How to Get Business Loans from Local Authority Aid

The recent rapid growth of interest in local economic initiatives as a means of generating new jobs has led to a major explosion of assistance for business projects from local authorities at a time when the government has been cutting back on regional aid.

The vast array of help now available has meant that the inde­pendent business operator has had almost to acquire the skills of a financial juggler to be able to try to assess the merits of what ts being offered.

Help from local authorities can come from almost anywhere, provided the public body can raise the money. A number of Methods have been devised, ranging from grants, loans and in­terest rebates to equity participation.

Business Loans

As far as direct government regional aid is concerned, full details are available from regional offices of the Department of Trade and Industry. Further help with information and prob­ably also with the processing of applications – which can be the biggest problem for the smaller business – can be obtained through the network of enterprise agencies which now cover the country.

One of the most interesting aspects of the explosion of aid from the local authorities is that a great deal of their support is being directed at the end of the market which is supposed to be neglected by other sources, namely the projects which require relatively small sums of money.

York City Council, for example, has contributed £250,000 to a fund run by the York Enterprise Agency so that it can provide loans of between £500 and £25,000 with repayment in five years at an interest rate of 3 per cent above base rate.

Milton Keynes Business Venture, the local enterprise agency, manages a seed capital fund financed by Milton Keynes borough council. Applicants have to show that the money could not be raised through normal commercial sources and loans are avail­able in amounts of up to £2500.

Several other schemes are run by enterprise boards, which were set up by the metropolitan authorities, but have survived the demise of those bodies. The West Yorkshire Enterprise Board, for example, has a small firms fund with an upper limit of £15,000 per company, while the Greater Manchester Economic Development Corporation has its Worknorth scheme, started in conjunction with the Co-operative Bank.

The Kent Economic Development Board has also been active in the field of financial provision and can meet the capital needs of companies looking for between £20,000 and £250,000.

In addition to schemes such as these there are, of course, many councils which are prepared to make small loans, interest relief grants or training grants which perhaps enable small firms to take on young people.

The Selby District Council in Yorkshire, because of its con­cern at the high level of youth unemployment in the area, de­vised two schemes, one of which provides up to 75 per cent of a young person’s wages for one year, 50 per cent in the second year and 25 per cent in the third year.

An unusual feature of Selby’s schemes is that they are resi­dent rather than company based which means that if employers in other parts of Yorkshire or Humberside are able to employ young people from Selby they will be eligible for the grants. ‘Other councils have developed different support schemes, such as Sheffield City Council’s product development grant scheme which helps in the development of new products and the improvement of existing ones. This project has had consider­able success.

The grant can cover project feasibility studies, material costs, prototype assembly costs, and the cost of equipment used in development and product promotion. In return for the finance the City Council receives a royalty on subsequent sales.

The various types of assistance available from local authorities have not always been as well publicised in the past as they could be but a number of bodies are now remedying this. London, in fact, is well served by the recently published Guide to Local Authority Assistance produced by the London Research Centre in collaboration with the London Chamber of Commerce. This booklet, which costs £2.50, contains a wealth of detailed infor­mation in its 54 pages on the range of assistance offered by the local authorities in the London area.

Individual authorities have also produced their own directories, a good example being that from Hammersmith and Fulham, a new edition of which was published recently. This borough was also the most recent recruit to a development which has been progressing steadily for a few years – the local authority backed Loan Guarantee Scheme.

These schemes have been developed by the Co-operative Bank in joint ventures with several local authorities. They have no connection with the government’s national Loan Guarantee Scheme. The aim is to enable businesses in economically hard hit areas of the country to raise finance which may not other­wise have been available.

It was the Local Authorities (Miscellaneous Provisions) Act 1982, which gave local authorities powers to give guarantees for mdustrial developfhent.

Business Loans

The bank saw the opportunity to develop this special loan scheme, designed to form an integral part of an overall financial and industrial aid package.

The loans usually have a maximum limit of £50,000 and carry an interest rate of 3 per cent above base rate; the local authority guarantees a proportion of the loan in the event of a failure.

There are probably many business operators who would say that the best financial assistance a local authority can give is to use the money available to reduce the rates, but until the millennium arrives they would probably be well served by a call to their local economic or industrial development officer or enter­prise agency to find out what is on offer in other forms.

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About the Author: Marie Mayle is a contributor to the MegaHowTo team, writer, and entrepreneur based in California USA. She holds a degree in Business Administration. She loves to write about business and finance issues and how to tackle them.

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