$250,000 loan to be dished out by county

Region

Clarification

To clarify a June 15 story about Converged Solutions LLC's default on loans to the Grand Traverse County Economic Development, EDC attorney Bethany Warner said whether the EDC can pursue business owners Dale and Gail Zuelch personally for the amount of money that Converged Solutions LLC owes Grand Traverse County will depend on whether they receive a discharge in their personal bankruptcy case.

Warner disputed a comment by EDC member Ross Richardson that a list or listing of collateral items was not provided to the EDC. She said a list of prospective items to be purchased was provided, but it did not include final purchases or other identifying information such as serial numbers.

June 15, 2010

BY BRIAN McGILLIVARY bmcgillivary@record-eagle.com The Record Eagle Tue Jun 29, 2010, 06:33 AM EDT

TRAVERSE CITY — Grand Traverse County plans to lend a startup business $250,000 based on the owners' personal guarantees, despite the county's difficulties collecting on similar promises.

The county's Economic Development Corp. hopes a loan to Peninsula Wholesale will turn out better than other recent investment forays. County officials pledge better oversight in a three-year deal with Peninsula Wholesale, a startup company that builds pre-hung residential doors.

The loan to Peninsula Wholesale comes on the heels of a bad loan to telecommunications company Converged Solutions LLC. The EDC recently said it will write off about $173,000 loans for working capital and equipment to Converged Solutions after that company's owners, Dale and Gail Zuelch, filed for personal bankruptcy.

They also signed personal repayment guarantees that turned out to be worthless, EDC attorney Bethany Warner said.

The EDC failed to collect any of its collateral from Converged Solutions — mostly in the form of software — because the property disappeared under questionable circumstances and the county had no serial numbers, pictures or video of its collateral.

Officials had to eat the loan because they had no other choice, said county Commissioner and EDC member Ross Richardson.

"We don't even have a listing of the equipment that was securing the loan," he said.

An auction company that represented Huntington Bank removed equipment from Converged Solutions and sold it, but didn't find the software.

Warner speculated in a memo to the EDC board that employees likely took computers and other equipment after the business failed.

"Based on the likely value of the software and/or other equipment ... it is probably not worth the cost to determine which employees may have taken such software and/or equipment," Warner wrote to the EDC.

She recommended the EDC write off Converged Solutions' loan as it will with a personal guarantee from Francis Zeits, who owed the EDC $24,000 when she filed bankruptcy after her coffee shop failed.

"We don't expect to get any money from either one," Warner said.

EDC officials said they will be better protected on the loan to Peninsula Wholesale.

Traverse City State Bank will monitor Peninsula Wholesale's materials purchases and dole out money for the EDC in return for half the loan's 6 percent interest rate.

"I believe it reduces the risk to the EDC to have the bank hand it out instead of giving them the whole working capital up front," said Jean Derenzy, EDC director.

Peninsula Wholesale operators Brian Houghton and Steve Bagdon, along with two investors, attorney Kent Gerberding and healthcare consultant James Steckley, provided personal guarantees for the loan. Each of the four owners are liable for 100 percent of the loan, Derenzy said.

The EDC board unanimously voted this month to approve the loan.

"I've been in situations where you can't get the bank to do anything for you even if you have a good idea and a detailed business plan," Richardson said. "I think it's a risk worth taking to get this business up and running."

Final approval rests with the county board, which will vote on the loan when it meets June 30.