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MEMORANDUM REGARDING ATTACHED PLAN FOR
CAPITAL AID TO SMALL INDUSTRY

^

The plan is only a general outline in preliminary
form, many details as to organization and operation being
omitted.
In view of the continuance of unsettled conditions
in the capital market it has been suggested that government
aid for business should be extended to larger corporations
as v/ell as to the smaller ones* This could be accomplished
by amending the attached plan as follows:
1. Removing the maximum limitation of $1 million to any
one borrower.
2. Permitting the corporation to invest in existing
securities either to assist the capital market by
absorbing undigested issues or for any other reason.
It has also been suggested that with the recession hav.
ing continued so long, any capital aid must now be on a more liberal basis in order to be of substantial help as a recovery move.
Such a policy could be carried out under the proposed plan by providing that debentures issued by the corporation should be guaranteed
by the government and made tax exempt.




February 11, 1938
CAPITAL AID FOR SMALL BUSINESS
(Alternate plan, including insurance of loans)

Insert text of "PROGRAM FOR CAPITAL AID TO SHALL BUSIK3SS" (draft
of February 5, 1938), omitting the sentence "which reads "The
plan does not propose to provide a bailing out mechanism for
unsuccessful enterprises or provide equity capital in order
to permit businesses to be operated on a shoe string."
At the end, add the following;

INSURED CAPITAL LOANS FOR SMALL BUSINESS
It is proposed that the Industrial Loan Corporation be
authorized to segregate and set aside from time to time out of its
capital funds not more than $10,000,000, as an Insurance Fund, which
would be utilized to insure banks and financing institutions against
losses on loans and advances to commercial and industrial businesses
made for any of the purposes for which the corporation may make
loans. Each such bank or financing institution, v/hich is approved
by the corporation for the purpose, would be insured against losses
up to 10 per cent of the aggregate amount of all loans and advances
of this character which it might make.

The maximum amount of any

loan entitled to participate in such insurance would be $50,000,
but a loan exceeding

"would be submitted to the

corporation or its agent for approval before being made. Each
insured bank or financing institution would be required to pay to
the corporation a premium of n$t to exceed one per cent per annum




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on the average amount of each insured loan outstanding.
premium would be credited to the Insurance Fund.

This

The total

liability for insurance which the corporation might have outstanding at any time plus amounts paid in settlement of insurance claims could not exceed the amount of the Insurance
Fund as increased by premiums credited thereto (or in the alternate g twice the amount of the Insurance Fund as increased by
premiums credited thereto).

Any insured loan would have a

maximum maturity of five years and provide for some form of
amortization or partial payments under which the entire loan
would be retired not later than the date of maturity.

Insurance

of loans would be subject to broad regulatory authority in the
corporation, with the right in the Board of Governors to review
and revise the regulations from time to time.

HOTE: The proposed arrangement does not provide for a
system of different pools within the insurance fund, because the
nature of the loans is similar to that of the loans insured under
Title I of the Housing Act, which does not utilize such pools. In
view of the character of these loans and the fact that they would
probably be made in some volume by banks and financing institutions,
a pool arrangement would appear to be unworkable.