WESTBROOK – A semi-defunct small-business fund in Westbrook may receive some new financing and with it, a breath of fresh air for development in the city.

On Monday, the City Council’s Finance Committee agreed financing the Revolving Loan fund through a line of credit could enhance the program and allow a new set of businesses to take advantage of the low-interest loan.

According to City Administrator Jerre Bryant, the Revolving Loan fund has been helping businesses since 1987, but there was one major problem – it didn’t revolve. The money was going into businesses and being paid back to the city, which then paid it back from where it originated, either from a grant or bond. The fund hasn’t loaned any money out since 2008.

A line of credit, obtained through the city’s banking partner, Bangor Savings, will allow for the loan to revolve. The city will pay off the line of credit as the businesses pay back the city. But the line of credit will have a cap, though that cap is not yet known.

Recent defaults and depleting funds led Bryant and a few administrators to take a second look at revamping the program in a way that protected the city from losses but continued to help small businesses who may not be able to get a loan in a traditional way.

In the next few weeks, the City Council will be presented with a new plan, tweaked to include ideas from Finance Committee members such as tacking on an additional percentage point to the loan or an application fee to cover the cost to city administrators working on the project; a possible time limit on businesses using the fund; and even incentives like lowering the already low interest rate for businesses looking to build in areas in need of development, like the downtown.

“It’s a great project to have, we just can’t have any more defaults. We can’t lose the taxpayer’s dollar. Even one dollar is too much,” said Councilor Victor Chau.

Full Court Press owner Edward Symbol, also a Westbrook school board member, agrees the Revolving Loan fund is beneficial. His downtown business took out a $225,000 loan in 2002 and was able to pay it back a few years earlier than anticipated.

“We were able to add employees, get new equipment and move our location from a basement to a storefront on Main Street and we’re still here 10 years later. I think it’s great mechanism for companies to get financing,” Symbol said. “A lot of startups and even businesses five, seven and 10 years old aren’t able to get loans from a traditional bank.”

In the past 10 years, the fund has issued more than $1 million and has seen nearly $34,000 in defaults. Bryant said $15,000 of that was written off through the Community Development Block Grant federal loan, but the rest was in default.

Committee members offered suggestions for different ways to make sure the city was able to recapture loans, even if the businesses went bankrupt.

“If we don’t want to take any risk at all, we should just end the program,” Bryant said.

Bryant did offer his own suggestion for protecting the city against default by having an appraiser make sure the applicant’s home, or loan collateral, was valued at a percentage higher than the money borrowed to cover a default.

The fund was originally supplied by a Community Development Block Grant. After those funds were used, the city borrowed money through taxable bonds, one bond issued in 2002 for $400,000 and another issued in 2004 for $500,000.

Bill Baker, Westbrook’s assistant city administrator for business and community relations, said he has received inquiries from businesses about the loan.

Businesses looking to relocate or expand within Westbrook would be given preference on the loan, although Westbrook residents doing business in other towns and cities are also eligible.

City administrators will add the Finance Committees suggestions to the Revolving Loan fund plan and pass the plan along to the City Council for their approval on the new line of credit funding mechanism and procedural changes. The changes need to be approved by the council before any small businesses can apply for the loan.