MANCHESTER — Mayor Ted Gatsas says he won’t sign off on city loans to small businesses until stricter underwriting policies are in place.
Gatsas on Monday told the aldermen’s Committee on Accounts that he had concluded that the city’s Revolving Loan Fund (RLF) had not properly vetted past borrowers.
“The reason this came to light is I wouldn’t sign any more agreements,” Gatsas said.
“I looked at a couple of them, and I don’t know how they made the loan to them,” he added. “There needs to be underwriting; there should be some criteria when folks are borrowing money.”
The recommendation came the same day that the city’s finance office provided its latest update on the RLF portfolio, showing that of the 17 businesses with outstanding loans from the city, 11 are in good standing or paid off, while six are overdue by more than 30 days or have been referred to the solicitor’s office for legal action.
The tally represents an improvement from six months ago, when nearly half the loans were delinquent. At the same time, the finance office also recommended the aldermen agree to write off a $30,000 balance on a loan it made to the owners of Pattie Shack, a hamburger restaurant on Elm Street that closed more than two years ago. The business owners were granted bankruptcy protection last year in Massachusetts.
Gatsas recommended the city’s RLF program, which is administered directly by the city’s economic development office, work with the Capital Regional Development Council, a Concord-based group that provides underwriting services for government small-business loan programs. The city’s other revolving loan fund, run by the quasi-governmental Manchester Development Corporation, contracted with the same group last year to oversee its program.
Both city loan funds were originally created to spur the creation of small businesses and jobs. The interest rate on the loans is typically around 5 percent.
The city’s RLF program was singled out as poorly managed in an audit of the economic development office following the abrupt resignation of its director in late 2012. The report noted a lack of documentation for loans and that fees weren’t being assessed for late payments.
Since then, the city’s finance office has been working with the legal department to improve collection on the loans. Every month, city officials have provided updates to the accounts committee on their efforts, and often they recount difficulties encountered in collecting on some of the loans. In several cases, the officials have recommended complete write-offs.
Deputy City Solicitor Tom Arnold said the city would “get in line” as a creditor in cases of bankruptcies, but usually “it’s a lost cause.”
Alderman Joe Kelly Levasseur said the city wasn’t doing enough to secure the loans.
Gatsas replied, “I don’t disagree, but we are often the last resort.”
Levasseur said: “Which tells us why we shouldn’t be in this situation altogether. If you can’t get a loan from a bank, you shouldn’t be getting one from us.”
The committee backed the mayor’s recommendation for the city RLF program to bring in an underwriter to oversee any future loans.