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Havre de Grace business loan program remains, but new loans are unlikely, official says

Havre de Grace city officials say they will most likely keep a business loan program they say has been beneficial to revitalization of the downtown area.
Havre de Grace city officials say they will most likely keep a business loan program they say has been beneficial to revitalization of the downtown area. (MATT BUTTON | AEGIS STAFF, Baltimore Sun Media Group)

The City of Havre de Grace's sometimes controversial business loan program will probably be allowed to run its course rather than be shut down altogether, the two officials most closely involved with the program say.

Operating since 1990, the city's Revitalization and Development Loan Program, known as RAD for short, has been beset in recent years with a number of defaults. The revolving loan program was set up using federal grants, funneled through the state, with the goal of providing start-up capital for local businesses that might have difficulty finding private financing.

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"The goal right now is to find a way to keep this going," city Economic Development Director Thomas Lofland said Wednesday. "It's been positive for our downtown."

Last August, a resolution was introduced before the mayor and city council to end the program and return about $200,000 in grant money back to the state, with the expectation the funds would then be recycled back to the city for use in a community redevelopment project. A restoration of the city Opera House was prominently mentioned as a potential use at the time.

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But several members of the business community, some of whom benefited from past RAD loans, urged city officials to reconsider during a public hearing on the resolution, which the council in turn never acted upon within the 180-day window required for a vote.

Though the program has issues, defaults aren't what they seemed to be the past few years, city Finance Director George DeHority said.

"We've worked with the borrowers; we've restructured some of the loans," DeHority said. "We're quite pleased with the current financial position."

As of last June 30, 11 borrowers collectively owed the RAD fund just shy of $480,000, according to the year-end audit for the city's 2013-14 fiscal year. But seven of the loans were shown to be in technical default, as opposed to four that were current, and several of the seven had been on the default list for multiple years.

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In the eight months since the last fiscal year closed, however, loans to Crazy Eights Hair Salon and Salon Marielle LLC were repaid in full, and another was brought current by the borrower, Big House Signs, DeHority said.

What DeHority called "a slight restructuring" was done to a loan to Vincenti Decoys, which borrowed $85,000 in 2007 and still owed $70,526, to take into account the seasonal nature of that business. A restructuring was also done to a loan made to Concord Properties Inc., which borrowed $85,000 in 2011 and owed $80,522.

That left two loans which DeHority said continue to have "issues:" 202 Congress Avenue LLC, which borrowed $100,000 in 2008 and owed $89,892, and Edward and Stephanie Sheets, who borrowed $93,750 in 2008 and owed $49,772, according to the audit. Neither has been totally written off, he said, but the city has reserved the money owed, "as if we are going to take a financial hit."

The four borrowers that are current are Web Advantage LLC, which owes $40,960 on $100,000 borrowed in 2007; Old Chesapeake Properties LLC, which owes $75,299 on $100,000 borrowed in 2009; Mary Martin Limited, which owes $71,330 on $100,000 borrowed in 2011; and Best Choice Driving School, which owes $20,734 on $25,000 borrowed in 2010, according to the audit.

The RAD loans are overseen by a advisory citizen board appointed by the mayor and council. Among the current loans, most of which are for 15 years, the rate of interest is 5 percent per year.

Lofland said he served on the RAD advisory board for a number of years before joining the city government last spring. He said the rise in defaults could be attributed both to the economic slump that began in late 2008 and mandates from state officials that the program loosen its underwriting standards to make more loans.

Now, however, just the opposite is happening because the U.S. Department of Housing and Urban Development, which controls the grant money used to set up the fund, has imposed new reporting requirements and other administrative rules that DeHority said make the program much more onerous for the borrowers, both current and future, and for the city. The HUD action is what prompted the city to look at ending the program last summer, he said.

The reporting requirements, 5 percent interest rate and 100 percent collateral the city requires will probably make RAD loans unattractive to prospective borrowers, DeHority said. Still, in deference to existing borrowers who are still current and to continue recouping what it can from those who aren't, he and Lofland said they have been working to make the program as "user friendly" as possible.

"You could technically still apply for a RAD loan, but I'm not sure anyone would anymore," DeHority said. Instead, he noted, Lofland has been working to develop alternative programs to help encourage businesses to expand or relocate in Havre de Grace, including putting them in touch with potential private sources of capital.

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