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B a n k




P a r t i c i p a t i o n

P r o d u c t i o n ,

T e r m i n a t i o n ,

a n d

o t h e r

P l a n

C o n t r a c t

R e c o n v e r s i o n

B u s i n e s s

L o a n s



M a y 1 5, 1984.




Herewith are questions and answers which outline succinctly
our method of procedure with reference to contract termination ,
reconversion and business loans.
W e are entering a very important economic period in the life
of this nation . Our National and State banks under our partici
pation arrangement have helped the nation at war with mutual


T o meet the impact of the war and to give greater latitude
in making loans our thirty -one Loan Agencies were authorized to
m a k e loans up to $100,000 without reference to Washington and
where a bank participates in a loan to the extent of 25 % of ne w
funds, to m a k e loans up to $250,000 on the same basis.
Recently w e advised you concerning the importance of a s
sisting returning veterans. T he problem of reemployment and
rehabilitation in industries of those w h o have fought so valiantly
for our country is of paramount importance. Together w e can
assist m a n y of these m e n and w o m e n and thereby show the n a
tion's appreciation of the sacrifices they have m a d e .
This Corporation is not in competition with private banks or
other lending institutions. W e have from the beginning p re
served the right of our State and National banks to m a k e these
loans in the first instance. W e have participated with them and
together have m a d e thousands of loans which otherwise would
not have been consummated .
Th e transition period will r e
quire continued cooperation if w e are to accept the responsibili
ties imposed on us.
Let us ,therefore, continue on the same mutually cooperative
basis so that industry, both large and small, m a y have the a s
sistance we are prepared to give.
For that cooperation you have our appreciation.

C a r l e s

B .


Chairman of the Board
Reconstruction Finance Corporation





1. Q. Is there any advantage to National and State banks in participating with
the R F C ?
A. Yes . That portion of the loan which is covered by the guaranty of R F C
is not, in National banks and in most State banks , subject to the legal
loan limit of the bank . Th e effect is to permit banks through this a r
rangement to increase their earnings without increasing their risks beyond
the a m o u n t of the participation .

This arrangement which has helped

thousands of banks in the nation has assisted in increasing the earnings
of banks through both immediate and deferred participation with this
Corporation in making loans to industries. U p o n ten days notice the
bank m a y ask R F C to take up RF C's participation wh en m a d e on a d e
ferred basis, or alternatively on five days notice to advise R F C that it
has decided to purchase R FC's interest in the loan .

2. Q. W h a t is the basis of the R F C charge for a commitment for deferred par
ticipation ?
A. The schedule below indicates the usual basis of the charge for such a
Portion of
On Portion of Loan Covered by
Loan Covered
Deferred Participation Agreement
Bank's Portion
by Deferred
Net Return
of Loan
to Bank
10% to 24%

76% to 90 %



25% up to and
including 49%

51% to 75%


34 %

344 %

50% or over

50 % or less


12 %

34 %


Interest rate on bank's portion of loan m a y be up to 6 % .

3. Q. H a s the R F C method for loans in participation with banks been changed
during the war period ?
A. Yes . Our methods have been streamlined and forms simplified, resulting
in quicker and more effective analysis of applications and disbursement
of loans.

4. Q. W h a t is the usual interest rate on the R F C portion of an immediate or
deferred participation ?
A. Th e interest rate usually charged on the R F C portion of both immediate
S o m e banks are
and deferred participation loans is 4 % per annum .
charging less than 4 % on R F C deferred portion.


5. Q. M a y more than one bank participate in a wa r production or other busi
ness loan?
A. Yes . Th e participation agreement, however , is executed with one bank
and that bank in turn m a y sell a share of its agreed participation in the
loan to other banks .

6. Q. W h a t documents are required by the R F C in connection with the closing
and disbursement of loans ?
A. Of necessity the documents required will vary depending upon the type
and nature of the loan. O n loans to be m a d e and serviced by the R F C ,
R F C counsel prepares the necessary closing documents , such as the note,
mortgage instruments, and assignment of contracts. O n loans to be m a d e
and serviced by the bank , all such documents m a y be prepared by the
bank's counsel. If requested, the R F C will prepare such documents if it
appears that such course would save time and expense.

7. Q. Will the R F C m a k e available its report of findings of fact for the benefit
of the participating bank ?
A. Yes . All such findings are discussed with the participating bank so that
it m a y have the full benefit of the views of R F C in connection with any
loan under consideration.

8. Q. Is there reason for the appointment of liaison officers between the bank
and R F C O
A. Yes. T he R F C lending program is greatly facilitated whenever a bank
designates one of its senior officers to act in a liaison capacity between the
bank and R F C . If a bank does not have a liaison officer, it is requested
that one of its officers be so designated.

9. Q. Are Examiners available for conference in the field with the liaison officer
appointed by the bank ?
A. Yes .

10. Q. W h a t are the essential advantages to banks of R F C participation ?
A. Income is preserved to the bank . R F C Engineers and Examiners are m a d e
available to assist in setting up the loan. The bank m a y service the loan
if it elects to do so. T h e bank retains contact with the applicant. T h e
bank m a y at any time take over the whole loan and thereby increase its

11. Q. Does the R F C reserve the right to approve attorneys' fees in connection
with its loans ?
A. Y e s, in conjunction with any participating bank and the applicant.

12. Q. Does the R F C appoint special counsel whose fees are paid by the b o r
rower w h e n a wa r production or other business loan is m a d e ?
A. N o , except in special cases .

13. Q. Is there any expense to the applicant for an appraisal m a d e by an R F C
appraiser or examiner ?
A. N o , the entire expense is borne by the R F C .

14. Q. W h a t method is adopted in liquidation of a loan m a d e in participation
with a bank ?
A. R F C avoids recourse to foreclosure as long as possible. In each instance,
foreclosure is instituted only after the bank has indicated it is desirable.
The expenses are prorated.

15. Q. M a y the bank which is servicing the loan call upon the R F C to assist it
as difficult problems arise ?
A. Yes . W e are always anxious to assist banks in servicing loans where w e
have a participation with the bank . M os t banks welcome this kind of
cooperation .

16. Q. W h a t is the period of time required for consideration and disbursement
of a wa r production or other business loan ?
A. S o m e applications have been considered, approved and disbursed on the
day of their submission.

Complicated loans require more time.


mally, if an application is presented in proper and complete form , it can
be handled as quickly as b y a local bank . Under existing authority,
Agency Managers can m a k e loans up to $100,000 without reference to
Washington, where there is no bank participation. T h e y have authority
to m a k e loans up to $250,000, without reference to Washington where
the bank participates to the extent of 25 %

of n e w funds.


17. Q. Does the R F C require monthly statements with reference to all war pro
duction or other business loans m a d e ?
A. Th e right to require monthly statements if deemed necessary is reserved .
Usually , quarterly reports are sufficient.

18. Q. After an applicant has applied to a bank for financial assistance and the
bank is unwilling to m a k e the loan or participate therein with the R F C ,
h o w can the applicant be helped ?
A. The bank should refer the applicant to the R F C and then perhaps the
R F C can solve the problem and keep the applicant in operation.

19. Q. W h a t type of m e n compose an R F C Agency Advisory Committee that
passes upon loan applications?
A. Th e Committee is composed of outstanding industrialists, bankers and
other business executives representative of the area served by the local
Lo an Agency







20. Q. Will the R F C m a k e loans against claims filed in connection with c o n
tracts or subcontracts which have been terminated, pending their deter
mination and settlement ?
A. Yes .

21. Q. Will the R F C consider Government Receivables on contracts that have
been cancelled as collateral for the loan ?
A. Yes .

22. Q. Will the R F C take as collateral for loans claims that m a y be pending
against the A r m y , N a v y or Maritime Commission !
A. Yes. Th e assignment of the rights of the applicant to the amount claimed
will be considered by our Loan Agencies as collateral for the loan re
quested. It is believed that this intermediate financing will be of m a t e
rial assistance to the small industrialist w h o is not able to obtain this
advance from his local banker.

23. Q. W h a t percentage of the claim will the R F C advance ?
A. Of necessity, the amount will vary depending upon the type and nature
of the claim. A fair basis of allowance will be m a d e depending upon all
the factors.

24. Q. Will an assignment of the rights of the contractor in the claim be required
in the event a loan is m ad e by the R F C ?
A. Yes . If part of our advance is based upon the claim, w e will require an
assignment of the claim as collateral against the advance . It m a y well
develop in m a n y cases that the assignment will not be necessary because
of additional collateral that is available for the loan requested. T he
circumstances of each case will govern .

25. Q. Is it anticipated that there will be delay in passing upon loan applications
based upon an assignment of claim ?
A. Delay will be avoided where possible. Precise information will be r e
quested from the applicant with a view to approving his application based
upon the assignment of claim. W e will bend every effort to handle this
type of application as expeditiously as possible.

26. Q. W h a t maturity will be provided for such loans ?
A. T h e maturity will be determined according to the best estimate of the
time required to negotiate and pay the claim. If this proves insufficient
an extension m a y be arranged.

27. Q. Will the R F C m a k e loans to meet the cost of converting a plant from
war -time production to post-w a r activities ?
A. Yes.

28. Q. Will the R F C m a k e loans in order to retool a plant for the manufacture
of either a ne w article or an article previously manufactured by the c o m
pany prior to the war ?
A. Yes . It is recognized that m a n y small industrialists must retool and po s
sibly acquire competitive machinery and equipment if they are to sur
vive in the post-war period. This will be a very necessary expense and ,
accordingly, the application should include funds for that item .


29. Q. Will the R F C m a k e loans to provide working capital for the production of
essential civilian or consumer goods ?
A. Yes .

30. Q. Is it contemplated that the R F C will m a k e working capital loans if the
whole plan of the comp any requires reorganization as to sales and
products ?
A. Yes . T he applicant should present full data concerning reorganization
plan, the article he proposes to manufacture, the collateral he has avail
able, etc. If the program is sound, a commitment can be m a d e intended
to insure the industrialist of the necessary financing.

31. Q. Will the R F C require a marketing survey prior to the time the applica
tion is filed ?
A. T h e marketing survey concerning the potential sale of the article to be
manufactured will be very helpful, but not absolutely necessary . These
surveys in m a n y instances m a y be obtained through the Department of
C o m me r c e.

32. Q. Assuming that the industry was not profitably operated during the years
1938-39-40 and n o w desires financing in the post -war period, will the a p
plication be entertained ?
A. Yes. R F C Examiners will, of course, ask for evidence tending to show
that the conditions which prevented profitable operation in the years
mentioned ,can be overcome. It is our desire to encourage and preserve
industry wherever possible.

33. Q. Should the application show specifically h o w m u c h working capital is
required ?
A. It is important that the Loan Agency entertaining the application k n o w
the use to which the working capital is to be put. It is preferable to have
å projected budget based on quarterly periods presented ; more p a r
ticularly, if the company is to m a k e a n e w product.

34. Q. Is this program contemplated to assist the small enterprises only !
A. No. Enterprises both large and small will have the right to file applica
tions and expect sympathetic consideration in view of all the circum
stances affecting the industry, and , through the enterprise, the economy
of the community .


35. Q. Is the problem of employment important in connection with the granting
of these loans !
A. It is the intention of the R F C under the existing statute to give continued
or increased employment of labor and where the applicant can show that
the working capital will absorb in industry m e n or w o m e n w h o otherwise
might not be employed because of economic conditions in the area, this
factor will have important consideration by the R F C .

36. Q. W o ul d a survey by the industry in small towns showing the employment
factors involved and the nu mber and nature of industries in the town,
be helpful?
A. Yes. This is the kind of information w e will require to show the impor
tance of retaining industry in the town affected. In m a n y areas the whole
community is dependent upon one or more industries, and if these are not
retained, the economic life of the community will be seriously impaired.

37. Q. Will the manufacturer's present inventory, if usable in the article to be
manufactured, be considered in an analysis of his position ?
A. Yes . T h e current inventory that can be used in the manufacture of a n ew
article will be credited in the position of the applicant, assuming that the
loan can be favorably acted upon . Obsolescent inventory should be elimi
nated from the balance sheet in order to have a true picture.

38. Q. Suppose the small enterprise proposes to enter an entirely n e w field of
activity and is willing to furnish reasonable equity m on ey on some satis
factory basis, will the R F C entertain such an application ?
A. Yes . Those concerns that have had a successful period of operation d u r
ing the years 1938-39-40 will obviously be good risks although the article
to be manufactured is n e w in their field of operation.

39. Q. H a s Defense Plant Corporation machinery and equipment which will be
available for sale to industry ?
A. It is expected that a great deal of all types of machinery and equipment
will be offered for sale to industry.


