Business: Small Loans

From those who lend money for com- mercial enterprises, the Industrial Revolution in the 18th Century erased the last stigma; banking became a noble, honored profession. But much longer did there remain feeling against the moneylender who finances wage-earners with little loans. In 1928, Wall Street was genuinely surprised to hear that the old, conservative house of Lee, Higginson & Co. was offering stock in Household Finance Corp., a company whose business consists of lending $100 to $300 at 2½% a month.

Last week for the second time a personal finance company went to Wall Street for funds. Dillon, Read & Co. headed a syndicate selling $7,000,000 worth of debentures in Beneficial Industrial Loan Corp., whose tangible assets come to $38,000,000, whose earnings for the first nine months last year were $4,264,658.

Founder of Beneficial was the late Clarence Hodson who supported the Russell Sage Foundation in writing and getting 25 States to adopt the general form of the Uniform Small Loan Law to govern the operations of personal finance companies. Mr. Hodson opened a loan shop in Newark, N. J., just before that State passed the Small Loan Act in 1914. He immediately started expanding his operations. In 1929 the present Beneficial Industrial Loan Corp. was formed by a big merger. It now has 318 offices in 200 cities and communities. Last year it loaned $66,000,000 to 413,345 families. Since the death of Mr. Hodson in 1928, Beneficial's president and chairman has been Charles Henry Watts, 50, who started business as a collector of delinquent loans in Grand Rapids. To Beneficial last year he brought much goodwill by the creation of a $100,000 emergency fund to be loaned to destitute families without interest or security. Pious, he is president of the Christian Business Federation, journeys weekly from Manhattan to Philadelphia to attend meetings of the Unity Church. Contrary to general impression, the small loan business is dominated now by Christians.

The principle of personal finance companies is that they lend up to $300 on the borrower's character, sometimes taking a chattel mortgage as additional collateral. Experience shows that only in rare cases have the mortgages been fore-closed, both because the companies do not wish to lose their goodwill and because the furniture of small borrowers has little resale value. The companies in this group lend about $500,000,000 a year, but the total small loan business is estimated at $2,592,000,000. Other agencies in the field are:

Industrial Banks. Most of these are patterned after the Morris Plan, started two decades ago by Arthur J. Morris, of Richmond, Va., and now handling a good half of the $360,000,000 a year business done by this division. Other big industrial banks are the National Wimsett System with a $50,000,000-per-year volume; the Citizens System, handling $13,000,000 a year; the $2,000,000-per-year Industrial Banking Corp. of America. A notable director of the latter is Mrs. A. Barton Hepburn, widow of the late president of Chase National Bank.

Industrial banks require two co-makers of the borrower's note, who assume full liability for the principal. In 16 States these banks operate under special laws fixing the maximum rate at from 17%, to 34%. In six States† they operate with no interest regulations.