Polonius Reversed

He hesitates before the glass door of the downtown building, then pushes through and climbs a narrow staircase to the second floor. There he pauses again before the well-advertised insignia on another door, squares his shoulders and steps into a brightly lit room filled with the murmur of Muzak melo dies. The man is 37, married, and a fa ther. He is a steady wage earner with a $6,092-a-year income. He is also in debt (to the tune of $513) and pressed by his creditors. He is a typical customer who has come to solve his problems --at least for the moment -- by borrowing from the Household Finance Corp., the oldest and largest of the nation's thriv- ing small-loan companies.

Except for the trudge upstairs (where quarters are cheaper), Chicago-based Household Finance makes the process of borrowing so simple that 2,000,000 Americans a year go into debt to it. Relying chiefly on its quick judgment of an applicant's ability and his willingness to repay, the company makes nearly a half of its loans unse- cured, most of the rest through a legally loose chattel mortgage on borrower's household goods. Its sharp-eyed loan managers turn down 64% of would-be borrowers--but that leaves plenty. Household Finance has doubled its loan business in ten years.

Winning Footholds. To keep up with its growing business, Household is adding another 70 offices to its present 1,4.17 offices in 48 states and all ten Canadian provinces. Parrying the invasion of consumer finance by appliance makers and hard-goods retailers, the company is also winning footholds in their fields. In the past four years it has bought up two retail subsidiaries that sell hardware, paint and kitchen equipment through 978 franchised and 72 company-owned stores. Last week Household moved into merchandising on a major scale. It arranged a stock-swap deal to acquire City Products Corp., an Illinois conglomerate that controls 3,020 retail outlets through its Ben Franklin and T.G. & Y. variety stores, its Barker Bros, furniture chain and a food-chain supply house.

Though City Products' $393 million in sales last year dwarfed Household Finance's $201 million in revenues, its profits were a mere $8,639,000 v. H.F.C.'s record $35,485,000. Why, then, did the loan firm want City Products? Household's bluff, $168,704-a-year president, Harold E. MacDonald, 65, who spent 22 years in retailing, figures that the same talents that enable H.F.C. to merchandise small loans so successfully will work to produce profits in retail chain merchandising. Since he took over the 87-year-old finance company in 1951, MacDonald has tightened up operations, spruced up offices and standardized procedures so much that 37% of H.F.C.'s revenues so far this year has become pretax profit.

Travel & Funerals. Reversing Polonius' classic advice, Household Finance is both borrower and lender. It borrows three-fourths of its $1 billion in assets (mostly from Wall Street through long-term debentures), pays just under 4% annual interest. Funneling that money out in chunks of $100 to $5,000 (the absolute maximum), H.F.C. lends for everything from autos and travel to medical bills and funeral expenses. The average: a $681 loan for 28 months. The interest charges are high--almost always right up to the maximum permitted by state laws. They run from 26% to 36% a year on loans up to $300 (v. about 10% for a personal loan obtained from a bank), 18% a year on loans of more than $1,000.

High though that is, even congressional critics of loan practices consider it well within bounds, considering that H.F.C.'s own interest costs, salaries, rent, taxes and bad debts (about 1.5% of the total) eat up 17.5% of the average 21% interest it receives from its loans. At any rate, H.F.C.'s customers seem to keep coming back. More than half of the company's loans are made to people who are already in its debt.

This file is automatically generated by a robot program, so reader's discretion is required.