A CASH-strapped council is setting aside £1.5 million over three years to help businesses struggling to get money from banks.

Leaders at Worcestershire County Council say by acting as a lender to Impetus – a Pershore-based financial organisation – that they are helping the county’s economy. The council has invested money in this way in the past. Between the beginning of November 2010 and the end of November 2011, 50 loans were awarded to Worcestershire businesses to the total of £938,751 (£462,636 was county council monies) with an average loan amount of £18,775.

The money has not been used for back-office costs that are covered by the interest recovered on the loans. The loans helped to safeguard 36 jobs and create a further 47 jobs while 16 new businesses were awarded a loan to help with start-up costs. Sixty per cent of the loans were awarded to businesses based in the north of Worcestershire.

As a result of that success, the county council, despite being on a drive to save up to £70 million by 2015 as a result of reduced government funding, has agreed to lend £500,000 each year for three years. This will be match-funded from several sources, creating a combined total of £4.5 million for business to access over that period.

The Conservative cabinet also agreed to loan a further £150,000, that will again be match-funded, this year to help 10 businesses awaiting money. One of the council’s key priorities is to keep the county ‘open for business’ and the longer-term intention of providing loans to Impetus will enable it to become self-funded and operate without financial support from County Hall.

Conditions are set on the loan to Impetus and businesses are required to pay them back over six months to five years at an interest rate of 11 per cent – High Street banks are said to lend at a rate of between 15 and 20 per cent.

Coun Simon Geraghty, cabinet member for planning, economy and performance, acknowledged there is a risk regarding the default of repayment by businesses but believed that had been mitigated by setting a maximum default rate of 15 per cent along with including a floating charge on Impetus’s assets.