40. Q. Will it be possible for a small enterprise to purchase machinery and equip
ment owned by the Government out of the proceeds of the loan m a d e by
the R F C ?
A. Yes . It is expected that m a n y small enterprises n o w will be assisted by
the acquisition of Government owned machinery and equipment through
these funds .

41. Q. H o w can businessmen k n o w what specific items of machinery or equip
ment Defense Plant Corporation has available ?
A. Lists of surplus Government owned machinery and equipment will be
available in R F C Loan Agencies.

42. Q. Is it possible for a manufacturer w h o has a Defense Plant contract to
arrange with the Reconstruction Finance Corporation for a loan to pay
the balance that m a y be due under the terms of the contract to acquire
this machinery and equipment ?
A. Yes . Applications will be entertained for that purpose .

43. Q. Will the R F C m a k e the types of loans discussed herein in participation
with the banks on the same participation fee basis as n o w exists ?
A. Yes.

44. Q. Will the R F C require the individual to contact his bank in the first
instance, as is n o w the custom , prior to presenting his application to the
L oa n Agency concerned ?
A. Yes . It is the desire of the R F C to preserve our private enterprise system
and , if the bank will m a k e the loan in the first instance without partici
pation with the R F C , w e prefer to have the bank do so. The R F C is not
a competitor of any bank or other financial institution.

45. Q. Is it necessary to advise the R F C the n a m e of the banker with w h o m the
business has had contact and w h o is familiar with their methods of
financing ?
A. Ye s. Th e banker will, of course, be contacted by the R F C to ascertain if
he will participate in the loan or whether he is willing to m a k e the whole
loan. A n exchange of ideas concerning the financing of the company will
be most helpful.


46. Q. For what term of years will the R F C m a k e these loans and at what i n
terest rate?
A. Th e loans will be m a d e on reasonable term basis and the interest charged
will be 4 % .

47. Q. Is it anticipated that the amortization schedule be set up on a monthly
basis in most instances ?
A. Yes . W e believe that the majority of the borrowers would prefer to m a k e
repayments of principal and interest monthly as well as provision for p a y
ment of taxes. This method has proved beneficial in the past.

48. Q. Will payments be required immediately after disbursement or will some
period of time be allowed for retooling, market surveys, reorganization ,
A. These factors will be considered by the Loa n Agency at the time the a p
plication is presented. Obviously, m a n y business enterprises will require
time for the above -mentioned accomplishments before they can begin to
amortize their loan.

49. Q. If a loan to provide working capital or to finance the purchase of n e w
machinery or equipment is not required immediately, will the R F C m a k e
a commitment to disburse such a loan at some future date ?
A. Yes.

50. Q. Will a commitment be m a d e by the R F C even if the plant is shut d ow n
during the retooling process ?
A. Yes . This type of loan will be m a d e after taking into consideration all
of the factors presented.

51. Q. Assuming that it will take six months to retool, reorganize, obtain neces
sary equipment and venture capital where deemed necessary , will the R F C
m a k e a commitment for a loan to be disbursed six months hence?
A. Yes. If our requirements are m e t, the period of time after the c o m m i t
ment is not important provided the proposal is sound . M a n y industries
m a y require that period of time before they can assume normal peace
time operations.


52. Q. W h a t type of application form will be used for these future commitments
for post-wa r industrial activity ?
A. Th e present preliminary application form will be used with possibly su p
plemental information . Mo st of the information will be developed in the
interview with the Examiner.

53. Q. H o w will the terms of a future commitment be determined !
A. Details will be worked out between the R F C , the applicant, and the
banker . All the circumstances of each case will be considered at the time
the application is filed. T he opinion of the banker and the borrower will
have an immediate bearing upon the commitment fee the R F C believes
should be charged.

54. Q. W h a t will be the rate of the commitment fee ?
A. N o fixed rate will be determined as a matter of policy by the R F C . Each
case will be considered separately and in the light of all the economic
conditions prevailing at the time.

55. Q. W h a t advantage does the business enterprise gain by obtaining a future
commitment ?
A. Th e commitment is in effect insurance to the manufacturer that if he
meets certain conditions the necessary funds will be available w h en re
quired. H e can , therefore, m a k e plans for the future with confidence.

M a y 15, 1944


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