Most BRA small-business loans overdue, audit finds

Agency says policies aid small businesses

The small-business lending arm of the Boston Redevelopment Authority has allowed hundreds of thousands of dollars in loans to go uncollected, with more than half of its loans seriously delinquent, according to an internal audit.

The audit, obtained by The Boston Globe through a public records request, found that 51 percent of the total amount borrowed has been delinquent for 90 days or longer. That rate is more then 50 times greater than that of banks, which average less than 1 percent on similar loans, according to the Federal Deposit Insurance Corp.

“At some point it’s no longer a loan,” said Matthew A. Cahill, executive director of the Boston Finance Commission, the city’s fiscal watchdog. “If the loan isn’t getting paid back, you’re giving someone money.”


The delinquent loans averaged more than $100,000 each.

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The audit of the BRA lending arm, a taxpayer-funded nonprofit called the Boston Local Development Corporation, comes on the heels of a broader audit of the BRA, which found that the authority failed to collect millions of dollars in fees and lease payments from developers.

In addition to the high loan delinquency rate, Boston Local Development says it has written off nearly $700,000 in bad loans since 2011. In one example, checks collected from a borrower and totaling $235,000 sat uncashed for six months, according to the audit, which covered the fiscal year that ended June 2013.

“These are taxpayer dollars,” Cahill said. “This is not private industry.”

Lenient collection practices not only put public money at risk but reduce capital available to help other businesses, analysts said.


The loan program is set up as a revolving fund, so as money is paid back, it is re-loaned to others. If it’s not paid back, then there’s less to lend — unless the fund is replenished by taxpayers or other sources.

“No bank would be around with those levels of delinquencies,” said Brett Theodos, a senior research associate at the Urban Institute, a Washington think tank. “Any capital that is pumped into a business and that isn’t repaid quickly or won’t be repaid is capital that won’t be deployed elsewhere.”

But William Nickerson, the chief financial manager at Boston Local Development, defended the agency’s collection policy, noting that the recession and a sluggish economic recovery have hampered borrowers’ ability to repay.

Nickerson, a former banking executive, said the agency exists to create jobs by helping businesses succeed, so he is willing to give more time to companies that have a chance at success.

As an example, he cited HDM Systems Corp., an Allston battery technology company. In 2008, it received a $250,000, a loan at 5 percent interest that was due in October. Rather than call the loan, Nickerson gave HDM room to secure new contracts.


HDM recently paid $10,000 — on top of more than $49,000 in principal and interest it has already paid — and agreed to make interest payments over the next year, a BRA spokeswoman said. Once the new contracts start generating revenue, the authority will review HDM’s finances with the goal of moving the company to principal and interest payments.

“We’re not in the business of closing someone down,” Nickerson said.

The agency was founded in 1979 to promote economic development by providing business loans, typically between $25,000 and $150,000. Since 1996, it has approved $14 million in loans to 139 businesses and created 2,800 jobs — an average of 165 new jobs a year.

The program currently has about $2 million available to lend through grants from local and federal agencies.

Companies submit financial statements, balance sheets, profit-and-loss statements, and three years of tax returns. Borrowers put up real estate owned by their business as collateral and make a personal guaranty the loan will be repaid, Nickerson said.

Nickerson said that making loans during the recession — when many banks wouldn’t — explains the high delinquency rate.

Perhaps the best known case of loan delinquency involved the minority-owned Bay State Banner newspaper.

In August 2009, Thomas M. Menino, the mayor at the time, urged the agency to approve loans to help the Banner avoid closing. But the Banner did not repay the loans when they came due in November 2011.

A monthly interest-payment plan was established in January 2012, but the Banner made only the first payment. Nearly a year passed before the Banner was declared in default. The Boston Local Development Corporation did not ask the Banner’s publisher, Melvin B. Miller, to commit to a new payment schedule until three days before a Globe article about the loan appeared in January.

The Banner has made all interest payments since Feb. 1, according to the BRA.

Neither Menino nor members of his administration ever interfered with the loan agency’s operations or approval process, Nickerson said.

A spokeswoman for Menino, Dot Joyce, said, “The mayor’s only job was doing what was right for the city, helping businesses grow and creating some of the strongest neighborhoods the city has ever seen.”

Nickerson noted successes in nurturing businesses. In September 2008, Cogito Health Inc., a developer of behavioral voice analysis for health care, received a $150,000 loan through a fund administered by the agency to lure life sciences companies to Boston.

Cogito did not have to make payments in the first few years as it grew, but recently it agreed to a 24-month plan to pay interest. At the end of that period, Nickerson said, his agency can demand the balance or put the company into a plan to pay principal and interest.

Joshua Feast, Cogito’s chief executive, said the initial loan structure encouraged him to move to Boston from Cambridge. Today, the company has 25 employees, up from two.

“We turned into a successful company and put millions of dollars into the local economy,” Feast said.

Nickerson added that he has restructured or plans to restructure eight loans totalling nearly $1 million to get borrowers paying on time. So far, he said, they are doing that.

Meanwhile, the administration of Mayor Martin J. Walsh is considering putting more money into Boston Local Development to expand the lending program.

The administration hopes to reduce delinquencies by pairing small-business owners with services provided by the Department of Neighborhood Development, where entrepreneurs can get help building businesses.

“We believe if we can better support small businesses and coordinate the way, more people will do better and be able to pay back,” said John Barros, the city’s economic development chief.

“We want to expand the ability of the BLDC to do more of these loans.”

Edward Mason can be reached at Edward@EdwardMason .net. Find on him on Twitter @EBMason.