BIDDEFORD — The Biddeford and Saco Area Economic Development Corp.’s lawsuit over a loan for a proposed restaurant has drawn criticism from some who claim the EDC didn’t perform due diligence before approving the $125,000 loan.

Meanwhile, another businessman has announced plans to build a different restaurant on the site, and the mayor has said the EDC is taking steps to ensure it doesn’t encounter a similar situation in the future.

In October 2015, the EDC loaned Harold Royals $125,000 to cover expenses at a restaurant, Steer N Stein Pub and Grill, that he said he intended to open at 140 Main St.

The EDC filed a lawsuit in Cumberland County Court on Feb. 12, asking that Royals and Peter Powers, who was listed as kitchen manager and head chef, pay back the money.

According to court documents, Royals told the EDC in January that he could not open the restaurant until February because of cost overruns and landlord delays.

Copies of bank statements detail thousands of dollars that Royals and Powers spent on area restaurants and retailers. The lawsuit claims that on Feb. 8, Royals made out a check to “cash” in the amount of $2,900, emptying the account.

The EDC has been criticized in the community for approving the loan despite the fact that Powers had a previous history of defaulting on a loan for another restaurant in Gardiner.

According to a December 2014 Kennebec Journal article, the City of Gardiner was planning legal action against Powers, stating that he owed the city nearly $37,000 for a loan it granted him to open Alex Parker’s Steakhouse, which closed in November 2014. Royals was listed in the article as Powers’ business partner and restaurant manager.

“The EDC performed the background check consistent with its underwriting process,” said the EDC’s attorney, Adam Shub, in an email Thursday night. “Peter Powers was not an applicant for this loan.”

Shub said the EDC has a long record of successful lending in the community. “This is an unprecedented situation to which the EDC quickly responded when the wrongful spending came to light,” he said.

Shub said the EDC has recovered more than $10,000 so far, as well as thousands of dollars’ worth of equipment.

Jim Albert, owner of Jimmy the Greek’s restaurants in Old Orchard Beach and South Portland, said Thursday he has reached an agreement with building owner Steve Ebling to lease the space at 140 Main St. for a “higher-end” burger and brew restaurant.

“Because this happened rather quickly, I am still working on many details but would hope to be open in the summer,” said Albert. “I like the direction that Biddeford is going, and will support the continued progress of the downtown area.”

Biddeford Mayor Alan Casavant said officials at the EDC are conducting a internal review of the Steer N Stein loan, and he believes adjustments will be made to prevent such an occurrence again in the future.

The City of Biddeford has a long history of working with the EDC, which, since 1992, has provided 124 loans totaling $7 million to 73 area businesses.

The city contributed $20,000 of federal Community Development Block Grant money to the fund for Royals’ loan, and no local taxpayer funds were used, said Casavant.

Casavant, who sits on the EDC’s board of directors, said he wasn’t familiar with “the mechanics” of the loan process. “I don’t know where it went bad,” he said.

However, he noted that since its inception, the EDC has lent millions of dollars, and said this is the first time something has gone “horribly wrong.”

— Staff Writer Liz Gotthelf can be contacted at 282-1535, ext. 325 or [email protected]

Comments are not available on this story.

filed under: