member bank lending to small business, 1955-57 · mr. james b. eckert, chief, who also had specific...

Member Bank Lending to

Small Business, 19 55-57

As PART of a present broad inquiry intosmall business financing, the Board of Gov-ernors of the Federal Reserve System incooperation with the Federal Reserve Banksconducted another Survey of Business Loansat Member Banks as of October 16, 1957.This Survey was comparable to a previousone conducted as of October 5, 1955.

The major purposes of the new Surveywere threefold:

(1) To provide detailed information onthe current structure of member bank loansto business and the terms and conditionson which such loans are extended, with par-ticular reference to those made to smalland medium-size businesses;

(2) To analyze developments in the useof bank credit by firms of various sizes be-

NOTE.—The 1957 Survey of Business Loans ofMember Banks was under the general supervision ofRalph A. Young, Director, and Albert R. Koch, Asso-ciate Adviser, of the Board's Division of Research andStatistics. The information was collected by the Fed-eral Reserve Banks. This report was prepared in theBanking Section of the Division under the direction ofMr. James B. Eckert, Chief, who also had specificresponsibility for the administration of the Survey.

Assistance in planning the Survey was provided byMadeline McWhinney, Chief, Financial and TradeStatistics Division, Federal Reserve Bank of NewYork; John J. Balles, Assistant Vice President, andOliver H. Jones, Senior Economist, Federal ReserveBank of Cleveland; Theodore H. Schneider, Econo-mist, Federal Reserve Bank of Chicago; and EleanorStockwell, James C. Byrnes, and Edward P. Snyder,Economists, and Maurice H. Schwartz, Chief Analyst,of the Board's Division of Research and Statistics.Mr. Schwartz and Mr. Snyder also were responsiblefor developing the statistical methods and processingprocedures for editing and summarizing the data.

tween the 1955 and 1957 Surveys in rela-tion to changes in the economy and in busi-ness financing; and

(3) To examine into the differential ef-fects of increasing credit and monetary re-straint on the allocation, terms, and cost ofbank loans to businesses of different sizes.

SUMMARY OF FINDINGS

On October 16, 1957 outstanding businessloans of member banks totaled nearly $41billion, or 32 per cent more than on October5, 1955. A high proportion of the numberof loans on both dates was to small busi-nesses, but most of the dollar volume wasto larger businesses.

Between 1955 and 1957 loans to largebusinesses in most industries expanded muchmore in dollar volume than loans to smallerbusinesses. Moreover, loan growth wasgreater for industries in which large busi-nesses are predominant than for industriesin which medium-size and small businessesare relatively important. To a considerableextent, changes over the period in the size-of-business and industry structure of loanswere related to changes in the economic en-vironment, particularly the large expansionin productive capacity by many businesses.

Businesses of all sizes borrow from banksmainly on loans with short maturities, butbetween 1955 and 1957 all except thelargest businesses expanded their term loans—those with maturities over one year—

393

Federal Reserve Bulletin: April 1958

394 FEDERAL RESERVE BULLETIN • APRIL 1958

much more than their short-term loans.Large businesses obtained most of their long-term financing through the securities mar-kets, but smaller businesses, with this alterna-tive less readily available, relied more heav-ily on banks for this type of financing.

In 1957 as in 1955 most loans to smallbusinesses, particularly term loans, werebacked by collateral or otherwise secured,while most loans to larger businesses wereunsecured. Over the two-year period, theproportions of secured and unsecured loanswithin various size groups of borrowerschanged little.

Loan expansion between 1955 and 1957was greater at large than at smaller banks,and large banks generally expanded theirloans to small and medium-size businessesmore than smaller banks. Within most sizeclasses of banks, loan expansion was greaterfor large than for smaller businesses. Ingeneral, growth in total business loans andin loans to smaller businesses was greatestin geographic areas experiencing the greatesteconomic expansion.

Smaller businesses paid higher interestrates on their bank loans than large busi-nesses in both 1955 and 1957, but in theintervening period rates charged large busi-nesses rose much more than rates chargedsmaller borrowers. Businesses of a givensize generally paid about the same rate ontheir loans whether they borrowed from alarge or a small bank.

About 5 per cent of the amount and 8per cent of the number of member bankloans outstanding on October 16, 1957 wereto relatively new businesses. Most of theseloans were to small unincorporated busi-nesses, and generally carried somewhat lessfavorable terms and interest rates than thoseto established businesses.

COMPARABILITY OF 1955 AND 1957 SURVEYS

In conducting the 1957 Survey, every effortwas made to assure maximum comparabilityof the new data with those of the 1955 Sur-vey. Except for a few items, identical in-formation was requested from respondents.1

An identical sample of banks, adjusted formergers and other changes in bank structurebetween the two Survey dates, was askedto report. The Surveys were conducted atclosely related dates in both years to mini-mize any possible distortions arising fromseasonal movements in credit utilization.The statistical procedures used in processingthe loan information supplied by respond-ents to obtain estimates of loans at all mem-ber banks were the same.2

In both Surveys reports were receivedfrom well over 90 per cent of the nearly2,000 member banks included in the sampleof banks asked to report. The reportingbanks accounted for nearly one-third of thenumber of Federal Reserve member banksand over 90 per cent of the dollar volumeof business loans outstanding at memberbanks. Both Surveys had the cooperativesupport of the American Bankers Associa-tion and the Robert Morris Associates.

Major findings from the 1957 Survey andcomparisons with 1955 data bearing on the

1 The reporting form and instructions used in the1957 Survey appear on pp. 410-11. The form andinstructions used in the 1955 Survey were publishedin the Federal Reserve BULLETIN, April 1956, pp.338-39.

2 In the summer of 1956, following publicationof the preliminary estimates of 1955 Survey data inthe Federal Reserve BULLETIN, April 1956, a revisedand improved statistical procedure was adopted forexpanding the 1955 loan sample data to obtain esti-mates for all member banks. Estimates based onthe revised procedure are used in this report. Theydiffer little from the preliminary estimates for dollaramounts of loans and average interest rates, but theyare about 10 per cent lower than the preliminaryestimates for numbers of loans.


MEMBER BANK LENDING TO SMALL BUSINESS, 1955-57 395

analysis of member bank lending to varioussizes of business are summarized in thisreport. To provide background for con-sideration of the findings, relevant economicdevelopments covering the period under re-view are briefly summarized below.

ECONOMIC BACKGROUND

The structure and characteristics of bankloans outstanding on a given date reflecteconomic and financial conditions for sev-eral months and even years prior to thatdate. Although bank loans are made andpaid off in large volume every day, nearlyhalf the dollar volume outstanding on bothSurvey dates had been made more thanthree months prior to those dates. Theaverage original maturity of outstandingmember bank loans was somewhat morethan one year, and many maturities weremuch longer. Accordingly, it is necessaryto examine economic developments prior to1955 as well as between 1955 and 1957 inorder to appraise changes in bank lendingrevealed by the two Surveys.

When the 1955 Survey was conducted,the United States had been experiencing avigorous upswing in economic activity formore than a year. By the spring of 1955,recovery from the 1953-54 recession hadbeen achieved and output had risen furtherto new record levels, sparked by a surge ofconsumer buying of houses, automobiles,and other durable goods. This wave of con-sumer buying was encouraged by the readyavailability of mortgage and consumer in-stalment credit on favorable terms.

Responding to the growth of consumerdemands as well as to other influences, busi-nesses resumed their increase of inventoriesand also increased spending for plant andequipment. Business loans at commercialbanks rose 20 per cent in the 12 months pre-

ceding the 1955 Survey and other sourcesof business finance were also providing in-creasing amounts of funds.

