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Interview with: Charles Lawrence
Interviewed by: David Courtwright
Date: October 23, 1975
DC: 00:03 Interview with Mr. Charles Lawrence, October 23, 1975. Mr. Lawrence, where do you come from originally?
CL: I’m a native of Muskogee, Oklahoma.
DC: And what brought you to Houston?
CL: After the war I came to the University of Houston to finish my degree and at that time remained in Houston.
DC: How did you come to be interested in the Small Business Administration?
CL: I had worked ten years in the accounting profession, which leaves a desire for challenge needed and decided on a change to effect a more challenging career.
DC: What positions have you held in the Small Business Administration?
CL: I have been a loan officer from the time I came into the SBA until the present time with advancement in the civil service grades due to my experience and the ability to handle the more complicated cases.
DC: What exactly constitutes a small business? How do you define if someone is eligible for a loan?
CL: This is a very complicated question to answer in an interview. But we go into the size standards which have been set by the Small Business Administration to determine that a business is not too large a firm to be able to qualify for financing help from the Small Business Administration.
DC: Is there a rule of thumb for what constitutes a small business? I realize it is complicated, but just could you—
CL: No, sir, there isn’t. But let us look at it in the light that 80 percent of the businesses in the United States are under the classification of small businesses. We only have the very large corporations that are excluded or the large number of employees which would exclude a business from Small Business.
DC: 04:08 Could you give me a rough estimate of what percentage of commerce in Houston is handled by the small businesses. Even though they may constitute 80 percent of the firms, they surely don’t handle 80 percent of the volume.
CL: I am not knowledgeable of a percent that I could quote on that.
DC: Well, that’s all right. We’ll let that question go by.
CL: It’s a very hard question to answer unless you’ve studied statistics on the thing.
DC: Do you find that there are some areas dominated by small businessmen such as housing and that other areas tend to be dominated by large firms? Have you observed that pattern in your own work?
CL: Let me go back a little bit to come in in the establishment and history of the Small Business Administration and study what Congress had in mind when they really established it and how the Small Business Administration came about. The Small Business Administration is an outgrowth of financing needed after World War II to take up the financing handled under the Reconstruction Finance Corporation which found themselves abolished by Congress, and yet the need for help to the Small Business Administration was needed. The Senate Banking and Currency Committee concluded under investigation that while in all other fields the primary reliance is placed upon the individual initiative and private enterprise, that Congress cannot lose sight of the fact that in some areas federal machinery is still required to enable small business to play its full part. It is the best judgment of the committee meeting on that that more effective programs of small business assistance at less cost to the taxpayers can be achieved by creating the new agency of the federal government possessing the exact authority required to assist small business in making its full contribution to the national economy system. In 1953 the agency was established and signed by President Eisenhower. At that time it had a life of two years to test the agency. At the end of this time it was found that the program needed to be permanent, and the Small Business Act of 1955, Public Law 260A was passed by the 84th Congress and approved on August the 9th, 1955, extending the life of the Small Business Administration to 1957. The agency was continued past the 1957 date, and Public Law 536 was passed on June the 11th, 1958, establishing the Small Business Administration as a permanent agency of the federal government. In 1964 the agency was further extended under the Title IV of the acts concentrated on small business to extend the war against poverty into a neglected section of the economy by a means of the new program of financial assistance to the very small business concerns and qualified persons seeking to establish such concerns. This was known as the Economic Opportunity Act, and the Small Business Administration operates under these two basic laws. I think that that’s probably as much as is needed on the history of how the SBA came in and really what it is in working with the small business and how the act has come about.
DC: 12:18 That certainly establishes the goals of the Small Business Administration. I’d like, if I might, to pursue for a moment how those goals are met. For example, loans to small businessmen are the main function of the Small Business Administration. Is that not so?
CL: It is one of the functions of Small Business. To effectively pursue a business, it takes a product and organization to have profit motive ability. Now, money is one of the factors to making a profit, but there are other factors involved in this thing. We look at our management assistance division and their training of not only the new owner but the man that has been in business to develop a way of generating the best profit that a business can make.
