Special Message to the Congress on Small Business.

To the Congress of the United States:

Seventeen years ago President Eisenhower established the Small Business Administration (SBA). This marked the first peacetime recognition by the Federal government of the special needs of small businesses.

--Today there are in the United States an estimated 5,400,000 independent businesses, of which 95 cent are small by SBA size standards.

--97 percent of our nation's firms employ fewer than 100 full-time workers.

--The small business sector of the economy contributes roughly 37 percent of the gross national product and is responsible for over 40 percent of U.S. employment.

We all know the almost legendary stories of men in the past and in our time who have started out in small business with little more than an idea and a belief in themselves and have gone on to great financial success. Yet small business can also mean other things.

--It can mean for the nation a source of independent innovation which continually offers new products and services needed by any economy if it is to remain vital.

--It can mean the everyday success of the average businessman whether he owns his own retail or service enterprise or heads a small manufacturing concern. It is a quiet kind of success that doesn't make the big news on the financial page, but makes life more rewarding for millions of Americans. It is the kind of success that offers personal services to consumers-and personal satisfaction to the businessman.

--It can mean a chance for a young American to bring not only his talent but his individuality to the challenges of the business world.

--It can also mean an opportunity for dignity and for economic and social progress for many Americans previously without access to the economic system of our nation. Small business is a way to become a part of that system--and, after seeing it work, believe in it, in its promises and in its challenges.

The Report of the Task Force on Improving the Prospects of Small Business

In order to discover ways in which we could help improve the prospects of small business in the United States, I appointed a Task Force, chaired by Mr. J. Wilson Newman of New York, to report to me. In line with recommendations in their report, I am:

--Directing the Small Business Administration to emphasize its role as the advocate of the interest of small business. I am further directing all agencies to take these interests fully into account in their activities affecting small business.

--Proposing legislation to expand research to provide a clear picture of the problems, the trends and the needs of small business and a clear picture of the impact of government on small business.

--Proposing legislation to create a new position of Assistant Secretary in the Department of Commerce to assist in formulating policy for the Office of Minority Business Enterprise (OMBE). I established OMBE early in my Administration to coordinate programs and activities within the Federal government aimed at assisting minorities to enter the American economic mainstream. This is an extremely important undertaking.

The Task Force identified three major problem areas that can be found in all parts of the small business community, including that of the disadvantaged entrepreneur:

--The need for capital and for recognition of the special financial problems small firms may face in their early years;

--The need for sound management counseling; and

--The need for people and especially for trained people. In order to help small business in these areas, I am proposing a far-reaching legislative program.

FINANCIAL ASSISTANCE

The Small Business Task Force found in surveys of businessmen across the nation that one-fifth of those consulted ranked financing first among their problems. Interest assistance, incentives to make loans, tax reform, bonding for small contractors and Minority Enterprise Small Business Investment Companies (MESBIC) are five major areas for action.

Interest Assistance

The risk of failure for small business is high, and the early years are the most perilous. These are the years in which the small businessman most often finds himself short of working capital and when high interest rates can have their greatest impact. In order to help small businessmen in such crucial early years, I propose legislation to authorize the Small Business Administration to make grants to borrowers whose loans are guaranteed by the SBA. These grants would narrow the gap between the prevailing interest rates and the statutory interest rate for SBA direct loans.

Incentives to Make Loans

Another problem area of financing is that of providing adequate incentives to the private sector to make high-risk loans to small business. The cost of processing a small loan may and often does equal or exceed the cost of processing a large loan. In order to help the man who needs a small loan that carries a higher-than-usual degree of risk, I am proposing legislation that would offer compensation in the form of tax incentives to those lenders who bear the additional cost of making such loans. The incentive would be an income tax deduction equal to 20 percent of the interest earned on SBA-guaranteed loans.

To further assist in this area, I am proposing legislation that the SBA be permitted to delegate to the banks to the full extent it deems advisable the authority to make loans that the SBA guarantees, provided the bank retains a portion of the risk. Also, the SBA is revising its procedures so that a bank, with SBA approval, can use its regular loan forms rather than the special SBA forms.

