Birmingham City Council has committed revenue funding of up to £450,000 to underwrite loans to help small businesses.
The council will provide the cash over three years to cover bad debt provision for a new £1m fund run and managed by ART Business Loans.
Loans will be made through the ThinCats Community Chest peer-to-peer lending platform to start-up firms and social enterprises from the poorest parts of Birmingham which find it difficult to obtain loans from high street banks.
Council leader John Clancy said: “This is a pioneering local investment opportunity and a chance for people to not only get a financial incentive in the form of a tax relief, but also a social return.
“Small and medium sized enterprises are the life blood of the local economy and their ability to grow, create inclusive economic growth and preserve jobs impacts on everyone who lives and works in Birmingham.”
The council will fund the scheme from policy contingency resources, which will be match funded by ART, which also hopes to raise a further £700,000 a year through the ThinCats platform.
ART and the city council will jointly underwrite loans of between £10,000 and £150,000. ART is the only community development financial institution currently in Birmingham, meaning that loan beneficiaries can receive a 5% income tax discount.
The partnership is not the first tie-up between the council and ART. In 2010, the authority made an interest-free loan of £500,000 to ART over five years and gave a grant of £150,000 for bad debt relief from the Working Neighbourhoods Fund, which the council says was fully repaid on schedule.
Dr Steve Walker, chief executive of ART, said: “There are many reasons why a viable business may not fit the banks’ lending criteria, including because the bank has already lent all it can.
“We are here to ensure that businesses can access the loan finance they need to support cashflow, invest in new premises and equipment, survive and thrive.”