I2: We’ve spent some time talking about the Small Business Administration’s, say, national scope, etc. I’d like to spend some time talking about some of the specific things that the Houston SBA has been involved in. What programs in your SBA office are utilized in this area predominantly? There are numerous programs.
CL: There are numerous programs that are offered by the Small Business Administration. This office is a full office within the agency, and we try our best to be a full service organization. We primarily at this time are doing a loan which is known as a bank loan guaranteed by the Small Business Administration. This loan is primarily a loan that can be made up to $350,000 where the bank funds the loan and the Small Business Administration can guarantee up to 90 percent of this loan. We also have, in addition to this loan, the Economic Opportunity Act which I have spoken of which can be either bank or SBA loans. SBA can make these loans in a direct basis when funds are available. The third program is our 502 program which delves into the community development programs involved in the community centers whereas the community establishes a foundation with the foundation owning the land and the Small Business Administration coming in to establish new businesses within this development. We have a lease guarantee program. We have many other programs that we administer, and if there is one on the books, we have in the Houston district all programs available that are on the books. In addition, we administer the disaster program where loans are made for the rebuilding of natural disasters: hurricanes, floods, and so forth.
I2: 19:22 Of the three major programs that you mentioned that are utilized in the Houston area, are there any underlying factors that you in your position can establish that they are used more here than, say, in other places?
CL: No, ma’am.
I2: They’re just—
CL: No, ma’am. The national statistic will bear out that we probably are an average office as all over the United States.
I2: I noticed that you said Houston district. Am I to assume that your office is localized right in this area? Or does it have—
CL: I believe I can quote as saying we have a corner of Texas with 32 counties in it. I might be wrong on just exactly the counties, but it’s very close to that.
I2: Okay, so that—
CL: Texas is broken up into a district office in Dallas, one in Houston, one in San Antonio, one in Lubbock, and one in—where’s?—
I2: El Paso?
CL: El Paso is a branch office, I believe, out of Lubbock, and the other office is the one up in East Texas—
CL: —at Marshall. Now, the region consists of Texas, Louisiana, Arkansas, Oklahoma, and New Mexico with region headquarters being in Dallas, Texas.
I2: 21:20 So Houston in essence has its own small district.
I2: Okay. Houston is a, in my opinion, sort of booming business type town, and your office is mainly concerned with small businesses. Have you had any difficulty with large corporations competing or thwarting any of your programs in this area?
CL: No, ma’am. No, ma’am, we have not. Houston economy, even through our national energy crisis, has been a booming economy. We’re not like California. The state of California has every kind of industry within the state. They have a farming community, a forestry community, and every kind of industry imaginable in the state of California. Houston’s economy is closer to a manufacturing service center type of organization with the retail establishment supporting it.
I2: Out of the numerous programs that the SBA in this area has been asserting itself with, what do you consider the best or the most successful program, in your own opinion?
CL: The most successful program, of course, has been what we call our 7(a) program, as I spoke of, where the bank is guaranteed 90 percent. This is due to the fact that the loan is primarily first approved at a bank where the bank is funding it and the Small Business Administration has approved that loan for its guarantee, and this involves more of our banking community and has more people working within it than other programs because we involve all the banks.
DC: What are the terms of the loans you dispense? Is there some maximum rate of interest?
CL: Under the guarantee loan program the interest is set by the bank, provided, one, that it does not exceed our national published rate in the Federal Register and, two, you are not involved with usury rates. In Texas we are limited to 10 percent. Some states do not have that limit on them.
DC: Has that been a problem for you? Are there some banks that back out of the picture because they cannot charge more than 10 percent?
CL: We haven’t found it a problem in the Houston area at this time. The rate has never gone up to where the differential has been so great that they could go so far above the 10 percent. I don’t want to say what the highest was because I have forgotten.
DC: 25:43 What percentage of all applications that are made to the SBA are actually granted? Is there excess demand for these loans?
CL: SBA prefers not to quote the statistics because we feel like that every loan is given a fair and equitable hearing before the due process of granting a loan. We do not say that loans are declined to meet a certain percentage. They are only declined for lack of ability to see a successful conclusion to a project we are supporting. And this has to be, of course, a profit motive.
DC: Right. So basically, you look at a prospective borrower the way a bank looks at him: Is it a good risk?
CL: Yes, sir. And some of the reason that we can support the bank is that our loans are a little longer term than the banks would ordinarily be granting. If we study the curve of risk involved in business financing, the longer the term is, the greater the risk becomes. At the present time we are making working capital loans between five and six years in length. Machinery equipment loans can go to ten, and expansion real estate can go to 15 years.
DC: Let’s take a specific kind of loan, a working capital loan. What is the average size of these loans? You mentioned a maximum figure earlier of $350,000, I believe. But I would suppose that not all loans were that large.
CL: Size has changed with inflation and will continue to fluctuate with the inflation of our economy at today’s figures. I would say our average loan is around—and I have not computed these figures as of several years—$75,000.
DC: Hmm. Do you anticipate that the ceiling on loans will go up as inflation continues?
CL: This has been approached to our administrator to raise the ceiling on loans, and he has at this time made the decision to keep the level at the same level at this time. If, for instance, a business needs a greater loan than the $350,000 loan, the bank can come in for a greater percentage, and the Small Business can guarantee a lesser percentage and effect a larger loan.
DC: That’s one response. Florence?
I2: The SCORE project, I think, is perhaps one of the very well-published—
CL: 30:40 SCORE. Let’s put on the tape here what is SCORE, and let’s talk about SCORE. SCORE—Service Corps of Retired Executives, which has been a very tremendous help to the Small Business Administration due to the fact that these people are volunteers that have worked with the Small Business Administration, have learned their programs, and are voluntarily counseling the small businessman to effect a better return on his investment.
DC: How long has this project been in operation?
CL: Approximately ten years.
I2: What does the SCORE project here in Houston—what’s the number of executives that you have participating at this time, approximately?
CL: I believe the chapter has about 80 people in it.
I2: Are most of these active?
CL: Very active. Most of them are very active people and very talented people, have made success themselves of businesses.
DC: Could you give us a specific example of where one of these SCORE executives has put a small business back on the road to success. Does any example come to mind?
CL: I prefer not to get involved with the knowledge of any loans that we have at this time, but I will say that we had a very large firm that was making an utter failure of the business, and the SCORE man devoted many, many hours to this business—practically went down there and went to work for him on a 40-hour a week basis. He turned the business around, and today it’s one of the most successful small businesses in this community.
DC: To turn this around, do you think that the people who volunteer for SCORE themselves benefit, have a more fruitful retirement, from their work?
CL: Oh, yes. It’s challenge to them. And when they have their expertise being applied to a new business and they do make a success of it, it reflects that sound business practices, basic sound business practices and philosophy in business which are some of the key factors in making a success in business.
DC: 34:45 I’d like to return, if I might, to something we were discussing earlier, and that is your evaluation of a prospective borrower. We established that you look at the borrower much the way a banker does. You evaluate his prospects. Do you have any established criteria for that evaluation?
CL: Will you restate your question?
DC: When you’re looking at an application from a small businessman, I was wondering if there are any guidelines you use to determine whether or not he or she will receive the loan.
CL: Credit comes down to basic factors which every bank or financial institution uses, and we’ve learned the three C’s of credit, and these are applied to make the determination that the project can be a successful project. There’s only three ways that a loan can be retired, and the one that we want to do first is retire the loan from profits generated from the business. The second way, of course, is to have additional capital injected into the business. And of course, the third way is that the assets are great enough to be liquidated to pay the loan off.
DC: Do you have any special program—presumably one of the programs you mentioned earlier—that seeks to aid the minority businessman?
