The Havre de Grace City Council Monday approved, by a slim margin, a city revitalization and development loan, or RAD, to Mary Martin Ltd., for an antique postcard and supplies business at 230 N. Washington St.

The $100,000 passed by a vote of 3 to 1. Councilmen Fred Cullum, Randy Craig and John Correri voted to approve the loan, while Councilman Jim Miller voted against it.

Councilwoman Barbara Wagner and Councilman Bill Martin excused themselves from voting and left the room.

The business receiving the loan is owned by Martin's sister and was started by his late mother. Wagner is the owner of another downtown business that has a RAD loan.

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Havre de Grace's RAD loan program makes loans to small businesses relocating to Havre de Grace or to businesses that are starting up in the city or expanding their operations. Most borrowers typically have had difficulty getting loans from conventional lenders or loans with affordable terms from those sources.

Both Miller and Cullum said they had reservations about the state's RAD loan process, and one resident, Joseph Fiocchi, of Commerce Street, questioned the council extensively about the loan.

Fiocchi said he had concerns about the transparency of the process, particularly after City Finance Director George DeHority said most information about the applicant was not a matter of public record.

Fiocchi expressed additional concerns after council members said they had largely not read the terms of the loan. Cullum, however, explained that a RAD loan committee reviews the terms of the loans. The committee is appointed by the mayor and City Council.

Miller said the entire process has too many problems, and Cullum pointed out the business is still partly based in Perryville, even though the shop has relocated to Havre de Grace. Cullum said he wanted to ensure all of the loan-related money will be spent in Havre de Grace.

Councilman Randy Craig, who noted he is chairman of the budget and finance committee, said the business will create eight to 10 new jobs and is a well-run business with increasing profits.

Craig, however, also said the business' loan application was not accepted by two local banks.

"I think it's important to understand the RAD loan is intended to be inherently risky," Craig said, explaining the loan has been used for at least a decade in town.

"A lot of businesses wouldn't be here otherwise," he said.

Lori Maslin, with Laughing Crab Catering and originally owner and operator of Ice Dreams, said a RAD loan was extremely useful in helping her business get off the ground.

Loans since 1990

Havre de Grace started its RAD program in 1990 with a $392,000 federal block grant. The program concept was for a revolving fund from which the city would lend out the grant money and then use the interest earned to make additional loans, with the fund continuing to grow from the earnings.

In recent years, however, several RAD borrowers have defaulted. According to the city's most recent audit for the 2010-11 fiscal year that ended June 30, Havre de Grace has 12 outstanding RAD loans, totaling $738,000, that were made between 2005 and April 2011, in principal amounts ranging from $15,000 to $100,000. Each loan carries an annual interest rate of 5 percent.

Of the 12 loans, seven borrowers, including Wagner, were current with their payments as of June 30, 2011, while five loans were classified as being in default. All five of the latter were listed as being in default in the audit for the previous city fiscal year that ended June 30, 2010.

According to the most recent city audit, the principal and interest owned on the defaulted loans was $384,000 as of June 30,2011. The amount owed on the performing loans totaled $354,000, according to the audit.

Business tax credit