awarded by Government procurement agencies, shown by months1—Continued Procurement agency Total contracts Under 100 wage earners Under 500 wage earners Number Value Percent of number Percent of value Percent of number Percent of value FEDERAL PUBLIC HOUSING AUTHORITY 1944: February-March 100 ■percent 36 100 pet cent 406 œ 0 o -O CIVIL AERONAUTICS ADMINISTRATION 1944: January-March 17 2,100 17.6 2.1 64.7 77.6 April-May 12 189 16.7 13. 8 83.3 79.4 June-July 16 564 18. 8 8.0 56.3 23.3 August-September 10 476 20.0 18.5 60.0 73.1 panama'canal 1944: February-March 20 .278 20.0 19.1 25.0 23.1 April-May 17 246 23.5 19.1 29.4 23.6 June-July 17 199 29.4 26.1 58. 8 45.7 . August-September 21 437 33.3 16.7 38.1 19.0 October-November 32 318. 37.5 31.1 50.0 40.3 LEND-LEASE 1944: February 1,532 76,253 17.1 5.7 35.2 13.3 March 2,217 73,619 18.2 5.4 36.4 14.7 April 1,634 88,079 16.7 4.7 34.6 14.5 May 1, 984 78, 825 18. 8 55 35.1 16.7 June 2,040 123, 800 17.8 4.3 36.4 15.0 July 1, 865 95,047 22.1 7.2 40.9 20.0 August 1,733 105, 885 20.2 8.7 41.9 31.7 September 1,935 237, 526 19. 8 5.0 40.2 16.3 October 2,339 2,379 148, 953 122,494 18.1 5. 5 38. 7 22.7 November.... .......... 23.5 9.7 44.9 30.0 i Data shown for the Army, Navy, and Maritime Commission are limited to contracts of $10,000 or more and those of the C. A/A. and Panama Canal are limited to contracts of $5,000 or more. - 2 Full data not available for these months. APPENDIX A LETTER TO THE SECRETARY OF THE NAVY Smaller War Plants Corporation Washington, D. C. February 5, 1945-My Dear Mr. Secretary: The Smaller War Plants Corporation has been operating in the Navy Bureaus a little over two years, and during that time our Navy Branch has been in close daily contact with Navy purchasing. It is reported to me that the cooperation extended by Navy Personnel has been excellent, and that there is in evidence a sincere desire on the part of responsible officers to carry out the provisions of the Smaller War Plants Act, Public Law 603. This is most gratifying to me, and I feel it must be equally so to you in that it shows clearly that the letter and intent of your directive of May 7, 1945, are being observed in the interest of small plants. The Industry Cooperation Division of your office under the direction of Commander Frank R. McGregor is doing a fine job in working with and helping our Navy Branch to carry out the duties imposed on it by the Law. Commander McGregor and his organization have assisted in working out efficient procedures and have been of material aid in making them work; have lent us the weight of the Industry Cooperation Division on numerous occasions where such added weight was most useful in solving problems and composing difficulties, and have, indeed, been most cooperative and helpful. I feel that that Division deserves a high position in the regard of the Smaller War Plants Corporation by reason of its efficiency, helpfulness, and keen attention to duty. Commander McGregor is to be commended for the high plane of morale and cooperation which his leadership has inspired in his organization, not only in Washington but throughout the country. In conclusion, let me reiterate my appreciation for the efforts which you, Mr. Secretary, and the officers under your direction, have made in helping preserve small business. Your friend, Maury Maverick, Chairman and General Manager. Honorable James V. Forrestal, Secretary of the Navy, Washington, D. C. APPENDIX B SMALLER WAR PLANTS CORPORATION AGREEMENT WITH THE VETERANS' ADMIN-ISTRATION General Administrative Order No. 34 Effective Date: January 16, 1945 By Order of: Maury Maverick, Chairman and General Manager Section 1. Purpose.—.01 The purpose of this Order is to set forth the provisions of the agreement between the Smaller War Plants Corporation and the Veterans’ Administration regarding loans to veterans according to the attached agreement and preliminary procedure. VETERANS’ ADMINISTRATION Washington, D. C. January 12, 1945-Hon. Maury Maverick, Chairman and General Manager, Smaller War Plants Corporation, 101 Indiana Avenue N W., Washington, D. C. My Peak Mr. Maverick: Title III of the Servicemen’s Readjustment Act of 1944, authorizes the Administrator of Veterans’ Affairs to guarantee loans to veterans for certain purposes and under specified conditions. Also it provides that “loans guaranteed by the Administrator under this title shall be payable under such terms and conditions as may be approved by the Administrator,” and “the Administrator shall designate such agency or agencies, if any, as he finds equipped to determine whether the guaranty of loan should be approved under this title.” On December 22, 1944, I issued regulations for the purpose of executing the provisions of Section 503 and Section 505 (a) of said Act, which authorized the guaranty of loans made for the purchase of business property. By paragraph (d) of Section 4200, said regulations define the agency or agencies referred to above as “any Federal instrumentality designated by the Administrator (including Veterans’ Administration if so designated) to certify whether an application meets the requirements of the Act and regulations, and recommend whether the application should be approved if the applicant is found eligible.” By Sections 4224, 4225 and 4226, the regulations require that application for the guaranty of