Senator HARRIS. What about the other part?

again,

Mr. BOUTIN. The 303, which is your long-term loan money, it has been pretty much the general practice to have a moratorium period. Sometimes it is as long as 10 years, with the funds payable over the last 5 years of the loan.

Now, each of these has to be tailored pretty much to the plan of operation of the SBIC itself.

Obviously, in granting moratoriums, long-term moratoriums, on principal payments, while it helps the SBIC to budget its money and helps the small business firm in knowing that the money isn't suddenly going to be called, by the same token, it increases our risk.

So it is all the more important that we have accurate and up-to-date information continuously. That, we have not had.

Senator HARRIS. Now, based upon your testimony just now, Mr. Boutin, can you accurately say, then, that the Government has to date suffered no loss?

Mr. BOUTIN. Well, I can only reiterate

Senator HARRIS. You might say something about payments being behind or on schedule, but I think you can't accurately say that the Government has suffered no loss, because the money may not be there when you go to look for it.

Mr. BOUTIN. We have not as yet, to put it another way, written off any loans as uncollectible.

Senator HARRIS. Isn't that something entirely different from saying that the Government has suffered no loss?

Mr. BOUTIN. Well, as far as our accounting records are concerned, Mr. Chairman, we do not say that there has been a specific amount that we have charged off as loss.

Senator HARRIS. I don't want to be argumentative, but just because you haven't been able to say how much doesn't mean that you can say you have no loss.

Mr. BOUTIN. I am very sure on the other side of the coin that there have been losses.

Senator HARRIS. Isn't that a fact because of the accounting system and its own problems?

Mr. BOUTIN. It could be for any number of reasons. It could be because we haven't caught up with SBIC's granting extensions on principal payments from small business, so their own books aren't entirely accurate. That is why it is so important that we reach a plateau of current information.

Senator HARRIS. I understand that, and I don't wish to push that point, but you said earlier in your testimony that you wished to emphasize that the Government had suffered no loss.

Mr. BOUTIN. As yet.

Senator HARRIS. Well, I think, again, when you are talking about loss, you mean to say we haven't written anything off on our books, and we haven't been able to identify the loss.

Mr. BOUTIN. That is correct.

Senator HARRIS. What about companies that have gone out of business and surrendered their charters, and so forth? Have there been losses there?

Mr. BOUTIN. I go back to the statement that I made, Mr. Chairman. From the information that I have, there have been no losses, per se, that have been identified and written off. Of these companies that have surrendered their licenses, I think without question potentially there are some losses.

I am mindful of one where we took stock as security for our loan, which, in turn, is secured by a large development in upper New York State.

I don't have the least idea, as I sit here at this witness table, whether that land is worth $400,000 or $500,000, or whatever it might be carried on the books. We won't know some of these things for a while. Senator HARRIS. Actually, it wouldn't be accurate to say that those companies which have gone out of business, other than merged companies, paid off all of their principal and interest. That would not be

an accurate statement.

Mr. BOUTIN. So far as I know, that would be an accurate statement. I may be misinformed.

Senator HARRIS. It is your understanding that if a company has gone out of business, other than a merged company, it has paid back to the Government all of the principal and interest due?

Mr. BOUTIN. I have asked the question many times, Mr. Chairman. Have we had any losses in this program? Exactly the question that you are asking me, and I have been told repeatedly "No.""

Senator HARRIS. Isn't it possible that you have transferred that over to a liquidation account and, therefore, it might be pending and you haven't identified it as a loss?

Mr. BOUTIN. That, of course, is possible, but I would hope that our information is more up to date than to allow someone to tell the Administrator that there have been no losses when, in fact, on the other side of the coin, in liquidation, there are identified losses. Now, I won't tell the committee that that isn't so, because I don't know. But, you may rest assured I will find out the facts.

Senator HARRIS. We will be talking some more about these things. Let me ask you this last question that I have, and then I think Mr. Adlerman has some questions, and Senator Mundt may have additional questions.

You have testified as to inactive or dormant licensees and stated there were 61 such companies as of June 30, 1966, of which 37 were in the process or are in the process, you stated, of surrendering their licenses.

Mr. BOUTIN. That is correct.

Senator HARRIS. Now, these companies would be paying either 5 percent interest or 512 percent interest, or both, on their money.

Mr. BOUTIN. Not necessarily, because some of these companies may not have one penny of Government money. They may have started with their $150,000 or whatever it was and just stayed dormant.

Senator HARRIS. They have a license, but they might not have Government funds?

Mr. BOUTIN. That is correct.

Senator HARRIS. Would you be able to say which of those 61 fit into that category?

Mr. BOUTIN. I cannot, but I will supply it for the record.

(The information requested follows:)

Inactive licensees and licensees in process of surrender, June 30, 1966

Senator HARRIS. Would there be any benefit to a licensee to borrow money from the Government, paying 5 or 52 percent interest, or both, and not make any loans?

Mr. BOUTIN. Well, up until the era of the tight money, there would be no advantage that I can see. Of course, now you can do pretty well. You can make at least 512 in some of your banks. You can have

certificates of deposit, and many banks will pay that much. So at least they are not losing anything. But as a safeguard against this, I recently have instructed the Deputy Administrator on an application, a very large application, involving $1 million, that we would only provide that money on a phased basis, after provision of a plan for utilization of the money on an as-needed basis.

But they could turn right around and invest in Government securities, the Government's own money, which wouldn't make very good

sense.

Senator MUNDT. I have just two brief questions.

On page 7 you say that: "the controlling person who sells without approval may in some circumstances be held personally liable if the new control parties are not approved by us." I wondered why you used the words "in some circumstances" rather than "in all circumstances."

