Office of County Attorney authorized to file lawsuits against guarantors of Small Business Resiliency Loans that have not been repaid

2020 program used $4.3 million in county’s Economic Incentive Fund to help businesses suffering during COVID-19 pandemic

Image courtesy Economic Development Corp. of Sarasota County

Sarasota County Attorney Frederick J. “Rick” Elbrecht this week won unanimous County Commission approval for his office to file suit over unpaid loans that the county made last year to help businesses survive the economic downturn of the COVID-19 pandemic.

Approximately five businesses have failed to repay the money, Elbrecht told the commissioners during their regular meeting on Nov. 15.

Altogether, Elbrecht pointed out, approximately 200 loans were provided to businesses. About 130 of them have been paid off, he continued, and another 60 or so are in the process of being paid back.

As for the five remaining unpaid, Elbrecht added, “Staff has made multiple efforts and the requests at this point have been ignored.”

In a Nov. 9 memo included in the agenda packet for the regular commission meeting on Nov. 15, Elbrecht reminded the board members that they approved the Small Business Resiliency Loan Program, which “required a personal guarantor for every Program loan.” The guarantors are the owners of the businesses that received the loans, the memo noted.

Further, the memo reminded the commissioners that the applications for the loans were submitted through the Economic Development Corp. of Sarasota County (EDC).

County Attorney Rick Elbrecht addresses the commissioners on Nov. 15. News Leader image

“The loan terms required the businesses to provide monthly reports to Sarasota County certifying and demonstrating the authorized use of the loan proceeds,” the memo continued. Those reports were due on the 15th of each month, it added. The loans remained interest-free “up to May 15, 2021,” the memo pointed out. “Payments were not required to be paid until June 15, 2021. Any business and/or guarantors that failed to either pay off their loans or begin making payments by June 2021, were deemed to be in default,” the memo said.

“One defaulting business has made two payments but has since stopped,” the memo continued.

Before filing any lawsuit against a business, Elbrecht pointed out to the commissioners on Nov. 15, “We would first send another letter from our office.” Then, if that produces no response, he said, litigation would follow.

Commissioner Nancy Detert made the motion to approve the filing of lawsuits as needed, and Commissioner Michael Moran seconded it.

Putting the program in place

On April 8, 2020, Moran, then the commission chair, passed the gavel to Vice Chair Alan Maio to make a motion calling for the approximately $4.3 million in the county’s Economic Incentive Fund to be allocated to businesses to help them survive the economic consequences of the COVID-19 pandemic.

The money had been set aside for the county and the Economic Development Corp. of Sarasota County (EDC) to attract and retain businesses that would offer careers with better-than-average compensation.

“We need to get this money on the street, knowing that it’ll come back into the fund for us to carry out the mission of attracting and retaining folks here,” Moran pointed out that day.

His motion called for up to $25,000 to be loaned to any business that had submitted an application to the federal Paycheck Protection Program (PPP).

Commissioner Michael Moran. File image

Under the terms of the loans — as Elbrecht’s Nov. 9 memo to the commission noted — no repayment or interest would be required in the first year of the loan. Subsequently, the business owner could keep the money for another three years, but he or she would have to pay 3.5% annual interest.

During the April 8, 2020 discussion, then-Commissioner Charles Hines, who is an attorney, recommended that Elbrecht and his staff create “whatever documentation he feels is necessary to secure that loan.” Hines suggested each loan recipient sign a promissory note and a personal guarantee, to ensure the loan would be repaid to the Economic Incentive Fund. His colleagues agreed to that.

Yet, Hines ended up voting against the loan program. His concern, he said, was that if the program used up all the money in the Economic Incentive Fund, “Then we’ve lost the opportunity potentially down the road … for the big business that finally says, ‘I’m leaving New York or New Jersey; help pay my impact fees; I’m coming [to] create careers in Sarasota County.’ That’s this debate. … If we are going to support [a loan program], to me, it’s got to really make a difference for our community. It’s not just, ‘Hey, here’s your money, [so] open back up.’”

When Commissioner Moran asked Dave Bullock, then-interim CEO of the EDC, for Bullock’s opinion about keeping the $4.3 million in place for company recruitment, Bullock replied that he had discussed the financial woes of the pandemic with people in the community. As a result, Bullock continued, his opinion was that “the incredible economic need that our local businesses are going to experience in the coming weeks and months — I suspect, much farther than we can envision today — that is business retention at its heart and soul, and these funds are intended for business retention.”

Additionally, Bullock said that by structuring the payments as loans, “We make this money available for future use for this or other programs that involve business retention and attraction. I know some of this won’t be paid back, but I’m confident that some of it will.”

In May 2020, the EDC reported that about 370 applications were submitted for the Small Business Resiliency Loan Program after the EDC launched the initiative on April 27, 2020. Of those, Kate Atkin, director of investor engagement with the EDC, told The Sarasota News Leader, 190 were approved and forwarded to county staff for processing.

In a May 6, 2020 email, Atkin wrote, “The funds are now exhausted.”

On May 5, Rob Lewis, director of governmental relations for the county, had reported to the commissioners via email that, altogether, companies sought $7.9 million. However, the board vote in April 2020 had made it clear that after the Economic Incentive Fund was exhausted, the county would not allocate any more money to the program.

This is the data about the Small Business Resiliency Loan Program that Rob Lewis sent to the county commissioners on May 5, 2020. Image courtesy Sarasota County

The applications sought a range of support, Atkin of the EDC told the News Leader: from $5,000 up to the maximum of $25,000.

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