MANCHESTER — City officials have been struggling to obtain regular payments from half of the businesses that have received money from the Revolving Loan Fund (RLF) over the last five years.
Of the 21 small businesses that received low-interest loans from the city, 11 have fallen behind on payments. Together, they owe more than $350,000.
Several municipalities in the state operate revolving loan funds, which typically lend to small businesses, with the goal of creating or preserving a certain number of jobs, or supporting development projects deemed in the public interest.
The owners of five Queen City businesses are now facing legal action by the city solicitor after repeated attempts to collect on the loans.
The businesses include JW Hill's, the downtown restaurant and bar, and several shops and restaurants that have gone out of business: Pattie Shack; Lazy Nick's, a cafe on the east side; and Maax Inc., a hat and clothing embroidery company that had been in the Millyard.
The company received the largest single RLF loan, $210,000, on which it owes a $109,250 balance.
The other businesses that had fallen behind on payments have in recent weeks had their loans restructured on favorable terms for the borrowers.
For example, Mary's Closet, a costume shop, has had its payments on a $60,000 loan reduced from $1,130 a month to $200 for at least the next six months.
Two of the businesses declared bankruptcy, and the aldermen voted earlier this year to write off both of the loans, totalling $55,000.
Ten of 21 businesses are in good standing on their loans, including Firefly American Bistro, which owes $1,300 on a $70,000 loan it received in 2008, and Image 4, a marketing company that owes $1,800 on a $100,000 loan.
The Revolving Loan Fund had been promoted and administered by the Manchester Economic Development Office as a way to spur the creation of small businesses and jobs. The interest rate on the loans is typically around 5 percent.
In November, the director of the office resigned, and a subsequent city audit singled out the RLF as poorly managed. It noted there was a lack of documentation; fees weren't being assessed for late payments; and minutes were not kept at meetings of the RLF committee responsible for reviewing and approving the loans.
Since then, the city's Finance Department has been working to organize the accounts and collect on those that are past-due. The office has made steady progress in collecting at least partial payment from some of the borrowers.
"When the loans came to the finance office, probably half weren't in good standing," said Sharon Wickens, the assistant director of the office. "Everyone worked very hard, and now more than half are in good standing, but with a plan. Everyone has a different situation. Some problems the committee felt were reasonable, and for others we're taking legal means."
The aldermen's Committee on Accounts receives regular updates on the loan portfolio, with the latest one to occur at its meeting this evening. The committee recently insisted that the borrowers be identified in the documents it received.
Businesses that do not respond to the efforts of the Finance Department are referred to the Office of the City Solicitor, the city's legal department.
Deputy solicitor Tom Arnold said the office will send demand letters to the businesses, as was the case with JW Hill's, which owes $25,200 on a $75,000 loan. The office has filed a lawsuit against Maax Inc., the now-defunct embroidery company. Efforts to reach the owner of Lazy Nick's were unsuccessful, according to a letter from the office, and it intends to file suit against Richard's Bistro, another restaurant that has gone out of business.
Arnold said that his office will also seek liens against businesses or owners to recoup the city's money.
Unlike banks and other creditors, the city cannot report nonpayment of loans to credit agencies, according to Arnold. He noted that the RLF program supported businesses that might otherwise have trouble securing a bank loan. "In the interest of job creation and preservation, and other interests, the city has the fund to make loans in appropriate circumstances," Arnold said, adding, "this probably makes them more risky."
The city has not originated any new loans in more than a year.
Wickens, from the Finance Office, said she believed this was a good thing. "We really wanted to get a handle on it, with the way the economy has been," she said. email@example.com