business loans be submitted to such an agency (which is formally referred to in the regulations as an “ Agency’ ’) and require that the Agency shall review the papers to determine whether it will recommend approval of the application for guaranty”, and “shall forward all papers to the appropriate office of the Administrator with recommendation that (a) the Administrator approve the application, or (b) he disapprove it.” By these provisions, it is contemplated that the designated agencies shall assist the Administrator in his statutory duty of determining approval or disapproval of applications, but without Responsibility attaching the agency for the action of the Administrator. The Smaller War Plants Corporation is hereby designated as such an agency, with authority to receive duly executed applications in the form prescribed by the regulations and to require from applicants all such further and additional data, information and exhibits, and in unusual cases where the circumstances so warrant to make all such investigations and examinations, as may be deemed necessary for the consideration thereof. After such consideration, the Corporation will forward to the appropriate office of the Veterans’ Administration all instruments and documents comprising the application or connected therewith with a written recommendation as to the approval or disapproval of the application and, if disapproval is recommended, the reasons therefor. Such recommendation will be construed to represent an opinion only, and not a sponsorship or endorsement of the loan as to its repayment. It is understood that Smaller War Plants Corporation recommendations will be made over the signature of the Regional Loan Agent having jurisdiction. Attached hereto is the procedure desired to be followed in processing these applications for guaranteed loans. In giving consideration to such applications, you are authorized to consider matters of substance only, and to disregard matters of form not affecting the substance. Presumably the Certification of Eligibility will not require amendment after it reaches the District Loan Agent, and therefore does not require return to the lender with any other papers which do require amendment. It should be retained pending receipt of amended papers within ‘ ‘ reasonable time. ’ ’ In case of withdrawal upon request of applicant (meaning that the loan will not be made) the Certification of Eligibility should be sent to the Veterans’ Administration office having jurisdiction in order that the Veterans’ Administration records can be corrected and the certification form can be cancelled. You are requested to advise and counsel with prospective applicants to such extent as you may deem expedient. It is agreed that the Veterans Administration will take necessary action to establish with the Smaller War Plants Corporation a fund under the provisions of Section 601 of the Economy Act of June 30, 1932 (31 U. S. C. 686) in order to defray the expenses of the Smaller War Plants Corporation in carrying out the responsibilities mentioned above. With your acceptance of the proposal as herein outlined it is requested that you transmit a Standard Form 1080 * Voucher for Adjustment Between Appropriations and/or Funds” in an amount sufficient to cover estimated expenditures for the period ending March 31, 1945- Such estimates should be supported by a schedule showing the additional personnel, and the amount estimated to be required for each such item as printing, supplies, travel and other objects of expenditure ordinarily carried in the budget estimates. An additional advance of funds will be made for the quarter ending June 30, 1945, upon receipt of a similarly supported request therefor. Such request should be made prior to the end of March, 1945. A report should be rendered monthly containing a classified statement of the expenditures made from the fund. The Reconstruction Finance Corporation has been designated as a processing agency for the purpose of business loans and has been allocated those business loans originating in lending institutions (which are defined as Federal or State supervised credit lending institutions), and it is contemplated that business loans originating from other sources, namely, vendors, manufacturers, individuals, etc., will be processed through the Smaller War Plants Corporation. I should also appreciate your corporation acting as business-appraisers in certain instances. In such cases your corporation will be designated as the appraiser to be used by the contemplated lender. The cost of such appraisals, however, may not be assumed by the Veterans’ Administration but must be borne by either the lender or the veteran as they hiay agree. Sincerely yours, (S) Frank T. Hines, A dministrator. Agreed to this 16 th day of January (S) Maury Maverick, Chairman and General Manager, Smaller War Plants Corporation. SMALLER WAR PLANTS CORPORATION Washington, D. C. PROCEDURE RELATING TO LOANS FOR BUSINESS PURPOSES UNDER TITLE III OF THE SERVICEMEN’S READJUSTMENT ACT OF 1944 Section 1. Purposes of Act.