CL: (whispering) Oh, and this is one we don’t like to get into. (regular volume) Yes, sir. I spoke of this thing as the Economic Opportunity Act, and this is an act that does help the deprived businessman.
DC: What do we mean here by deprived?
CL: Anyone that has been deprived in their ability to secure the proper financing due to age, color, sex, and so forth.
DC: In other words, if a person was turned down by a commercial lending institution on one of those grounds and he came to you for help, you would be especially liable to give him that help if he could demonstrate that indeed he had been turned down by the commercial institution because of his race or his sex, etc.
CL: All loans of the Small Business Administration have this criteria in mind due to the fact that we are not in competition with the lending agencies or banks. Or if the bank can’t make the loan without SBA’s financial assistance—
CL: 40:09 —we then come into the picture. We are not trying to take the banking business away from the banks. Any bank that wants to make any loan can do so. But if they cannot make the loan without the SBA’s help in supporting them, well, this is the criteria of where the SBA comes into play.
DC: Does it happen more often that the people to whom the bank does not make a loan in the first place are poor or black or a woman?
CL: No, sir. I won’t put that criteria on it. I do think that the credit restrictions—I won’t say restrictions—the credit requirements under the Economic Opportunity Act are lower than under our regular lending programs. Now, the Economic Opportunity Act cannot be over $50,000, and these loans are a great percentage made to the minority group.
I2: It has been often—not often but sometimes mentioned that with that restriction of $50,000 it often gives a man just enough money to fail. How do you respond to that?
CL: In any business we first crawl before we run. If we’re starting a new business out, we ought to be able to say that the $50,000 is enough to start the business. If the business prospers and the man needs more money and has demonstrated his ability to manage that business and make money, there’s certainly not going to be a decline in giving him additional money.
I2: You mentioned a few minutes ago that you come in when the bank cannot assist.
CL: Yes, ma’am.
I2: Do you get very many referrals directly from the banks for persons who cannot meet their requirements in this particular area of Houston?
CL: This has been very restricted due to the amount of funds that Congress has allotted to us to make direct loans.
I2: 43:52 I think we should go back to the disaster programs. The Houston area, I believe, has had some experience—your office has had some experience with this.
CL: Yes, ma’am.
I2: Okay. What can you tell us about this in the past, say, 10 or 15 years that you have been with the SBA?
CL: When I first came to the agency some 14 years ago, we were primarily an office in the Houston district administering a disaster from Carla, which hit the Gulf Coast very extensively. And over this period of time we have always administered this loan and are still administering this loan to some of the victims of Carla. But we have changed from a disaster servicing office to a business office during this time also because we make a disaster loan program available at the time of the disaster and then it is closed and you can’t have any ability to make any additional loans, so you develop your loan program and your business loan portfolio at this time.
DC: But you said that people are still receiving money from Carla.
CL: I said still being administered.
DC: Oh, right. They’re paying it back.
CL: They’re paying it back.
DC: I see.
CL: Some of those loans were 20-year loans.
I2: Has your office had any dealings in the disaster area recently? Have you had any dealings in recent times beyond Carla with this area?
CL: We have not had any major disasters, although we have been involved in many small flooding programs which we come into since rising water on the Gulf Coast is one of those factors that cannot be insured.
I2: 46:33 I have a question that has always interested me with the SBA, and in research I discovered that you work with other agencies, federal agencies. Is this correct?
CL: Oh, yes.
I2: Okay. Can you tell us some of the major other agencies that you cooperate with.
CL: We are an independent agency. We do not have in Washington a cabinet status nor do we come under any of the cabinet officers. Naturally, our legal staff being a government agency has to work with the Department of Justice in any suits or court involvement that we have. We work with that agency. We have been working with a tremendous lot of the programs of the mayor here in Houston: the Business Development Center, which is our mayor’s program funded through federal funds. We do not make loans on real estate as pertains to the Federal Housing Administration since they are primarily involved in the financing of homes and the guaranteeing of the home financing. If we make a real estate loan, it’s for a business purpose, for the expansion of a business, for a business needing a facility to locate their plant in and needing that facility. But we do not get into the home. These are ineligible loans with the SBA. We work some with the Maritime Commission, some with the Farmers Home Administration and the—what agency? I’ve forgotten it—agency that is under that agency. But actually, we do not depend on any agency to really have a coordinated program with. We are very cooperative to any agency, but our goal is so much different from any of the other agencies.
