With the recent news that the City of Toledo is suing various companies that defaulted on their government loans, I thought I'd share some information about the County's situation with the former Socrates Cafe.
This Warehouse District company approached the County for a low-interest loan. The owner is a well-respected businessman but was having some difficulty with his business in this area of the city. As I always do, I asked for the analysis of the financials that should have accompanied the loan request. However, the analysis hadn't been done yet, despite this loan being slated for the agenda.
The item was held so that financial data could be gathered, to give us - i.e. me - an idea as to whether or not the loan was a good investment of public dollars.
(Now I know that there are many out there who have a basic philosophical objection to such loans in the first place - and I agree with you...But when the issue is not SHOULD we, but TO WHOM, I saw it as my duty to make sure that, if we were going to give public dollars for such purposes, we would do so in a fiscally responsible manner.)
Once the financials came in, I immediately saw that this loan had very little chance of being repaid. The business owner's own data showed the necessary sales for a break even point and the very high likelihood that such sales would not be achieved. I also asked for a valuation of the inventory to be sure that any inventory would be sufficient to cover the loan should the owner default. The only valuation received was the owner's estimate based upon purchase price - which was not enough of a guarantee for me.
When I asked why the County was considering giving money to a company which such poor prospects, a staff person told me that they were "instructed by a commissioner to help this man and his business." When I asked staff if they thought this was a good investment, they said 'no' but that it appeared the equipment was valued high enough to ensure that we'd get our money back and that they'd write into the contract that all other obligations would be subordinated to the County.
Based upon the owner's own financial analysis, I voted against the loan, but the vote was 2 to 1. Unfortunately, the owner defaulted on the loan. Just before I left, I inquired about the status of recouping the money. The loan is over 90 days late and, I believe, the business is closed. The equipment is still on site, but has not yet been liquidated. The staff sent a formal letter in September and had a conversation in December. I don't know who is following up on this issue or how long it will take for the taxpayer money to be repaid.
Moral of the story: there are institutions who are in the business of loaning money - and they aren't governments gambling with tax dollars. If a business can't get a traditional loan, perhaps there's a very good reason - and politicians ought to pay heed. Finally, if governments find themselves in the position of making such loans, the decisions ought to be based upon sound financials and good data - not on emotions and the misguided notion of "helping." Sometimes the best 'help' is to let someone fail.