At the time of the 1955 Survey, gross na-tional product had risen more than 10 percent from its 1954 low point and most ofthe increase represented growth in physicalvolume of output. Economic activity hadreached a stage where there was little mar-gin of unutilized resources for further expan-sion. Since mid-1955, growing demandshad been generating rising prices, and mone-tary policy had shifted to a position of re-straint in the face of developing inflationarypressures.

In the two years between the loan Sur-veys, the current value of economic productincreased appreciably further. Real outputrose only moderately, but its compositionchanged considerably. The principal im-petus for expansion of aggregate demandshifted from the consumer sector to thebusiness sector. Residential constructionand automobile sales receded from the un-usually high levels of 1955, while businessinvestment expenditures accelerated. Busi-nesses continued to add to inventories and,with tax liabilities also rising, business de-mand for funds rose rapidly. Correspond-ing to the decline in relative importance ofconsumer spending, consumer debt expan-sion slowed in 1956-57 while financial sav-ing by individuals increased markedly, help-ing directly and indirectly to finance the ex-pansion in business capital outlays.

In response to the increase in financingneeds, businesses supplemented their grow-ing internal sources of funds by borrowingunusually large amounts from banks, by is-suing securities, and by borrowing fromeach other in the form of trade credit. Busi-ness loans at banks rose $10 billion or nearlyone-third in the two years between the Sur-



veys. Corporate securities outstanding in-creased $19 billion. In the course of thetwo-year period, with the liquidity positionsof both business concerns and banks underincreasing pressure, a growing proportionof business borrowing was derived from se-curities markets and a declining proportionfrom banks.

At the time of the 1957 Survey, the in-vestment boom was just reaching its cyclicalculmination and a general recession was be-ginning. Nevertheless, business demandsfor credit at commercial banks had contin-ued strong through September. Bank lend-ing was still restricted, with bank liquidityconsiderably reduced after three years ofloan expansion under conditions of restraintimposed by the Federal Reserve.

SIZE OF BORROWER AND INDUSTRYSTRUCTURE

In both 1955 and 1957 most business loansoutstanding at member banks were to rela-tively small businesses, but most of the dol-lar volume was to large businesses, as shownin Table 1. Between 1955 and 1957 thedollar volume of outstanding loans rose forall borrower size groups except the smallestfirms with assets less than $50,000. Loan

growth was much greater for each of thetwo largest asset groups than for any othergroup, amounting to 66 per cent for borrow-ers with assets of $100 million or more and51 per cent for those with assets of $25-$ 100million. The average increase was 20 percent for all other size groups and 32 per centfor total business loans.

Number of loans outstanding rose for allborrower size groups. The changes wereabout proportionate to those in dollaramount outstanding for all except the twolargest size groups. For these businesses,number of loans went up much less thandollar amount and the average size of loanrose sharply. This increase in loan sizeprobably reflects, in part, a rise in the uti-lized proportion of authorized credit lines.

In classifying size of business for the pur-poses of this analysis, no allowance wasmade for the growth in assets of most busi-nesses between 1955 and 1957, in part ow-ing to rising prices. The same dollar limitswere used in determining asset size groupsin both Surveys and borrowers were classi-fied by size on the basis of their total assetsat a recent date prior to each Survey. Asa result of asset growth, some borrowersclassified in 1955 in the smallest asset group

TABLE 1

BUSINESS LOANS OF MEMBER BANKS, 1955 AND 1957, BY SIZE OF BORROWER

Size of borrower(total assets,in thousands

of dollars)

All borrowers . .

Less than 5050 250250-1 0001 000-5 0005 000-25 00025,000-100,000100 000 or more . . .Not ascertained

Amount of loans

Millionsof dollars

1955

30,805

1,5014,5055,0515,5864,7423,2405,297

883

1957

40,618

1,4565,2566,3026,7755,9124,8938,8151,207

Per-cent-age

change,1955-57

31.9

- 3 . 016 724.821.324.751.166.436.7

Percentagedistribution

1955

100.0

4.914.616.418.115.410.517.22.9

1957

100.0

3.612.915.516.714.612.021.7

3.0

Number of loans

Thousands

1955

1,185.2

503.1414.9125.837.911 04.46.0

82.0

1957

1,280.6

504.7494.3157.648.213.35.46.5

50.7

Per-cent-age

change,1955-57

8.0

0.319 125.327.221 122.77.3

- 3 8 . 2

Percentagedistribution

1955

100.0

42.535 010.63.20 90.40.56.9

1957

100.0

39.438 612.33.81 00.40.54.0

Average size of loan

Thousandsof dollars

1955

26.0

3.010 940.2

147.3432.8732.6878.8

10.8

1957

31.7

2.910 640.0

140.5445 7901.6

1.363.523.8

Per-cent-age

change,1955-57

22.0

- 3 . 3— 2 1— 0 4- 4 . 6

3 023.155.1

121.3

NOTE.—Details may not add to totals because of rounding.



(assets under $50,000) undoubtedly wereclassified in larger size groups in 1957.If the asset levels used for classifying busi-nesses in the 1957 Survey were raised by6 per cent, the amount of increase in whole-sale prices between 1955 and 1957, thedollar amount of loans outstanding to thesmallest asset group, instead of showing adecline, undoubtedly would show an in-crease. The volume of loans in other assetgroups, however, would be little affected.

Within industry groups as well as forbusinesses as a whole, loan growth was muchgreater for large than for smaller firms, andgenerally declined with size of business, asshown in Table 2. There were exceptions,however. In retail trade and in services,for example, loan growth to smaller firmswas relatively large; loans to retailers withassets of $250,000-$ 1,000,000 rose morethan those to any other size group. In allother industry groups, the largest percentageincrease was in one of the two size groups

with assets of $25 million or more, andgenerally growth for borrowers with assetsof $100 million or more was by far thegreatest.

A uniform classification of business sizefor all industries based solely on dollaramount of assets, as used in Table 2, makesno allowance for the marked differencesfrom industry to industry in the size of thetypical enterprise. For example, a businessof a given asset size might be consideredrelatively small in the metal fabricating in-dustry but relatively large in the servicetrades. Accordingly, in Table 3 borrowersare classified as large, medium, or small sepa-rately for each industry in relation to thesize pattern of enterprises characteristic ofthat industry.

These data also show much greater over-all loan growth between 1955 and 1957 forlarge businesses than for other size groupsand growth within industries generally de-creasing with size of business borrower.

TABLE 2

CHANGE IN AMOUNT OF BUSINESS LOANS OF MEMBER BANKS, 1955-57, BY BUSINESS AND SIZE OF BORROWER

[Increase, or decrease (—). In per cent unless otherwise noted]

Business of borrowerAmount

outstandingOct. 16, 1957(in millionsof dollars)

Size of borrower (total assets, in thousands of dollars)

Allbor-

rowers l5 0 - 250-

1,0001,000-5,000

5,000-25,000

25,000-100,000

100,000

All businesses

Manufacturing and mining:Food, liquor, and tobaccoTextiles, apparel, and leatherMetals and metal productsPetroleum, coal, chemicals, and rubberAll other

Trade:Retail tradeWholesale tradeCommodity dealers

Other:Sales finance companiesTransportation, communication, and

other public utilitiesConstructionReal estateService firmsAll other nonfinancial businesses

40,618

2,3921,6835,5273,7502,792

4,5892,982815

3,095

4,1691,9802,9762,2621,605

31.9

28.0-3 .070.544.147.2

33.224.710.7

9.3

47.017.122.528.320.4

- 3 .0

-33.5-38.7-18.2-16.2-7 .2

3.4-10.6-18.8

-32.5

31.2-7 .7

-24.94.66.0

16.7

7.1-20.7

19.92.28.4

28.321.813.4

-24.0

13.09.49.9

29.518.0

24.8

23.7-7 .820.240.320.1

51.423.744.2

20.3

10.59.3

23.336.226.9

21.3

5.4-4 .046.718.346.1

48.717.9

-22.1

-6 .6

44.623.617.142.1

-1 .3

24.7

-4 .6-9 .535.17.2

76.1

32.331.0

-2 .4

7.5

56.1-0 .527.679.825.1

51.1

8.53.6

106.120.482.7

36.6105.261.2

36.3

84.0101.2109.329.730.4

66.4

104.547.7

151.2138.1119.2

33.7134.720.2

5.9

40.0310.0

19.99.3

96.1

1 Based on data that include a small amount of loans for borrowers whose size was not ascertained.NOTE.—Details may not add to totals because of rounding.