I2: The one that I had in mind really was the Veterans Administration. Do you cooperate or—
CL: Oh, we cooperate with the Veterans Administration. We have our programs geared to where that the federal is built into our program. We don’t have to go to the Veterans Administration to get any criteria; we already have it built into our program. We made a great effort to help the Vietnam veteran when he came back. We did the same thing for the Korean veteran, always trying to help the veteran. Not any more so than any other citizen though.
I2: What about follow-up programs of loans? Do you have a counseling service other than SCORE built into your agency wherein when you loan money to a person that you pay a closer attention to him, I guess is what I’m saying.
CL: 51:30 The Small Business Administration district office is made up of several sections, one of the sections being known as the financing section. This section is primarily responsible for the processing of new applications. The other major section is the portfolio and management section, and this group is primarily the servicing of loans in the portfolio, and they live with them until death.
I2: That’s what I was trying to get. If you get a loan, do you consistently come back to check to see what your progress is, etc?
CL: Oh, yes. You can easily do that. If the payment isn’t in there, why, (chuckles) you know you’ve got troubles.
DC: Before we conclude the interview, there is one question that I’m just personally curious about, although it’s a good question in its own right. Who gets to say that an area is a disaster area?
CL: It is by a recommendation from the governor of the state to the President of the United States. This is known as a presidential declared disaster, and the President issues a declaration.
DC: Is that the only way an area can become a disaster area?
CL: We do have some small disasters that are not presidential declared disasters, and this is brought about by the size of the disaster more than the effect of the disaster.
DC: On these small disasters, who is the executive officer that declares the disaster? Do you just do that—
CL: The administrator for the Small Business Administration has to declare it.
DC: I see.
CL: I believe I’m right on that.
DC: It may be appropriate to conclude the interview by asking you a question about the future of the Small Business Administration. Do you see the role of the Small Business Administration in Houston expanding in the future?
CL: 54:33 I do see the role of the Small Business Administration and the small businessman always being an important factor in our economy. We try very hard to work with the banks in helping the banks to make loans to the businessman. But in the present economy we are running out of capital. With all of the capital the banks in the United States had some three years ago and all of the financing that the government was doing for the businessman, we were short $10 billion.
CL: Today, with inflation, that figure is growing close to $60 billion in capital that is short. We have had a tremendous amount of increase in our production facilities, but we have also had an inflationary factor that was growing to where the capital was being depleted faster than it was being generated by our national growth projects.
In concluding, I’d like to mention one other program that I did not mention which I am very interested in, and this is a program that we do for minorities and other businessmen that are trying to finance contracts and don’t have enough money to finance a particular contract. This is the line of credit loans that the Houston office has made several, and they have been very successful at this loan. Our losses have been very small compared to the nation. I have just finished the SMU Banking School and completed my thesis which was entitled The Revolving Line of Credit Guaranteed by the Small Business Administration. I feel like the program is a successful program, a program that we at SBA can further benefit from if the funds become available to train the personnel as they have been trained in several instances in the Houston office to make this loan in a very credible fashion and service it in a very close observation of the loan. The line of credit loan is processed on the man’s profit built into the contract plus his ability to perform the contract.
DC: This seems to be a very promising program, and I certainly hope that the Small Business Administration can cope successfully with the credit squeeze. I know that it is a real problem. Several people have mentioned this. Florence, if you have no further questions, I would like to thank you for your time on behalf of the Houston Metropolitan Archives. I might add that it is the evening and Mr. Lawrence has generously given of his time for the interview. So thank you very much.
CL: You’re welcome.
[tape ends] 1:01:35