A variety of organizations other than banks--foundations, trusts, groups, community groups and others--are also interested in assisting the small business efforts of the disadvantaged by loan programs. To encourage these efforts, I also propose legislation to give the SBA the authority to guarantee loans by such organizations.

Tax Reforms for Small Business

The man who is willing to take the financial risks involved in beginning a small business should be encouraged. In recognition of these risks, I propose legislation to provide the following tax reforms:

--Revision of "Subchapter S" of the Internal Revenue Code to make it! easier for small business to be treated like a partnership for tax purposes.

--A ten-year tax loss carry-forward period, instead of the present 5-year period. This extension will be of special use to those new businesses that find it necessary during the early years to spend large amounts of money on research and development.

Bonding

No treatment of the problems of small business--especially those problems in the inner city--would be complete without consideration of the problem of insurance, including crime and property protection and surety bonds for construction.

On June 30, 1970, the Federal Insurance Administrator will report on these matters as required by the Housing and Urban Development Act of 1968. However, the urgency of the need to provide assistance relative to surety bonds for small business calls for immediate action. Accordingly, I am proposing legislation that would enable the SBA to guarantee, for a fee, as much as 90 percent of surety bonds up to $500,000 for small contractors who are qualified by SBA standards but lack the resources to qualify for bonding in the open market. Additional action regarding bonding may be called for in the Federal Insurance Administrator's report.

Minority Enterprise Small Business Investment Company

The MESBIC concept shows promise of becoming an important tool for the generation of capital and as a source of managerial assistance for the disadvantaged who need help in small business. The Federal government matches the MESBIC sponsor on a "2 for 1" basis. The "leverage" power of this concept can be seen in an example: If a sponsor puts $150,000 into his MESBIC, the government lends it $300,000. This $450,000, with the application of other loans it generates, can result in over $2 million for new enterprises. Of equal importance is the availability of the sponsor's managerial talents.

To provide additional tools to assist this program, I propose legislation to provide:

--Statutory authorization for a bank to become involved in the program as the sole sponsor of a MESBIC.

--Ordinary income tax deductions for contributions to MESBICs organized and operating under non-profit corporation statutes. This would provide a tax incentive for doubling the commitment of funds.

The legislation being proposed also reflects the intention that the program assist all the socially and economically disadvantaged who need such assistance.

PERSONNEL AND MANAGEMENT

ASSISTANCE

In its survey, the Small Business Task Force discovered that two out of every five responses listed the quality and availability of personnel as a major problem. It also is probably the most difficult one to solve. However, there are steps that can be taken at this time.

JOBS Program

The Secretary of Labor is initiating an expansion of the Federal JOBS (Job Opportunities in the Business Sector) Program that will aid small business. The JOBS Program until now has been in practice suitable only to larger corporations. But under this new program, consortiums of small businessmen--with the cooperation of local organizations such as boards of trade and chambers of commerce-will receive Federal assistance to offset the extraordinary costs of training employees until they become fully productive.

Stock Options

In order to offset the advantages large businesses have in attracting managerial talent, I am sending legislation to the Congress which would revise the tax rules for stock options as they relate to small business. The proposal would extend the qualified option exercise period from five to eight years and reduce the required holding period for the stock from three years to one year. This should substantially assist small, technically-oriented growth companies in their competition with larger companies for managerial and other talent.

Managerial Training Assistance

In order to help disadvantaged entrepreneurs get the kind of business know-how needed for success in small business, I propose legislation that would provide management training for those among the disadvantaged who are entrepreneurs and prospective entrepreneurs. Assistance would be offered for extension courses, night school and other management training courses.

Small business is an important part of our national life; it has been an important part of my personal life as well. My father knew the challenges and the rewards of owning and operating a small store. To him--and to our family--that store meant more than a source of income; it meant a daily challenge, a place where we could work out the destiny of the family in our own way, taking the risks, and enjoying the satisfactions of ownership. Looking back on those years, I know now that our store was a success not only because of what it did for our family budget, but for what it did for our spirit. I know that today, in helping Americans in small business, we are helping their spirit--and the spirit of our nation.

RICHARD NIXON

The White House

March 20, 1970