TABLE 3

BUSINESS LOANS OF MEMBER BANKS, 1955-57, BY BUSINESS AND RELATIVE SIZE OF BORROWER1

Business of borrower

All businesses . . .


Trade:Retail trade . . .Wholesale tradeCommodity dealers

Other:Sales finance companiesTransportation, communication, and

public utilitiesConstructionReal estateService firmsAll other nonfinancial business

Loans outstanding Oct. 5,

Mil-lions

ofdollars

30 805

1,8691,7363 2412,6031,896

3 4452,392

736

2,832

2 8351,6922 4301 7631,333

1955

Percentage of industrytotal, by size of

borrower2

Small

20 5

21.433.038 728.718.6

13 823.98.9

25.1

1 77.8

24 417 47.1

Medium

44 9

55.447.236 144.761.8

51 056.536.5

32.1

49 051.122 750 137.5

Large

31.7

22.418.224.021.718.4

33.117.852.3

42.5

46.638.044.727.048.8

Mil-lions

ofdollars

9,813

523-53

2,2851,147

895

1,14459079

263

1,334289546499272

Increase, or decrease ( —), 1955-57

Percentage of industrytotal, by size of

borrower2

Small

6 9

10.03-154.4

16 613.02.1

1.416.07.4

- 2 . 7

1.1- 3 . 5

4 12 .82 .1

Medium

39 5

6.23-95.3

32 014.558.9

56.948.412.7

74.9

53.627.923 556.741.7

Large

50 4

83.73157.1

51.468.038.0

38 937.278.7

27.1

39.762.852.641.446.5

Percentage change,by size of borrower

Small

10.6

13.0-14 .3

30.220.05.4

3.416.58.9

- 1 . 0

31.2- 7 . 7

3.74 . 66 .0

Medium

28.0

3.1- 6 . 262.514.345.0

37.121.13.7

21.8

51.59.3

23.332.022.7

Large

50.7

104.526.3

151.2138.197.5

39.051.516.2

5.9

40.028.226.443.319.4

1 For classification of borrowers by relative size, see Appendix A.2 Figures do not add to 100 per cent because some loans were made to borrowers whose size was not ascertained.3 Net change for industry was a decrease; sign indicates direction of change for size group.

Large businesses with 32 per cent of theoutstanding loans in 1955 accounted for50 per cent of the 1955-57 increase in to-tal business loans while small businesseswith 21 per cent of the outstandings in 1955accounted for only 7 per cent of the increase.

Half the increase in loans to large busi-nesses was in three industry groups—metalsand metal products; petroleum, coal, chem-icals, and rubber; and transportation, com-munication, and other public utilities. Thisreflects not only the substantial growth ratesfor loans to large borrowers in these indus-tries but also the fact that in some of theseindustries large businesses account for amajor portion of the output. Loan growthto smaller concerns in these industries alsowas substantial—greater for medium andsmall metals concerns and public utilitiesthan for these size groups in any otherindustries.

Not every industry group in which largebusinesses predominate showed rapid loangrowth. Sales finance companies, also inthis category, showed the smallest over-allgrowth and the smallest growth in loans tolarge businesses. On the other hand, intextiles, leather, and apparel, the only in-dustry group showing a loan decline, activ-ity is distributed more heavily in medium-size and small businesses.

Output and prices. Rapid loan growthin the metals, petroleum-rubber, and publicutilities industry groups was due in partto the fact that they experienced some ofthe largest increases in output between 1955and 1957 and, except for the public utili-ties group, some of the largest price ad-vances. In the textiles, leather, and apparelgroup, where output dropped and priceschanged little, outstanding loans declined.Loan changes either in the aggregate or byindividual industries cannot be explained



fully, however, by changes in output andprices. Loans to all manufacturing andmining businesses, for example, rose 42 percent from 1955 to 1957 whereas industrialproduction changed little and wholesaleprices in this area, on the average, rose lessthan 8 per cent.

Changes in the loan structure for theconstruction industry reflect the changingcharacter of demand for construction overthis period, even though there was nomarked change in this industry's total bankborrowing, output, or costs. Loans to con-struction firms with assets of $100 millionor more showed the sharpest rise (310 percent) for any size group of borrowers inany industry, whereas smaller constructionfirms increased bank borrowing only mod-erately or reduced it (see Table 2) . Never-theless, the 1955-57 pattern of borrowing isconsistent with the fact that industrial andcommercial construction, often involvinglarge projects which can be undertaken onlyby firms of great size, increased substantiallyduring this period while residential con-struction, in which firms of much smallersize predominate, declined.

Expansion of capacity. The 1955-57changes in the size-of-borrower and industrystructure of bank loans are related not onlyto changes in output and prices in the vari-ous industries but also to expansion of ca-pacity and associated requirements for in-creased working capital. It is significantthat three of the industries with most rapidloan growth, namely metals, petroleum-rubber, and public utilities, are among thoseshowing the largest increases in capacityduring the 1955-57 period. Informationalso is available from the Federal TradeCommission and the Securities and Ex-change Commission providing insight intothe pattern of expansion and its financing

for manufacturing corporations of varioussizes. This information is summarized inTable 4.

The property, plant, and equipment ac-count of manufacturing corporations withassets of $100 million or more rose at nearlythree times the rate for smaller corporationsbetween the third quarter of 1955 and thethird quarter of 1957, and accounted formore than four-fifths the increase in plantand equipment of all manufacturing corpo-rations over that period. Moreover, largecorporation working capital rose much morerapidly than small. Inventories of the larg-est corporations increased at about twicethe rate for smaller businesses, as did theirnet receivables, that is, accounts receivableminus accounts payable. The nearly $2 bil-lion growth in net receivables of the largestcorporations reflects primarily the extensionof increased trade credit to customers, inlarge part smaller businesses, including un-incorporated and nonmanufacturing busi-nesses not covered by these data.

All sizes of manufacturing corporationshad internal funds, particularly retainedearnings, at least equal to the major partof their increased outlays for plant andequipment, inventories, and net receivables.For all corporations with assets under $100million, internal funds exceeded these out-lays. For corporations with assets of $100million or more, however, retained earningsand depreciation and depletion allowancestotaled less than two-thirds of their majoroutlays. Accordingly, they found it neces-sary to obtain substantial additional fundsthrough reducing their holdings of cash andGovernment securities, borrowing frombanks, and financing in the capital markets.

Taking advantage of their access to thecapital markets, the largest corporations in-creased their term borrowing from sources



TABLE 4

BROAD SUMMARY OF MAJOR OUTLAYS AND SOURCES OF FUNDS OF MANUFACTURING CORPORATIONSBY SIZE OF BUSINESS, THIRD QUARTER 1955-THIRD QUARTER 1957

Outlay or source1

Major outlays:Property plant and. equipment*^InventoriesNet receivables^

TotalMajor sources of funds:

Retained earningsDepreciation and depletionCash and Government securities.Borrowings:

Bank loans:Short-term (1 year and under)Long-term (over 1 year)

Total

All corporations

Millionsof

dollars

28,86711,9143,501

44,282

17,07917,519

-3,490

3,1791,543

4,7224,806

Percent-age

change

22.827.030.5

24.3

"-U.9"'

71.648.0

61.727.0

Size of corporation (total assets, in millions of dollars)

Under 5

Millionsof

dollars

1,8961,648

582

4,126

3,1982,812

152

482365

847678

Percent-age

change

10.618.919.6

14.0

....„„..

