A congressional study of the effects of federal monetary policies on small business has concluded that there is an "urgent need" for a new policy that specifically takes into account the needs of smaller firms.
Prepared by the House Committee on Small Business, the report says that the policies of money tightening and credit restraints during the past year by the Federal Reserve Board have been particularly harsh for small businessmen.
The report says that larger businesses "are better able to cope with higher rates because they have sources of debt and equity capital which are unavailable to the smaller company, such as the stock and bond markets, and the commercial paper market."
Small companies, in contrast, depend on bank credit to a great degree. They are highly leveraged and require frequent financing, the report says.
The report suggests that the Fed formally initiate a dual prime rate. Under this scheme, creditworthy small firms would pay lower rates of interest on loans than larger companies. Banks would make up the difference by charging big business slightly more for loans.
According to the report, for the year ended June 30, individual business bankruptcies rose a startling 88 percent over the same period a year earlier.
"Business failures and bankruptcies are primarily a small business problem," the report claims, citing as proof statistics from Dun & Bradstreet Inc. The financial rating company reported that 95 percent of the business that failed in 1979 had liabilities of under $1 million, the report says.