COMPTON — City Manager Charles Evans has been authorized by the city council to discharge several defaulted loans under the city’s Revolving Loan Fund program.

The funds, which were extended to three businesses, amount to nearly $400,000. According to Planning and Economic Development Director Derek Hull, the move was necessary in order to eliminate a high default rating that has smeared the city’s record with the U.S. Department of Commerce’s Economic Development Administration (EDA) division.

In 1982, the EDA granted funding to Compton to facilitate a commercial and industrial revolving loan fund program. The city was required to match the seed fund of $500,000, bringing the total of $1 million. The money was then available as loans to qualifying businesses.

Under the RLF program, industrial manufacturing businesses are loaned up to $150,000, while retail and service type businesses are eligible for up to $100,000. Before the money can be given, each business must meet credit underwriting standards and other prerequisites. Applications for financing are reviewed and recommended by the Loan Review Board, composed of members appointed by the mayor and city council. The latter serve as the RLF Administration Board and render decisions on loan applications, including the discharging of “non-performing” loans.

According to the planning department, the city has since issued 18 loans — 13 of which have been paid in full and five of which defaulted. Two of the five defaulted loans were discharged in 1990 — Sierra Industries — and 1993 — Brett Mitchell Chevrolet — for a total amount of $95,642. The remaining three — Gregory Townsend, owner of GET 93 Sports Bar; James T. Jones/JHG Corporation, owner of a Sizzler restaurant and Mr. J’s Restaurant and Sports Lounge; and Angela Walton, owner of Melador Technologies — had yet to be discharged.

All together, the three defaulted loans amount to $383,625.33.

Townsend was granted a loan — of an amount not disclosed in a city staff report — to establish a sports bar and entertainment complex in a hotel located on Artesia Boulevard. However, the new owners of the hotel decided instead to build a casino and banquet center. The sports bar never opened. After the city attorney’s office took legal action to recoup the money, the city won its case against Townsend, “but was never able to execute the judgment,” said the staff report.

Jones was awarded two loans — one for $200,000 and another for $145,566.74 — to buy restaurant equipment and pay building property lease payments. At one point the business, which was located on Compton Boulevard, was in good standing. But following a decline in profits, Jones began to default on the first loan. “The applicant was making successful payments at some point,” said Hull, “however … the actual parent corporation filed for Chapter 11 and went into bankruptcy. At the same time there was a degrade in the quality of service that the applicant was providing at the restaurant. As a result, he stopped making his payments and began to get into a default situation.”

The city worked out an agreement with Jones, whereby it agreed to write off a portion of the loan, and grant him another. Jones then changed the business to an independent restaurant and sports bar that ultimately failed in its attempt to operate under the Sizzler franchise. The city extended the payment moratorium, which specified that failure to make a payment would result in automatic default; but Jones again failed to make payments. In an attempt to recover the outstanding amount, the city moved to auction off the business’ assets, but recovered only a little more than $20,000.

Walton was given a loan to purchase office furniture and computer equipment at its site along Sierra Drive. Community Bank loaned Walton more than $1 million to secure a commercial building, while the city safeguarded the loan with a second deed of trust against the building. After Walton failed to make good on her loan with the bank, they filed a trustee foreclosure and repossessed the site. Due to this action, the city was not able to collect on its portion of the loan — approximately $144,000 — and after seeking help through a collection agency, was not successful.

As a result, the RLF Program will see a decrease in its loan receivable and deferred revenue accounts for the total amount of the three defaulted loans.
“It’s amazing how we have these loans with no collateral,” said Councilwoman Lillie Dobson.

During an audit of the city’s books, the EDA “indicated that because of the percentage of loans that were in default, we were considered to have a high default rate percentage,” said Hull. RLF default rates are not to exceed 15 percent. Because the three loans were active, the city showed a 100 percent default rate. The EDA requested that the city put a corrective action plan in place. One such action will be to discharge loans that are in default beyond 90 days. This was in place before, said Hull, but was not followed through in those cases.

In addition, RLF staff will continue to contact borrowers by telephone and mail, file notices of default, mail past due or delinquent notices to borrowers, execute legal action, use the services of a debt collection agency and auction off inventory.

Mayor Eric Perrodin suggested putting liens on the property or seizing defaulters’ estates. “I don’t care if they’re dead,” he said.
Currently there is an estimated $446,345 available to lend to eligible businesses, however in light of the impact the defaulted loans had on the city’s rate, the planning department plans to tighten lending standards and improve collection methods.

Not only will they look at an individual’s credit rating, but “what we are going to start doing is also look at collateral and assets to make sure that when we give out loans, in the event that individual defaults, we will have some recourse,” said Hull. “And finally, I talked to the city manager about, instead of giving out a lump sum of money, we’d give it out in increments — so that if an individual is showing that he or she is not making timely payments, then we have not committed out the entire amount to this person.”