Small business borrowers owing money to the Boston Redevelopment Authority's small-business lending arm did not receive regular collection letters even as hundreds of thousands of dollars in taxpayer-financed loans went unpaid, an audit by a federal agency revealed.

The audit by the U.S. Economic Development Administration raised fears that the Boston Local Development Corp., the city's lending agency, was not pursuing delinquencies aggressively enough and had not built a trail of documents needed to recover money should collections end up in court.

It was not immediately clear why the agency isn't sending regular collection letters.

Boston Local Development has written off nearly $700,000 in bad loans since 2011. In one case, checks collected from a borrower totaling $235,000 were not cashed for six months, according to an audit that covered the fiscal year ending June 2013. Those delinquent loans averaged more than $100,000 each.

Boston Local Development was founded in 1979 to promote economic development by providing business loans, usually between $25,000 and $150,000. It has approved $14 million in loans since 1996 to 139 businesses and created 2,800 jobs, an average of 165 new jobs a year. The program currently has approximately $2 million available to lend through grants from local and federal agencies.

The loan program is a revolving fund, thus as money is paid back it is re-loaned to others. If it's not paid back, then there's less to lend unless the fund is replenished by taxpayers or other sources.

William Nickerson, chief financial manager at Boston Local Development, previously defended the agency's collection policy, saying the agency exists to create jobs by helping businesses succeed, meaning it's willing to give more time to companies that have a chance at success. He noted that the recession hampered borrowers' ability to repay and explained the high delinquency rate.

Nickerson said he has restructured loans totaling nearly $1 million to get borrowers paying on time.

Boston Local Development's highest profile case of loan delinquency involved the minority-owned Bay State Banner newspaper. In August 2009, Thomas M. Menino, the mayor at the time, urged the agency to approve loans to help the Banner avoid closing. The Banner did not repay the loans when they came due in November 2011 and a monthly interest-payment plan was established in January 2012. Another year, with just one payment made, passed before the Banner was declared in default. The Banner has made all interest payments since Feb. 1, according to the Boston Redevelopment Authority.

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