—On June 22, 1944, the Servicemen’s Readjustment Act of 1944, Public Law 346, 78th Congress, Chapter 268, 2nd Session, 58 Statutes at Large 284, 38 U. S. Code, 693 et. seq. (hereinafter called the Act), became law. This Act, popularly known as the “G I Bill of Rights,” is designed to assist in certain respects veterans of World War II in adjusting themselves to civilian pursuits. This procedure concerns that part of the Act which provides for assistance to veterans in connection with business other than farming. The assistance is in the form of a guaranty by the Administrator of Veterans’ Affairs (hereinafter called the Administrator), of a portion of a loan or loans which the veteran may obtain for the purchase of a business and for certain other purposes as set forth in the Act and the Regulations issued by the Veterans’ Administration. Sec. 2. Service to be performed by the Smaller War Plants Corporation.—The Administrator has designated the Smaller War Plants Corporation (hereinafter called the Corporation) as an agency to ascertain whether applications for guaranty of loans for business purposes meet the provisions of the Act, and regulations issued by the Administrator pursuant thereto and to make recommendations accordingly as to whether guaranty should be made. In view of this responsibility, these instructions relating to processing applications for guaranty of loans for business purposes are issued for guidance of employees of the Corporation. Sec. 3- Receipt of Applications by the Corporation for Processing.—In issuing to the proposed lender Finance Form 1800 “Certification of Eligibility” the Administrator of Veterans’ Affairs will have designated the name and the address of the processing agent. The address will be that of the regional or other office which is to process the application and recemmend to the Administrator that he approve or disapprove the application for guaranty. , Sec. 4. Eligibility .—K. Eligibility of the-veteran will be certified by the Administrator. The Corporation shall not undertake to determine whether the veteran is eligible. It will accept as establishing the eligibility of the applicant, and the amount of guaranty then available to him the statement thereof on Finance Form 1800 supplied to the lender by the Veterans’ Administration, which form will constitute a part of the necessary papers to be submitted to the designated office of the Corporation. B. There will also be supplied to the Corporation the following papers. 1. The original application for guaranty signed by the prospective lender and veteran-borrower (including Form 1841, Loan Guaranty Certificate). 2. The appraisal report or appraiser’s check sheet or both if required. 3. The credit report. 4. Copy of purchase option, if any; and copy of conditional sales agreement if the losn is to be predicated on such an agreement. 5. Proposed loan closing statement showing the estimated amounts to be disbursed by the lender for the account of the veteran-borrower. 6. Unless stated elsewhere in the papers submitted, a statement of the kind and amount of insurance which will be required and the estimated premium cost of such insurance. 7. Copy of the lease, if any, or letter from the landlord, stating the substance of the rental agreement, if any. Sec. 5. Smaller War Plants Corporation Procedure.—A. Examination and Analysis. Upon receipt of the papers from the lender by the designated office of the Corporation the case will be assigned to the District Loan Agent. It shall be the duty of the agent to determine with respect to each loan for business purposes for which an application is made for guaranty under Title III of the Act, whether: (1) the proceeds of such loan will be used for payment for real or personal property purchased or to be purchased by the veteran and used by him in the bona fide pursuit of such gainful occupation; (2) such property will be useful in and reasonably necessary for the efficient and successful pursuit of such occupation; (3) the ability and experience of the veteran, and the conditions under which he proposes to pursue such occupation, are such that there is a reasonable likelihood that he will be successful in the pursuit of such occupation;. (4) the purchase price paid or to be paid by the veteran for such property does not exceed the reasonable normal value thereof as determined by proper appraisal; and (5) the loan is practicable. It shall be the responsibility of the District Loan Agent to take any steps necessary in order to reach a fair and proper conclusion as to the merits of each case submitted to him. Such steps may consist of contacts with the lender and borrower and such other sources of pertinent information as are readily available. If any cases arise requiring an unusually exhaustive and expensive analysis, the Administrator of Veterans’ Affairs should be notified before proceeding. It is understood, however, that in the event the Corporation finds it necessary to reappraise the property in order to reach a final determination as to whether or not it will recommend approval or disapproval of the application when acting in the capacity of processing agent, the expense incident to such reappraisal shall be considered processing expense and shall be reimbursable. He shall submit his findings with a recommendation that the guaranty be approved or if disapproved shall state his reasons therefor, to the. B. Regional Loan Agent. After examination of the papers submitted by the borrower and lender, and the recommendation of the District Loan Agent, he shall forward the papers originally submitted to the office of the Veterans’ Administration having jurisdiction, having executed on behalf of the Corporation a recommendation to either approve or disapprove the guaranty applied for. In the latter case, he shall accompany it with a letter setting forth the reasons for disapproval. Sec. 6. Amendment to Application.