WESTBROOK – A revolving loan fund in Westbrook that has mostly been a success – despite failures like a $40,000 loan to a recently closed day care facility – has gone untapped in nearly three years.

Officials say more local businesses may seek the aid of the valuable resource as the economy improves.

A member of the City Council even suggested Monday that the city should look to expand the program by partnering with neighboring communities to spur development that benefits the greater Portland region.

More than 10 years ago, Westbrook implemented a revolving loan fund program intended to use the city’s excellent bond rating to pass financing options on to growing businesses for expansion or equipment purchases. City Administrator Jerre Bryant said Westbrook has issued three taxable bonds to capitalize the fund: $500,000 in 1999, $450,000 in 2002 and $500,000 in 2004.

In that time, the program has seen far more success stories than failures.

“It’s been a very successful program,” Bryant said.

Keith Luke, the city’s director of community and economic development, presented figures to the City Council’s Finance Committee Monday night showing the city has loaned out nearly $1.4 million to 14 businesses since 1998.

It has been nearly three years since the city issued a loan through the program. Theoretically, the inactivity could allow the fund to grow through interest, but Bryant said that is not the case.

“That’s a theoretical issue. Even though we have not had a recent borrowing, most of the money is put in circulation,” he said.

Bryant said recent potential borrowers have not had collateral to offer, but there is a current applicant he is in talks with.

Bryant said the city initiated the program during a period in the late 1990s when Westbrook had an “aggressive economic development agenda” because of downsizing at the mill now owned by Sappi Fine Paper Co.

While larger businesses were able to expand or relocate to Westbrook through tax increment financing, the intent was to craft a program to support small, local businesses, he said.

The rate is better than those typically available from commercial lenders and the city is able work in more flexible terms, such as no payments for the first year or interest-only payments in the first year, than banks would be able to offer, he said.

“We don’t try to make money on this program,” Bryant said. “We try to break even.”

Of the 14 loans, Luke said, nine have been fully repaid, two are in repayment and three are either in slow pay or “in recovery.”

Those that utilized the revolving loan program include Tim Flannery, who borrowed $363,351.26 to finance development at the Dana Warp Mill in 1998; the Little Dolphin School, which borrowed $72,000 to finance an addition to its facilities in 2005; and Acorn Productions, which borrowed $10,000 in 2006 to finance construction of partition walls and for electrical improvements to its space in the mill.

Ed Symbol, owner of Full Court Press, a commercial printing company, said the loan program helped him relocate and expand in the downtown. He borrowed $225,000 in 2003, which he paid off early, he said.

“Without that revolving loan program, we were in a basement,” he said. “I think the city’s done a great job of reaching out to businesses. I think it’s a huge success.”

While the vast majority of loans worked out, three have not. After School Special Inc., operator of the Lollipop Lane day care that closed recently, still owes $15,000 of a $40,000 loan from 2006. Its last payment was on July 7, 2009, according to city records.

Other past due loans include an $80,000 loan to Maine Dovetails Inc., of which nearly $20,000 is still owed, and Affordable Business Services, which still owes $1,200 after a $7,000 loan was re-amortized and the repayment terms were restructured in 2009.

While Bryant said he would not discuss the nonperforming loans, he told the council the city needs a policy for how to deal with loans once payments stop coming in. He wanted to know whether the council wants the city to more aggressively seek collection on owed payments.

The city generally has asked for strong forms of collateral from borrowers. Bryant said the few failures did not have strong collateral, underscoring the need to be firm on that requirement.

Mike Foley, chairman of the Finance Committee, said the intent should be to collect on delinquent loans. He asked for a draft policy by June 1.

City Councilor John O’Hara suggested the city consider extending the program to partner with neighboring communities to the benefit of the greater Portland region.

“Maybe there’s room to expand our program with a community that’s willing to work with us,” O’Hara said, adding it could lead to jobs and economic development that would ultimately benefit Westbrook as well.

Bryant initially called the idea “far-fetched,” but said that if the city could enter into a tax sharing agreement with another community it could make sense to pool funding to aid economic development beyond Westbrook’s borders.

“I would want to see a much more immediate and tangible benefit to Westbrook,” he said.

Luke pointed out that communities might have to band together due to the dire fiscal situation at the state level.

“Augusta is broke,” he said. “We could take care of our own in greater Portland.”