SOUTH PORTLAND–South Portland City Council members hope that a recently adopted municipal revolving fund loan program will serve as a boon to the city’s economy by creating new business opportunities.

Assistant City Manager Erik Carson said the purpose of the gap financing fund, which was adopted by the council by a 7-0 vote at its July 7 meeting, is to help existing businesses expand and attract new businesses to move into the city, especially in the manufacturing or technology sectors.

“Unlike a commercial lender, while the city is not in the business of making money, it is in the business of providing leadership for economic development and encouraging business growth and attraction,” he wrote in a position paper in advance of the July 7 meeting.

The goal, Carson told to the council, is to make 60 percent of the funds, or $180,000, available for start-up businesses coming to the city and 40 percent, or $120,000, for existing business expansion.

City Clerk Susan Mooney said the money for the loan program comes from two tax increment financing accounts $150,000 from the Long Creek/Wright Express project and $150,000 from the Cummings Road project.

Individual loans would range from $2,500 to $10,000 and loans with commercial lending sources, up to $100,000. The loans, regardless of type, will be at no less than a 2 percent interest rate and be payable in a five- to 10-year period depending on the size of the loan, although there would be no penalty for early repayment.

The application process begins with a written application, along with business plans, profit and loss statements, balance sheets, tax returns and incorporation papers, and other paperwork of business net worth for the past three years.

A review committee has been set up to go through the revolving fund applications. The committee will be made up of the city’s economic development director, finance director, a member of the Economic Development Committee and a citizen volunteer. After reviewing applications, the committee would then make a recommendation to the city manager, who would then bring it before the City Council for a public hearing, review and possible approval.

Councilor Patti Smith said she was happy to see the requirement of the necessary paperwork, but wondered why the requirement of audited tax returns, which she had brought up in a previous workshop, was not in the list of requirements before the council.

City Finance Director Greg L’Heureux said audited tax returns place tremendous additional burdens on companies, especially small businesses. Furthermore, he stated, an audited tax return may not make as much sense for a $2,500 loan as it would for a large commercial loan.

Companies that receive revolving fund loans are required to give preference to hiring South Portland residents when practicable because, as Carson said, one of the goals of the loan program is to increase job opportunities in South Portland.

“The way towns do business changes all the time, and I think we need to do that now,” said Councilor Tom Blake. “We need to have the flexibility to help our large and small businesses.”

Blake said a loan of this type is the “perfect opportunity” for an entrepreneur, family, or business partners to get the money needed to get a business off the ground and running.

While the measure passed unanimously, it didn’t pass without a voice of concern from Councilor Linda Boudreau.

“I think it is fair to say I have been the most critical of this,” she said. “The city is getting into a business we’ve never done before. I am not entirely convinced that it is our role to fund business development.”

Part of her concern stems from a City Council vote at a Nov. 20 special meeting, at which the council, by a 5-1 vote, approved loaning $25,000 from the Fairchild Semiconductor tax increment financing account to Megquier and Jones Inc., a longtime South Portland steel fabrication company which was having financial difficulties. The company has been in the city since 1962 and employs around 50 employees, many city residents.

“I just thought it was a risky loan,” Boudreau said at the time. “It was just too risky to gamble the people’s money. I’m incredibly sorry for a company having a hard time and all that, but we’re not in the bailout business.”

Much to her pleasure, she said at the July 7 meeting, the company has been making good on its obligation to the town to pay back the loan.

Mayor Tom Coward said neighboring communities have similar revolving fund programs. Portland, for example, has been giving out business loans for decades. The loans, he added, can be “the catalyst” or “the last drop in the bucket of revenue” to make the project happen.

It could be, he said, a blessing not only for businesses, but also for the city itself.

“It could, with luck and an improving economy, be something that generates that extra oomph to our local economy,” Coward said.