28.765.5

37.933.7

5-100

Millionsof

dollars

3,4702,2831,012

6 765

4,3973,516-843

840452

1 292661

Percent-age

change

12.117.522.5

14 7

- i i ! 6 ' "

46.239.6

43.718.3

100 or

Millionsof

dollars

23,5007,9841,909

33 393

9,48411,192

-2,802

1,857727

2 5843,466

more

Percent-age

change

29.235.547.7

31.3

* — i6!6"

196.547.8

104.828.5

1 Since only selected items are included, the aggregates of outlaysand sources of funds are not in balance. The principal omission isnet worth changes (other than retained earnings).

2 Before deduction of reserves for depreciation and depletion.

other than commercial banks nearly fivetimes as much as their term borrowing atbanks. They also sharply increased theirshort-term bank borrowing, probably in partto tide them over until the capital marketsbecame more favorable for long-term financ-ing. Nevertheless, corporate borrowing inthe capital markets rose substantially overthis period, reaching record high levels in1957.

Smaller corporations also increased theirborrowing, particularly in maturities overone year. More than one-third the increasein long-term borrowing by corporations withassets under $5 million was from banks.Short-term bank borrowing by these corpo-rations rose at a slower rate than such bor-rowing by larger corporations, although theincrease represented about the same propor-tion of short-term outlays (inventories andnet receivables) as at larger corporations.Moreover, smaller corporations added to

3 Accounts receivable minus accounts payable.SOURCE.—Federal Trade Commission - Securities and Exchange

Commission: Quarterly Financial Reports for ManufacturingCorporations.

their holdings of cash and Government secu-rities between 1955 and 1957, but corpo-rations with assets of $5-$ 100 million re-duced their holdings of such liquid assets.

Data comparable to those in Table 4 arenot available for size of business within vari-ous manufacturing industries. Thus it is notpossible to determine whether uses of fundsfor expansion were greater among largebusinesses than among smaller businessesin industries not rapidly expanding as wellas in those showing marked growth.

LOAN MATURITY

In both 1955 and 1957, short-term loanswere predominant in the business loan port-folios of member banks for all size groupsof borrowers. Between 1955 and 1957,however, term loans (maturities over oneyear) expanded much more than loans withshorter maturities, as shown in Table 5, andthe ratio of term to total loans at all member



TABLE 5

MATURITIES OF BUSINESS LOANS OUTSTANDING AT MEMBER BANKS, OCTOBER 16, 1957BY SIZE OF BORROWER

Size of borrower(total assets, inthousands of

dollars)

All borrowers. . .

Less than 5 0 . . . .50-250250-1,0001,000-5,0005,000-25,000....25,000-100,000. .100,000 or more.Not ascertained..

Amount(in millions of dollars)

Allmatur-

ities

40,618

1,4565,2566,3026,7755,9124,8938,8151,207

1 yearor

less

25,197

7833,3114,5064,7553,6002,5625,264

416

1-5years

7,717

412946

1,0041,2921,277

8461,638

302

Over5

years

7,704

261999792728

1,0361,4851,913

489

Number(in thousands)

Allmatur-

ities

1,281

505494158481356

51

1 yearor

less

801

29532610833934

23

1-5years

352

1721123211311

20

Over5

years

127

37571741118

Percentage increase, or decrease ( —), 1955-57

Amount

Allmatur-ities

31.9

- 3 . 016.724.821.324.751.166.436.7

1 yearorless

23.8

- 1 5 . 04.9

17.411.317.552.879.1

- 1 3 . 4

1-5years

58.0

21.047.148.661.352.676.379.457.0

Over5

years

38.2

8.741.747.742.123.037.232.5

132.5

Number

Allmatur-

ities

8.0

0.319.125.327.221.122.77.3

- 3 8 . 2

1 yearor

less

- 2 . 3

- 1 2 . 46.9

13.814.910.411.121.0

-42 .9

1-5years

31.3

30.561.159.772.377.573.09.4

-47 .1

Over5

years

31.2

8.738.563.149.1

8.929.7

- 1 8 . 574.8


banks rose from 34 to 38 per cent, as shownin Table 6. Movements in short-term loansbetween 1955 and 1957 varied considerablyamong borrower size groups, and were theprincipal factor accounting for the size-of-borrower differences in behavior of totalloans over this period.

The rise in the proportion of term loans,generally both those with intermediate ma-turities (one-five years) as well as those withlong maturities (over five years), occurredonly among businesses with assets of lessthan $25 million. The smallest borrowers(assets under $50,000) showed the largestrise, from 39 to 46 per cent, and in 1957they had the largest proportion of term bor-rowing of any size group except businesseswith assets of $25-$ 100 million. However,the smallest borrowers also experienced adecline in the dollar amount of borrowingat short maturities (one year or less) be-tween 1955 and 1957.

Businesses with assets of $25 million ormore, which had the largest proportions ofloans with maturities over five years in 1955,increased their short- and intermediate-termborrowing most between 1955 and 1957,

and the proportion of their long maturityloans declined. For businesses with assetsof $100 million or more, growth in short-term loans accounted for two-thirds of theincrease in their total bank borrowing overthis period.

For borrowers with less than $25 millionof assets, the ratio of term to total loansrose between 1955 and 1957 at all sizeclasses of banks, but most at the largestand smallest banks, as shown in Table 6.For the largest businesses, particularly thosewith assets of $100 million or more, thedecline in the proportion of term loans wasmainly at big banks where these businessesdo the bulk of their bank borrowing. Ingeneral, these banks also were more affectedthan smaller banks by changes in the avail-ability of reserve funds over this period.

The more rapid growth between 1955and 1957 in term loans than in short maturi-ties for small and medium-size businessesreflects the increased outlays during thisperiod for expansion of plant and equipmentrequiring relatively long-term financing.Smaller borrowers in particular, whose ac-cess to financing through the securities mar-



TABLE 6

TERM LOANS AS A PERCENTAGE OF BUSINESS LOANS AT MEMBER BANKS, 1955 AND 1957BY SIZE OF BORROWER AND SIZE OF BANK

Size of borrower(total assets,in thousands

of dollars)

All borrowers *

Less than 50. . .50-250250-1 0001,000-5,0005 000-25 00025,000-100 000100,000 or more. .

All banks

1955

33 9

38 729.924.023 535.448 244.5

1957

38.0

46.237.028.529.839.147 740.3

Size of bank (total deposits

Under 10

1955

27 1

33.928.115.97.0

11.0

10.6

1957

34 7

43.535.223.217.114.115 56.8

10-100

1955

27.2

38.331.624.719.718.515 914.6

1957

32.1

42 637.330.723.419.717 213.7

, in millions of dollars)

100-1

1955

28 5

41.230.924.724.929.630 731.0

,000

1957

31 1

48 535.829.328.832.931 925.4

1,000 or more

1955

42 3

48 025.523.023 441.057 251.0

1957

45 6

60.141.224.335.045.055.045.3

1 Includes a small dollar amount of loans for borrowers whose size was not ascertained.

kets is limited, relied to a considerable ex-tent on banks to supply intermediate- andlong-term funds for these purposes, al-though they expanded productive capacityless than large businesses. That banks, ina period of credit restraint, were willingto expand term loans to smaller borrowersmore rapidly than short-maturity loans mayreflect, in part, the fact that these loanswere largely instalment loans bearing rela-tively high rates of interest or loans securedby real estate. It may also indicate thatsmall borrowers were making increased useof trade credit to meet short-term needs,as suggested by the large rise in net receiv-ables of large corporations referred toearlier.

