When city officials explain why they didn’t terminate the Providence Economic Development Partnership’s troubled loan program this year following a damning federal report, they point to businesses such as Providence Specialty Products, owner of Narragansett Creamery, that it’s helping grow.
The recipient of a $250,000 loan in May after being turned down for financing by banks, Providence Specialty Products has 30 employees and expects to add between 10 and 15 more over the next three years as it expands.
“It made capital available to us for growth in a very difficult economic time when … access to capital is limited,” said Providence Specialty Products owner Mark Federico. “It’s helping us expand a new yogurt line, add new equipment and give us working capital.”
Although there’s no guarantee Narragansett Creamery will grow as it expects, the business’ size and existing sales make it a contrast to many PEDP loans made since 2003 to small operators with thin track records, minimal assets and poor prospects for generating significant employment.
In a report issued in July, the U.S. Department of Housing and Urban Development, which funds the loan program, cited PEDP for poor underwriting standards, inadequate monitoring and misusing administrative resources.
So to save the program, Providence Mayor Angel Taveras vowed to transform it.
He started by requiring approval from the PEDP board of directors, which he chairs, for all loans, stripping PEDP staff of the authority to make loans up to $75,000 and dissolving a committee that had approved lending between that level and $150,000.
Then the city wrote off $1.5 million worth of bad loans it had kept on the PEDP books for years despite long-term delinquency and little prospect of repayment.
HUD strengthened its hand as well, requiring PEDP to seek its approval for all loans and hiring a consultant to work inside PEDP to clean up administration and oversight.
After being frozen in the wake of the HUD findings, the loan program is slated to relaunch this winter with both better financial controls and a smarter lending strategy, said James Bennett, now the partnership’s executive director as well as the city’s economic-development director.
“We have addressed a number of the issues HUD has had with the bad loans, written off loans and made the process more transparent,” Bennett said. “We are strengthening the internal procedures with financial people experienced in underwriting loans, and we are still funding the creative economy. By the end of this year, we will restart the loan program and feel comfortable where it is.”