Mr. BOUTIN. I was trying, frankly, to walk both sides of the fence there, Senator. That was what had been before, which I wasn't too sure I understood, and my own attitude now. My own attitude now is "all circumstances," but I am not sure of what the previous practice

has been.

Senator MUNDT. Looking ahead, it will be "all circumstances"?
Mr. BOUTIN. Pardon me?

Senator MUNDT. Looking ahead, to tomorrow and the future, it will be "all circumstances"?

Mr. BOUTIN. As far as I am concerned, all circumstances. Now, the General Counsel may have a problem with my statement, and if he does, I would just as soon have him say it to the committee.

Mr. ZEIDMAN. The regulation, Senator, spells out the kinds of SBIC's and the kinds of circumstances in which that is correct. In the absence of our regulations and in the absence of a contractual arrangement with the parties, we wouldn't have the right to impose personal liability. We have the right under our contract, but we apply it only to debtor licensees, ones which owe the Government money.

Senator MUNDT. Does that invalidate the Administrator's earlier statement that from now on you will proceed as indicated?

Mr. ZEIDMAN. The Administrator's statement is that wherever we have the power to proceed, or wherever we may get the power to proceed, we will apply that in all such cases in the future, so I think there is not an inconsistency there.

Senator MUNDT. On page 8, talking about overlines, let me ask; one, what is the top limit, if there is a top one, on how much money an SBIC can get from the Federal Government, and two, how large a loan can the SBIC make to a private company?

Mr. BOUTIN. The maximum that an SBIC can get from the Government is $700,000 under section 302. That would require an injection of private capital of $700,000 to start with, and $700,000 by Uncle Sam under 302.

Under section 303, the loan funds, the maximum is $4 million, so the maximum that any SBIC can owe the SBA is $4,700,000.

Senator MUNDT. What is the maximum of that $4,700,000 that it could invest in a single private enterprise?

Mr. BOUTIN. It cannot invest more than 20 percent of the amount of private capital plus the amount of 302 money, so as an example, let us take a $700,000 capital injection from private sources and $700,000 from Uncle Sam, which would be $1,400,000, and it would be 20 percent of that.

Senator MUNDT. It has $4,700,000, however.

Mr. BOUTIN. The $4,700,000 would be the maximum that an SBIC could borrow from the Federal Government.

Senator MUNDT. Of that $4,700,000, part of which the organizers supplied and part of which the Federal Government supplied, is there a limitation on how much of that they can invest in any one corporation?

Mr. BOUTIN. That is 20 percent of the private capital plus the 302 money.

Senator MUNDT. Would that be 20 percent of $4,700,000?

Mr. BOUTIN. No. We are talking different things. The $4,700,000 is the total amount they could borrow from us. But the total amount that a small business can borrow from an SBIC is 20 percent of its private capital plus the 302 money, or what we call its statutory capital.

Senator MUNDT. Which would be how much?

Mr. BOUTIN. It could be almost any amount. It would be the combination of the amount of private money plus the amount borrowed from the Federal Government under 302, which has a maximum of $700,000. Let us take an extreme case, Senator, of an applicant who really had some money behind him, and he put in $7,300,000 of private capital.

All he could borrow from us is $700,000, so he has $8 million of statutory capital. Twenty percent of that is the maximum that he

could put into a single small business concern, without the approval of SBA.

Senator MUNDT. That is 20 percent of $8 million. That is the top in that case?

Mr. BOUTIN. Yes.

Senator MUNDT. That is the top amount that he could possibly get into the SBIC under any circumstances?

Mr. BOUTIN. Without our permission for overline.

Senator MUNDT. I am trying to figure out how big a contingency we can get with any one SBIC.

Mr. BOUTIN. Well, the most that the Federal Government could have in any single SBIC is $4,700,000. That is the absolute maximum. Senator MUNDT. Beyond that there is no maximum as to how large the SBIC can go if the owners put in their own money.

Mr. BOUTIN. That is correct, sir.

Senator MUNDT. But the 20 percent applies to the $4,700,000, which is the maximum that you can use for any one SBIC.

Senator HARRIS. Mr. Adlerman has a question.

Mr. ADLERMAN. The maximum amount of Government money that can be involved in an overline operation would be 20 percent of the $700,000. That would be maximum.

Mr. BOUTIN. Actually, to go back again, it would be the combination of the private capital plus the 302 money, if any, borrowed from the Federal Government, which would then constitute its statutory captial, and 20 percent of that is the maximum.

Mr. ADLERMAN. You can't borrow 20 percent on the 303 money. Mr. BOUTIN. That is correct.

Mr. ADLERMAN. You can only borrow 20 percent on the 302 money and the maximum of Government money that can get into that 20 percent would be 20 percent of the $700,000.

Mr. BOUTIN. Actually, the maximum amount of Government money would be 10 percent.

Mr. ADLERMAN. If private capital had $5 million in private money, and they had $700,000 of Government funds, they could lend 20 percent of the $5 million plus 20 percent of the $700,000 Government

money.

Mr. BOUTIN. That is correct.

Mr. ADLERMAN. But the maximum amount of Government money that would be involved in an overline loan would be 20 percent of $700,000.

Senator MUNDT. Could I ask you a simple question: What is the maximum number of Federal dollars that a borrower from an SBIC corporation can get?

Mr. BOUTIN. I wouldn't have the least idea, Senator, because we are talking about all kinds of combinations between initial capital, 302 money, and 303 money, and borrowed from private sources capital. Senator MUNDT. I am talking about Federal money. What is the maximum amount of Federal dollars that X Corp. can get by making a contact with SBIC?

Mr. BOUTIN. If we were to go to an SBIC that is so large it is hard for me to imagine, it would be $4,700,000. But this would require a corporation, an SBIC with statutory capital five times that amount. That is a mighty big outfit.