The emphasis on short-term borrowingby large businesses between 1955 and 1957suggests that they satisfied a greater pro-portion of their long-term financing needsthrough the securities markets. As previ-ously indicated, large manufacturing corpo-rations increased their term borrowing fromnonbank sources five times as much as theirterm borrowing at commercial banks. Theymay also have increased their short-termborrowing from banks to tide them overuntil conditions for long-term financing in

the securities markets became more favor-able. In view of their high credit stand-ing, large businesses probably could do thiswith assurance that their notes would be re-newed for as long as they needed the funds.The record volume of corporate securitiesissued in 1956 and the first nine monthsof 1957 would have permitted substantialretirement of short-term interim financingprior to the October 1957 Survey date.

SECURED VERSUS UNSECURED LOANS

In both 1955 and 1957, the bulk of thedollar amount of loans outstanding to smallborrowers was secured by collateral, en-dorsed, or guaranteed by someone otherthan the borrower. In contrast, only aboutone-sixth of the loans to the largest bor-rowers was secured, as shown in Table 7.The proportion of secured loans roseslightly between 1955 and 1957 for all sizeclasses of business except the smallest, thatis, firms with assets less than $50,000. Se-cured loans to small borrowers, on the av-erage, were larger than unsecured loans,but in the case of larger borrowers, securedloans tended to be smaller than the un-secured.



TABLE 7

RELATION OF SECURED LOANS TO TOTAL BUSINESS LOANS OF MEMBER BANKS, 1955 AND 1957WITHIN SIZE-OF-BORROWER GROUPS

Size of borrower (totalassets, in thousands

of dollars)

Total loans (inmillions of

dollars)

1955 1957

Secured loans

Millions ofdollars

1955 1957

Percentage of totalfor size group

1955 1957

Number

Total loans(in

thousands)

Secured loans

1955 1957

Thousands

1955 1957

Percentage of totalfor size group

1955 1957

All borrowersl.

Less than 5050-250250-1,0001,000-5,0005,000-25,00025,000-100,000. . .100,000 or more. .

30,805

1,5014,5055,0515,5864,7423,2405,297

40,618

1,4565,2566,3026,7755,9124,8938,815

15,700

1,1913,3743,4523,2961,996828784

20,426

1,1414,0234,5434,0562,6611,3811,546

51.0

79.374.968.359.042.125.614.8

50.3

78.476.572.159.945.028.217.5

1.185

50341512638

46

1,281

505494158481356

799

3472708022412

856

34432510429622

67.4

69.065.163.358.639.329.037.8

66.8

68.265.765.960.748.531.734.7

1 Includes a small amount of loans to borrowers whose size was not ascertained.

Emphasis on security varied with maturityof loan, but was greater for small borrowersthan for larger borrowers in all maturityranges. Of the outstanding short-maturityloans, preferred by banks for reasons ofboth safety and liquidity, only 44 per centwas secured in October 1957. The percent-age ranged by size of borrower from 13per cent for those with assets of $100 mil-lion or more to 66 per cent for those withassets less than $50,000. Over three-fifthsof the intermediate- and long-maturity loanswas secured. Nearly every loan with amaturity of more than five years to borrow-ers with assets less than $1 million in Oc-tober 1957 carried some kind of security,generally real estate, but two-thirds of thenumber and nearly one-third the dollaramount of loans to the largest borrowergroup also were secured.

Collateral or other security was requiredsomewhat less at smaller than at largerbanks on short-term loans to most smallerborrowers. On term loans to these borrow-ers, and on loans of all maturities to largerborrowers, there was no significant pattern

of variation in the secured proportionamong different sizes of banks.

The 1955-57 rise in the proportion ofsecured loans for most borrower size groupsshown in Table 7 is largely attributable tomore rapid growth over that period in typesof loans on which security requirementspreviously had been relatively high. Forsmaller borrowers, there was a more rapidexpansion in term borrowing than in short-term borrowing. For larger borrowers,there were differential rates of growth inloans among industries—for example, morerapid expansion in loans to public utilitiesthan to sales finance companies. It doesnot appear that banks appreciably alteredtheir emphasis on security as credit availa-bility became more restricted.

SIZE AND LOCATION OF BANK

Small businesses borrow from both largeand small banks, but large businesses ofnecessity borrow primarily from large banks,as shown in Table 8. To a limited extent,large businesses also borrow from smallbanks, often through participation arrange-



TABLE 8

RELATIVE SIZE OF BUSINESS BORROWERS AT MEMBERBANKS, BY SIZE OF BANK1

Size of borrower

All borrowers 2

Small. . . .Medium.Large

All borrowers 2


All borrowers 2


Allbanks

Size of bank (total deposits,in millions of dollars)

Under10 10-100 100-

1,0001,000

and over

Amount outstanding, Oct. 16, 1957(in millions of dollars)

40,618

7,00117,70614,704

1,684

79281438

6

23

,439

.082,446715

14

264

,192

,613,686,517

18,304

1,5146,7619,434

Percentage distribution withinsize-of-borrower group

100.0

100.0100.0100.0

4

1140

.1

.3

.6

.3

15.

29.19.4.

9

759

34

373730

.9

.3

.8

.7

45.1

21.638.264.2

Percentage increase, or decrease ( —),in amount outstanding, 1955-57

31

102850

.9

.6

.0

.7

12.

5.22.-1.

0

098

21

112631

.7

.3

.4

.2

27.4

10.325.538.7

42.2

13.532.059.3

1 For classification of borrowers by relative size, see Appendix A.2 Includes a small amount of loans for borrowers whose size was

not ascertained.

ments between small banks and their largecity correspondents.

Growth in business lending between 1955and 1957 varied with size of bank, rang-ing from 12 per cent for banks with depositsof less than $10 million to 42 per cent forbanks with deposits of $1 billion or more.The rapid growth at large banks reflectsmainly the relatively rapid growth in financ-ing needs of large businesses associated withexpansion of productive capacity. Loans tolarge businesses rose much faster at the larg-est banks than at banks in any other sizeclass. Loans to smaller businesses at largebanks also went up more than loans tosmaller businesses at smaller banks. Withinbank size classes, loan growth varied withsize of business. At the smallest banks,loans to small businesses showed the least

growth, increasing only 5 per cent, or aboutone-third the rate at the largest banks.These small banks, located to a large ex-tent in agricultural communities, accountfor only about one-tenth of total bank lend-ing to small businesses.

Pressures of monetary restraint variedwith size of bank, being more at large banksand less at smaller banks. Large bankshad little deposit growth between 1955 and1957. To expand loans, they substantiallyreduced their holdings of United States Gov-ernment securities and their excess reservesand borrowed from the Reserve Banks. Ingeneral, at smaller banks deposit growth wasgreater and there was less resort to reduc-tions of Government security holdings andexcess reserves, and to borrowing from theReserve Banks.

The slower growth in loans to small thanto larger businesses reflects both a slowergrowth in total business loans at small banks,which lend primarily to small businesses,and a slower growth in loans to small than tolarger businesses within size classes of banks.It does not appear that monetary restraintwas a major factor contributing to the rela-tively slow growth in total business loansat smaller banks. However, monetary re-straint may have contributed, to some ex-tent, to the slower growth in loans to smallthan to larger businesses within the varioussize classes of banks, particularly the largerbanks, although the evidence from the loanSurveys alone is not sufficient on this point.

