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JCIDA: Businessman misused $40,000 loan

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A Watertown businessman who received a $40,000 loan from the Jefferson County Industrial Development Agency to start a used car dealership apparently abandoned the plan and instead opened a pizza shop without saying a word to agency officials.

The JCIDA will seek legal action to get back a $40,000 microenterprise loan to Richard Lagano to start a used car dealership called American Auto, on Route 37 north of Route 342. The agency's board of directors approved the loan in November, but Mr. Lagano made only three small payments before jumping ship, CFO Lyle V. Eaton said.

About the same time the payments stopped coming in mid-April, Mr. Lagano and Rick D. Pitre opened Family Pizza in the Cheney Tire Plaza, 839 State St.

“It appeared he was going to make enough profits at the used car dealership to service the debt,” Mr. Eaton said.

Mr. Lagano presented a detailed plan before the agency's loan review committee in the fall. A second mortgage on Mr. Lagano's house, as well as valuable automotive equipment, was used as collateral for the loan.

But Mr. Eaton, who tracks payments from loan recipients, soon became concerned about the project when Mr. Lagano's third payment in April arrived about two weeks late. A collection letter was sent to Mr. Lagano, and Mr. Eaton later visited the site on a Saturday. But a lot that should have been full of used cars was empty.

“I asked someone there where Richard went and they told me he was running a pizza business in Cheney's Plaza,” he said. “I talked with him at the store and he indicated there was no money left to pay us.”

By all appearances, Mr. Lagano used the loan to start the pizza shop instead. Attempts to reach Mr. Lagano on Wednesday at his business and residence were unsuccessful.

The JCIDA is set to approve a plan at its board of directors meeting to hire a collection agency to get its money.

The number of loans that have defaulted has increased in recent years, Mr. Eaton said. Since 2010, about three microenterprise loans and three major loans went sour.

“Public agencies probably take a bit more risk than normal financing institutions do,” he said. “But that's our role, and you do your best to mitigate that risk. Mr. Lagano had an impressive plan and good background in sales, and it was a niche market with used vehicles under $10,000.”

JCIDA Deputy CEO David J. Zembiec said the agency thoroughly vets every loan applicant, but entrepreneurs who start small businesses take on more risk than established companies.

We're “trying to promote a variety of business in the community,” he said. “There's some risk involved and you do your best due diligence. When you're dealing with small businesses, there are some like Current Applications in Watertown, which grew from six to about 40 employees now. Others fail.”

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