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911/47 C 3 3 . 2 . B 2 2 ? 2 3 c m FORVICTORY BUY U SN TI AT TE ED S WAR BONDS AND STAMPS L VA R F I N E A C N O C N E S T R U C T I O C O R P O R A T O NF RD I B R N I O N N B a n k W a r 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 1-7.54 FORVICTORY B UTE Y U SN TI ATED S WAR BONDS AND STAMPS M a y 1 5, 1984. A N 1 F O R E W O R D 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 benefits. > 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 . Senderson, Chairman of the Board Reconstruction Finance Corporation 1 FACILITIES A V A I L A B L E T O BANKS 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 commitment. Portion of On Portion of Loan Covered by Loan Covered Deferred Participation Agreement Bank's Portion by Deferred Interest Participation Net Return of Loan Participation Rate Charge to Bank Agreement 10% to 24% 76% to 90 % 4% 1% 25% up to and including 49% 51% to 75% 4% 34 % 344 % 50% or over 50 % or less 4% 12 % 34 % 3% 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. 2 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 earnings. 3 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. Nor 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. 4 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 I MP OR TA NT INFORMATI ON CO NCE RN ING TERMINATION ,RECONVERSION BUSINESS L O A N S C O N T R A C T A N D 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. 5 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 . 6 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 . 7 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. 8 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. 9 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 , etc.? 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. 10 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 StanfordUniversityLibraries 3 6105 210 304 288 4
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