Banks located in areas of rapid industrialexpansion, such as the San Francisco, Cleve-land, and Chicago Federal Reserve Districts,generally increased business lending themost between 1955 and 1957. These areasalso showed relatively large increases inloans to small businesses, as shown inTable 9. Business loan expansion also was



TABLE 9

REGIONAL CHANGE IN BUSINESS LOANS OF MEMBERBANKS, 1955-57, BY RELATIVE SIZE OF BORROWER1

[Percentage increase, or decrease ( —), in amounts outstanding]

Federal Reservedistrict

All districts

BostonNew YorkPhiladelphiaClevelandRichmondAtlantaChicagoSt. LouisMinneapolisKansas CityDallasSan Francisco

Allborrowers2

31.9

20.135.817.743.420.826.535.016.120.517.710.450.6

Relative size of borrower

Small

10.6

0.10.69.8

22.46.7

18.211.3

- 1 5 . 62.1

17.2- 7 . 646.1

Medium

28.0

23.828.516.840.824.126.122.72.4

35.316.217.052.1

Large

50.7

36.855.018.465.132.151.159.933.311.629.521.161.0

1 For classification of borrowers by relative size, see Appendix A.2 Includes a small amount of loans for borrowers whose size was

not ascertained.

high in the New York District, reflecting inlarge part extensive lending by New YorkCity banks to large industrial enterprisesin other parts of the country as well as NewYork. The districts showing the smallestgrowth in total loans, namely Dallas andSt. Louis, were the only ones in whichloans to small businesses declined. It wouldappear that a major factor governing re-gional differences in loan expansion tosmall businesses and to businesses generally

between 1955 and 1957 was the regionalpattern of economic activity and relatedcredit demands.

INTEREST RATES

It has long been recognized that small busi-nesses generally pay higher interest rates onbank loans than large businesses. Averageinterest rates on member bank loans madeafter June 30, 1957 and outstanding onOctober 16 of that year ranged from 4.4per cent on loans to the largest borrowersto 6.5 per cent on loans to the smallest,as shown in Table 10. Between the sum-mer of 1955 and the summer of 1957,when average interest rates on all new loansrose from 4.2 to 5.0 per cent, average rateson short-term loans to large borrowers rosetwice as much absolutely, and even morerelatively as on loans to small borrowers.Rates on longer maturities also generallyrose more for larger borrowers than for smallborrowers, but the growth differences wereless.

As a result of these differences in ratechanges, the spread in rates between thelargest and smallest businesses declined from2.5 percentage points in 1955 to 2.1 per-

TABLE 10

INTEREST RATES ON MEMBER BANK LOANS TO BUSINESS, 1955 AND 1957BY SIZE OF BORROWER AND MATURITY OF LOAN

[Average rates on loans made between July 1 and Survey date. Per cent per annum]

Size of borrower(total assets, inthousands of

dollars)

1955

Allloans

Short-term

(1 yearor

less)

Inter-mediate

termd-5

years)

Long-term(over

5years)

1957

Allloans

Short-term

(1 yearor

less)

Inter-mediate-

term(1-5

years)

Long-term(over

5years)

Net increase, 1955-57

Allloans

Short-term

(1 yearor

less)

Inter-mediate-

term(1-5

years)

Long-term(over

5years)

All sizes i

Less than 5050-250250-1,0001,000-5,0005,000-25,00025,000-100,000100,000 or more

4.2

5.85.14.64.13.73.43.3

4.2

5.55.04.64.13.73.43.2

4.9

7.96.25.24.63.93.93.2

4.1

5.25.04.84.34.13.63.6

5.0

6.55.75.45.14.84.54.4

5.0

6.15.65.45.14.84.64.4

5.7

8.77.16.05.74.94.64.4

4.7

5.85.65.45.14.84.33.9

0.8

0.70.60.81.01.11.11.2

0.8

0.60.60.81.01.11.21.2

0.7

0.80.80.81.1

0^71.2

0.6

0.60.60.60.80.70.8:0.3

1 Includes a small amount of loans for borrowers whose size was not ascertained.



centage points in 1957. In the short ma-turities, where the largest volume of loansis made, the spread declined from 2.3 to 1.7percentage points. During this two-year pe-riod, bank requirements that borrowersmaintain compensating balances also be-came more widespread and more stringent.Since these requirements apply mainly tolarge borrowers, it is likely that differencesin effective interest rates charged large andsmall borrowers narrowed even more thanthe pure interest rate data indicate.

Interest rate differences relating to differ-ences in loan maturity were pronouncedonly among smaller businesses, particularlythose with assets of less than $5 million.These borrowers paid higher rates in bothyears on loans with one-five year maturitiesthan on either short-term or long-term loans.In part, this differential reflects financing ofpurchases of machinery and equipment byinstalment loans carrying relatively high ef-fective interest rates. These loans, whichmany banks administer through their con-sumer instalment loan departments, ordi-narily carry interest rates more comparableto those on consumer durable goods instal-ment paper than on ordinary business loans.Most of the longer term loans to smallerbusinesses in 1957 were real estate loanswhich, on the average, were considerablylarger than instalment loans and carriedlower interest rates. Rates charged the larg-est borrowers in all maturities were close tothe prime rate in both 1955 and 1957.3

A major factor in interest rate differencesby size of borrower is the wide variation inrates by size of loan. Loan size generally

3 The prime rate charged by leading commercialbanks on loans to businesses of the highest creditstanding was raised between July 1 and the Surveydate in both 1955 and 1957. It went up from 3 to3lA per cent in August 1955 and from 4 to 4Vi percent in August 1957.

corresponds with size of borrower. Averagerates on loans outstanding on October 16,1957 varied from 4.4 per cent on loans of$500,000 or more to 6.7 per cent on loansless than $10,000. This is attributable inpart to the fact that the costs of making andadministering a loan, which must be recov-ered through the interest charge, tend to bea higher percentage of the principal amountof small loans than of large loans.

Rates varied inversely with size of loanfor large borrowers as well as small borrow-ers. However, for a loan of any given size,small borrowers paid a higher rate than largeborrowers in both 1955 and 1957, presum-ably because of the higher risks ordinarilyassociated with lending to smaller firms andthe higher administrative costs per dollar ofloan. In October 1957, outstanding loansin all size ranges to the largest borrowerscarried interest rates one percentage point ormore lower than the same size loans to thesmallest borrowers. Between 1955 and1957, average rates on loans to businesseswith assets of $5 million or more rose onepercentage point or more in nearly all loansizes. Average rates rose only about one-half percentage point in all loan sizes of lessthan $50,000 to borrowers with assets lessthan $250,000, but these were the loancategories for which average rates generallywere highest in both 1955 and 1957.

Most borrowers pay about the same rateof interest on their loans regardless of thesize of bank from which they borrow, asshown in Table 11. The major exceptionis that rates on loans to small businesses areslightly higher at large than at small banks,reflecting in part relatively more lending bythese banks on longer term higher-interest-bearing instalment loans. Between 1955and 1957, all size classes of banks raised



TABLE 11

SIZE-OF-BANK VARIATIONS IN INTEREST RATES ON BUSINESS LOANS, BY SIZE OF BORROWER

[Average rates at member banks, Oct. 16, 1957, and net increases, 1955-57. Per'cent per annum]

Size of borrower (total assets,in thousands of dollars)

Size of bank (total deposits, in millions of dollars)

Allbanks

Under10 10-100 100-

1,0001,000 and

over

Average interest rate, Oct. 16, 1957

Allbanks

Under10 10-100 100-

1,0001,000 and

over

Net increase, 1955-57

All borrowers1.

Less than 5050-250250-1,0001,000-5,0005,000-25,00025,000-100,000. .100,000 or more.

4.9

6.55.75.45.14.74.34.1

5.9

6.55.85.44.84.84.84.2

5.4

6.45.65.35.14.84.54.3

5.06.65.75.35.14.74.44.2

4.66.95.95.55.04.64.34.0

0.7

0.60.60.70.90.80.91.0

0.3

0.40.30.40.51.12.21.6

0.60.60.50.50.60.91.11.2

0.8

0.80.70.70.90.91.01.1

0.8

0.70.80.90.90.80.80.9

1 Includes a small amount of loans for borrowers whose size was not ascertained.

rates less on loans to small businesses thanon loans to large businesses.

