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Business fund goes fast, gets little back

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The Jefferson County Industrial Development Agency’s microenterprise loan fund, now nearly dry, has lent 42 percent of the fund’s proceeds to restaurant owners, a review of JCIDA records shows.

Of the $456,529 in loans, $189,691 has gone to the restaurant business, while $147,867 has been lent for retail and entertainment businesses and $118,971 has gone to all other loans.

The agency’s microenterprise balance has been whittled down to $37,000, and the creation of a second fund will be needed soon to continue the program, said Lyle V. Eaton, chief financial officer. That task is urgent, he said, because the agency’s program is designed to offer loans of up to $40,000.

The fund was created in 1995, when Jefferson County received a $400,000 state Community Development Block Grant to establish it for the agency.

The agency is lending out money much faster than its clients are paying it back, said Mr. Eaton, who’s served 10 years as CFO. Most of those loans are being paid back with a 5 percent interest rate, but that revenue hasn’t been collected fast enough to offset the volume of loans being paid out.

Agency records show four microenterprise loans totaling $110,259 have been written off as bad debt over the past three years: $27,737 from Fort Drum Storage, $26,982 from Children 1st DayCare & Learning Zone; $38,227 from American Auto; and $17,313 from Creative Touch Images. A $40,000 loan made to Sackets Harbor Trading Co. in 2005 also went sour, but owners are still making payments on its $20,412 principal.

A Times archive search revealed two microenterprise loans were written off as bad debt in 2001: $20,800 from Advantage Home Medical; and $16,300 from B&G Lube.

Mr. Eaton said the agency now has one loan in default that likely will be referred to a collection agency: a $12,500 loan made to JVO Cafe & Bakery in Sackets Harbor, owned by Jill A. VanOcker, which included a $12,500 matching amount from the Sackets Harbor Local Development Corp.

Loan records before 2010 were not provided by the agency because they aren’t available on its accounting system. But the Times submitted a Freedom of Information request Tuesday to find out the number of microenterprise loans written off as bad debt since 1995.

Mr. Eaton will advise the board of directors to create a second microenterprise account using surplus funding from the Jefferson County Local Development Corp. That fund likely would be established with a starting balance in the range of $400,000 to $500,000, similar to its current fund. But instead of approving loans of up to $40,000, as it has in the past, Mr. Eaton said, the board will be asked to amend its policy by giving out a maximum of $25,000 to $30,000. He said that is a sufficient amount of seed money for startups to be launched.

The agency’s policy of issuing $40,000 loans has contributed to its problem, Mr. Eaton said, in which money is being lent out faster than it’s taken in. This year, the agency expects to take in only an average of $7,500 a month, or $90,000 for the year.

“I would advise to have a lower limit on how much we lend, because we’ve been lending out too much,” he said. “The microenterprise fund is primarily for entrepreneurs starting up businesses, and a loan of $30,000, plus a (required) 10 percent equity payment, is enough for that.”

In 2012, the agency approved microenterprise loans totaling $207,150. In 2010 and 2011, by contrast, the agency lent $92,900 and $91,600, respectively.

In 2010, the board stiffened its criteria for microenterprise loans because of the waning fund balance, Mr. Eaton said. That resolution stipulated that loans cannot be made with an interest rate below 5 percent, or a payback period longer than five years.

Before 2010, the board had the authority to lengthen the loan payback period. The board began approving periods longer than five years in 2008, a practice that continued for two years. During that period, the board approved one six-year loan, six seven-year loans, one 10-year loan and one 20-year loan.

“We passed the (five-year) policy to replenish the loan fund more quickly,” Mr. Eaton said.

Interest rates occasionally were approved in the range of 3 to 4 percent, he said. But the agency decided to discontinue that policy after learning the fund balance was plummeting.

“The amount of cash we have to make loans with isn’t growing, and the only way to mitigate the loss is with interest payments and late penalties,” he said. “And at 5 percent, it’s still going out faster than it’s coming in. It would probably be at 7 percent if this was a revolving loan fund, but that’s getting at where banks are and not helping our mission for economic development.”

Microenterprise loans in Jefferson County also are offered by the Watertown Local Development Corp. for applicants in the city, Sackets Harbor Local Development Corp., Carthage Local Development Corp. and the North Country Alliance, a public-private consortium of economic development agencies serving seven counties.

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