—If veteran’s application is not acceptable for recommendation and counter-proposal seems warranted, the Corporation will address a letter to the lender setting forth the basis upon which the Corporation would recommend approval of the guaranty by the Administrator, provided the Corporation receives within ten days authority from veteran and lender to amend application accordingly. Sec. 7. Recommendation for Guaranty.—A. In making the required determinations, the District Loan Agent shall be guided by the standards established by the Act and the requirements of the Regulations issued by the Administrator of Veterans’ Affairs. B. In determining whether there is reasonable likelihood a veteran will be able to successfully conduct his proposed operation and to discharge the managerial responsibilities that will be required of him, the basic factors to be considered are his character, industry, training, and experience. Due consideration should be given to the training received by him in training centers, schools, colleges, short courses, correspondence or self-study courses, and actual experience he has had in the same or allied lines of business as that which he plans to operate. The amount of business experience required will vary in degree and should bear an appropriate relationship to the character of the operation, the magnitude of the investment, the inherent ability of the veteran, and the practical guidance from other sources that may be available to him after starting operation. C. The veteran’s financial condition should be such as to give reasonable assurance he will be able successfully to carry on his proposed business enterprise. There should be reasonable evidence that the veteran has sufficient working capital with which to start his business and that income from it and from other sources can be anticipated to assure continued operation over the period of the loan. Sec. 8. Appraisal Reports.—I. If loan is for the purpose of acquiring an existing business Finance Form 1845, Appraiser’s Check Sheet, will be pre pared and submitted either by the Corporation acting in the capacity of designated appraiser, or by an appraiser designated by the Administrator of Veterans’ Affairs after consultation with the Corporation. II. If loan is for the purpose of purchasing supplies, equipment, machinery or tools—NEW, the list price, less any customary discount, but not including any premium or other bonus for prompt deli very or immediate possession will be acceptable as representing the reasonable normal value unless some unusual circumstances contraindicate. III. If loan is for the purpose of purchasing supplies, equipment, machinery, or tools—USED, Finance Form 1845a, Appraiser’s Check Sheet, will be prepared and submitted either by the Corporation acting in the capacity of designated appraiser, or by an appraiser designated by the Administrator of Veterans’ Affairs after consultation with the Corporation. IV. If loan is for the purpose of purchasing business realty, Finance Form 1803, Appraisal Report, will be prepared and submitted either by the Corporation acting in the capacity of designated appraiser, or by an appraiser, designated by the Administrator of Veterans’ Affairs after consultation with the Corporation. In all cases where the Corporation is designated on Finance Form 1800 “Certification of Eligibility” as the appraiser it shall take such steps in performing this function as it deems necessary to arrive at a determination as to what constitutes the reasonable normal value of the property to be appraised either by using its own appraisers or by using the services of outside appraisers. If an outside appraiser is used he will be designated by the Loan Guarantee Division of the Veterans’ Administration having jurisdiction. The Regional Loan Agent should contact the foregoing office of the Veterans’ Administration and if requested by it suggest the name of an appraiser who would be satisfactory to the Corporation. Sec. 9. Confidential Character of Information.—The Corporation, its members and employees and appraisers and all other individuals or agencies acquiring, in performing functions connected with an application for guaranty under the Act, any information or data with respect to any person or business shall hold such data or information in strict confidence except as hereinafter provided. During the period the application for guaranty is in the Corporation (a) any such information may be made available to any accredited representative of any agency of the United States or in any judicial proceeding under regulations of .the Corporation, and (b) upon the written request of the veteran, information and data in the hands of the Corporation concerning his application for guaranty or a business with respect to which he has applied for a guaranty may be made available to a proposed lender other than the lender proposed at the time the application was filed, if the Corporation finds that the release of such information will avoid requiring the veteran to furnish information which is already available to the Corporation.