Although average interest rates were con-siderably higher on loans to small borrowersthan on loans to large borrowers, an appre-ciable volume of small business lending wasat rates typical of those charged large busi-nesses. In October 1957, when the largestproportion of both dollar amount and num-ber of loans to businesses with assets of $25million or more had interest rates of 4.00-4.99 per cent, 38 per cent of the loans tobusinesses with assets of $250,000-$25,-000,000 and 11 per cent of the loans tobusinesses with assets of less than $250,000also carried rates within this range. Con-versely, only a small dollar amount but anappreciable number of loans to large busi-nesses fell in the 6.00-7.99 per cent range,where the number and dollar amount ofloans to small borrowers was particularlyheavy.

There are indications that 6 per cent mayrepresent, in the case of some banks at least,an effective rate ceiling on loans to smallborrowers. This is suggested by the heavyconcentration of loans to small borrowersin the 6-8 per cent range in both 1955 and

1957 and by the fact that within this rangethe average interest rate on loans to smallborrowers approximated 6 per cent in bothyears. In many areas of the country, usurylaws and banking tradition prevent nominalor stated rates from going above 6 per cent.

One possible result of such limitationsduring a period of rising interest rates is toreduce the relative profitability of loans pre-viously made at ceiling levels as rates onloans previously made below those ceilingsare raised. Most affected by these limita-tions are loans, particularly short-term loans,on which the effective interest rate is closeto the nominal or stated rate subject to theceilings. On instalment loans with interestcalculated on original amount of the loan,however, effective rates generally are closeto twice the nominal or stated rates. Inmany jurisdictions, the applicable ceiling onsuch loans is the nominal rate rather thanthe effective rate. It is perhaps significantthat short-term loans to small borrowersshowed least growth or declined between1955 and 1957, whereas those with inter-mediate maturities, mainly instalment loans,rose considerably.



TABLE 12

LOANS TO NEW BUSINESS IN RELATION TO TOTAL MEMBER BANK LOANS TO ALL BUSINESS, OCTOBER 16, 1957BY BUSINESS OF BORROWER

Business of borrower

All business

Manufacturing and miningTradeOther:

Sales finance companiesTransportation, communication,

and other public utilitiesConstructionReal estateService firmsAll other nonflnancial business. .

Amount

Millions of dollars

Allbusiness

40,618

16,1448,386

3,095

4,1691,9802,9762,2621,605

Newbusiness1

1,992

489347

109

172180358226111

New as apercent-age of allbusiness

4.9

3.04.1

3.5

4.19.1

12.010.06.9

Number

Thousands

Allbusiness

1,281

211507

12

4910882

23083

Newbusinessl

107

1342

1

498

245

New as apercent-age of allbusiness

8.4

6.48.4

5.1

8.98.09.8

10.56.4

Percentage distribution

Amount

Allbusiness

100.0

39.720.6

7.6

10.34.97.35.64.0

Newbusiness1

100.0

24.617.4

5.5

8.69.0

18.011.35.6

Number

Allbusiness

100.0

16.539.6

0.9

3.88.46.4

17.96.5

Newbusinessl

100.0

12.639.6

0.6

4.18.07.5

22.65.0

1 Businesses formed within 24 months before Oct. 16, 1957.

LOANS TO NEW BUSINESSES

Information was obtained in the October 16,1957 Survey on loans to new businesses,that is, businesses formed within 24 monthsbefore the Survey. On the Survey date,member banks had 107,000 loans totalingnearly $2 billion outstanding to these rela-tively new businesses, as shown in Table 12.These loans accounted for 5 per cent of theamount and 8 per cent of the number of alloutstanding member bank loans to busi-ness. Three-fifths of the number but lessthan one-third of the dollar amount of theseloans was to trade and service firms, butmanufacturing and mining and real estateconcerns also accounted for a substantialshare.

As might be expected, most of the newbusinesses borrowing these funds were unin-corporated and relatively small. Businesseswith assets of less than $250,000 accountedfor nearly 90 per cent of the number but less


than one-third the dollar amount of all loansto new businesses, as shown in Table 13.New businesses borrowed to a greater extenton term loans than established businessesand a much higher proportion of their loanswas secured. Average interest rates wereless than one-third per cent higher on loansto new businesses than on loans to estab-lished businesses in all size groups.

TABLE 13

SELECTED LOAN AND BORROWER CHARACTERISTICSOF MEMBER BANK LOANS TO NEW AND

ESTABLISHED BUSINESSES

[Percentage of loans outstanding to each type of business,Oct. 16, 1957]

Characteristic

Loans to borrowers with as-sets of less than $250,000. .

Loans to unincorporatedbusinesses

Term loans .Secured loans

Newbusinesses!

Amount

31.2

26.845.975.9

Number

87.7

71.138 772.0

Establishedbusinesses

Amount

15.8

18.637.649.0

Number

77.1

68.037 366.3

i Businesses formed within 24 months before Oct. 16, 1957.



APPENDIX A

CLASSIFICATION OF BORROWERS, BY INDUSTRY AND RELATIVE SIZE

Industry

Size(assets, in thousands of dollars)

Small Medium Large


Trade:Retail tradeWholesale tradeCommodity dealers

Other:Sales finance companiesTransportation, communication, and other public utilitiesConstructionReal estateService firmsAll other nonfinancial business

Under 1,000Under 1,000Under 5,000Under 5,000Under 250

Under 50Under 250Under 250

Under 5,000Under 50Under 50Under 250Under 50Under 50

1,000-100,0001,000-25,0005,000-100,0005,000-100,000250-25,000

50-1,000250-5,000250-5,000

5,000-100,00050-100,00050-1,000250-1,00050-1,00050-1,000

100,000 or more25,000 or more100,000 or more100,000 or more25,000 or more

1,000 or more5,000 or more5,000 or more

100,000 or more100,000 or more1,000 or more1,000 or more1,000 or more1,000 or more

NOTE.—For questionnaire used in 1957 Survey,see following pages.


SHEET NO. - SHEET NOForm F.R. 643c (Rev. 9-57)Form ApprovedBudget Bureau No. 55-5702Approval expires 1-31-58

SCHEDULE OF LOANS FOR COMMERCIAL AND INDUSTRIAL PURPOSES

OUTSTANDING ON OCTOBER 16, 1957

(For banks with total deposits on 6-30-55 of less than $10 million)

CONFIDENTIAL

DO NOT USE

1 Name of BranchI City| State

I

STATE BANK NUMBER BRANCH NUMBERPerson at your bank to be contacted if there are questions about form.

FILL OUT THIS BOX ON FIRST SHEET ONLY

1. Total amount of real estate loans for commercial and industrial purposesoutstanding on October 16, 1957 (such loans are classified in the CallReport under Schedule A, Item 1) $ -

2. Total amount of commercial and industrial loans (as defined by the CallReport instructions and classified under Schedule A, Item 5) outstandingon October 16, 1957:

(a) Open market paper (see definition at right)(1) Bankers' acceptances $(2) Finance company paper (purchased directly or

acquired through dealers) $(3) All other commercial paper $ .

(b) All other commercial and industrial loans $(c) Total commercial and industrial loans (a + b) $_

3. All loans for commercial and industrial purposes (1 + 2) $_

Real estate loans for commercial purposes include all loans granted for commercial or industrialpurposes but classified in the Call Report as real estate loans because they are secured by amortgage.

Open Market Paper (this type of paper is to be reported in totals by type only; it is not to bereported in detail below)

Bankers'acceptances-include in reported total all acceptances held by you whether drawnon your bank or another bank.

Finance company paper—include short-term, negotiable notes of sales finance companiespurchased either from the company directly or from a dealer.

All other commercial paper—include short-term, negotiable notes of business concernspurchased from commercial paper dealers.

All other commercial and industrial loans include loans negotiated directly between the bank andthe borrower, loan participations arranged by or purchased from other banks, and promissorynotes or other receivables discounted for bank customers.

NOTE: Please see instructions on loan coverage and reporting procedure on the reverse side of this sheet before filling out this form.

1 1

! Business of borrowerName of borrower !

| (enter code, fromI instructionsj ot left)

Example • !John White and Company | 13

Example jXYZ Manufactur ing Company )•

2

Total assets of borrower

(approximate dollaromount of a recent

date;estimate if necessary)

$25,000

$1,500,000

3 4

Form of businessorganization(check one)

Incor-porated

Unincor-porated

5

Wasbusinessstartedwithinlast 24months?

Yes

No

6Call

ReportSched. Anumber

(see

at left)

1

5

7 1 8

Amount of loan(see instructions at left)

Amount outstandingon October 16,

1957(omit cents)

Si,066

$50,000

Lea

veB

lank

Original amountof current

outstandings(omit cents)

$1,500

$50,000

9

Date made:month, dayand year

10

Date due:month, dayand year

(see instructionsat left)

6-1-57

9_15_57

5-31-58

11-15-57

11

Effectiveinterest rate(annual rate

balance;see instruc-

tions at left)

11.00

5.25

12

Is loonrepayable in

with interest

amt.of loon?

Yes

No

13 14

Security(check one)(see instruc-tions at left)

Un-secured

Allother

(For instructions referred to in note above box headings, and in box headings, see below.)

This survey is designed to provide information on bankloans made for commercial and industrial purposes out-standing on October 16, 1957. Please complete thisreporting form according to the following instructionsand mail it to your Federal Reserve Bank not later thanOctober 30, 1957.

For your convenience a column has been provided onthe form for the names of the borrowers whose loansare reported. Before submitting your report detach thiscolumn. Please save it for sixty days so that if theFederal Reserve Bank has a question concerning anyparticular loan which you report, the loan can be readilyidentified by you from the detached sheets.

All information which you report will be held in strictconfidence. The results of the survey will be publishedonly in the form of totals for groups of banks.

Loan CoverageYou are being asked to make a report on all of your

loans for business purposes made to individuals, partner-ships, or corporations, whether secured or unsecured,whether for the purpose of financing capital expendituresor current operations, and irrespective of their normalclassification for Call Report purposes.

Be sure to include commercial and industrial loanscarried in G.I. or instalment loan departments. Theseloans should be classified in Schedule A, Item 5 of theCall Report. No matter where they have been classifiedfor Call Report purposes, however, they should be in-cluded in the survey. Omission of these loans fromyour report could cause the survey results to understateseriously the volume of bank loans to small business.

Reporting procedureCaution: It is absolutely essential that you follow the

instructions and do not make any changes in the pro-cedures for selecting the loans you report.

1. Separate or identify in your loan files in any fashionconvenient for you each of the following groups of loans:

Group A—Open market paper (for a definition, seebox above)

Group B—Real estate loans for commercial and in-dustrial purposes

Group C—All other loans for commercial and indus-trial purposes, including small instalmentloans

2. Total the amount of loans outstanding on October16, 1957 in each of these groups and enter the totals inthe box at the top of the form.


3. No further information is requested on the paperreported in Group A.

4. For Groups B and C report the detailed informa-tion requested on the form for each such loan outstandingon October 16, 1957.1

If your bank is a branch institution, the same pro-cedure should be followed at each branch. Branch re-ports should be consolidated at the head office beforesubmission to the Federal Reserve Bank. The figures inthe box should cover the entire bank.

INSTRUCTIONS

Column 1. In Column 1 enter whichever one of thecode numbers shown below best describes the largestpart of the borrower's business. Use only one codenumber for each loan.

Include in your report (in the summary box and inthe detailed reporting section) loans to sales financecompanies, real estate companies, and mortgage com-panies. Exclude loans to all other financial institutions(insurance companies, savings and loan associations,etc.) and nonprofit organizations.

Code Business of Borrower

Manufacturing and Mining

Food, liquor, and tobacco (exclude loans tofarmers)

\ Textiles, apparel, and leather

Metal and metals products (including iron,steel and nonferrous metals and their prod-ucts; electrical and other machinery; andautomobiles and other transportationequipment and parts)

Petroleum, coal, chemicals, and rubber

5 All other manufacturing and mining (includ-ing lumber; furniture; paper; printing andpublishing; and stone, clay, and glass)

^his instruction applied only to respondent banks with totaldeposits on June 30, 1955 of less than $10 million. Banks withtotal deposits of $10 million but less than $100 million wererequested to report on every loan of $100,000 or more and everyeighth of their smaller loans. Banks with $100 million and overof deposits were requested to report on every loan of $1 millionor more and every tenth of their smaller loans. A few banks withunusually large numbers of business loans were permitted to reporto n a somewhat smaller fraction of their smaller loans.

Trade

Wholesale trade (including concerns sellingto businesses as final buyers; also grainelevators)

Retail trade

Other

8 Commodity dealers (establishments primarilyengaged in buying and selling commoditycontracts and which are members, or as-sociated with members of recognized com-modity exchanges)

Sales finance companies (firms primarily en-gaged in financing retail sales made on theinstalment plan; exclude personal financecompanies and other companies whoseprimary business is cash loans to individ-uals)

,0 Transportation, communication, and otherpublic utilities

11 Construction (including operative builders)

12 Real estate (including operators, owners,agents, brokers, subdividers and developersof real property, and mortgage companies)

Service firms (including hotels; repair serv-ices; amusements; personal and domesticservices; and medical, legal, and other pro-fessional services)

14 All other nonfinancial business

Column 2. Every effort should be made to obtain thetotal assets of the borrower; do not substitute net worth.

Column 6. Enter item number under which loan wouldbe classified in Schedule A of the Call Report: for aloan classified in the Call Report as "commercial andindustrial" enter 5, and for a loan classified as "realestate" enter 1, etc.

Column 7. If several notes or advances outstanding toa single borrower represent different loan arrangments,treat each note or advance separately in selecting thesample of loans you report. But if several notes areoutstanding under the same arrangement (for example,

floor planning, accounts receivable financing, and con-struction loans on which drawings are made as required),combine the outstanding notes or advances and reportthem as one loan. In cases in which a series of notesor advances should be combined, the security is usuallyidentical.

Exclude interest and service charges.

Column 8. If a series of notes or advances have beencombined in accordance with the instructions for Column7, enter the total of the original amounts of the notespresently outstanding. The amount shown in thiscolumn should in no case be less than the amount shownin Column 7.

Exclude interest and service charges.

Column 9. If the loan has been renewed, show the dateof last renewal or renegotiation. If the loan is a com-bination of a series of notes, enter date of first note oradvance.

Column 10. If the loan is an instalment loan or acombination of a series of notes, enter the date on whichthe last payment is due.

For a demand note, enter the word "demand"; how-ever, if it is demand only in the sense that it becomesdue immediately if some condition of the loan contractis not met, and repayment is actually scheduled forsome future date, enter the scheduled repayment date.

Column 11. For a single-payment loan or a loan re-payable in instalments on which the interest charge iscomputed periodically on the unpaid balance, the effec-tive interest rate is the same as the stated or nominalrate. For a loan repayable in instalments on which theinterest charge is computed on the original amount ofthe loan, either on a discount or an add-on basis, theeffective rate is higher than the stated rate. For example,if the loan is repayable in full in equal instalments, theeffective rate is nearly twice the stated rate.

If more than one rate is charged under a serial noteor other loan arrangement, report the average effectiverate.

Columns 13-14. Check column 13 if loan is one-namepaper and not endorsed, guaranteed, or secured by col-lateral. Check column 14 if loan is endorsed, guaran-teed, or secured by some form of collateral, including alease.


member bank lending to small business, 1955-57 · mr. james b. eckert, chief, who also had specific...

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