Solihull Council has become the latest local authority to offer financial support to small businesses by launching a loan fund.

The scheme sees Solihull follow in the footsteps of Birmingham City Council, which became the first authority to take an equity stake in a firm as part of business-boosting plans.

Solihull Council will partner with the city council’s lending arm Finance Birmingham as part of the £1 million initiative.

Leader councillor Ken Meeson, said: “We have been talking to Birmingham City Council as it has already got all the administration set up. It seemed to be a sensible way to do it and was more cost efficient.”

The tie-up means Solihull will not have to incur similar set-up costs and can also benefit from the experience Finance Birmingham has gained by running successfully for the last two years.

“We will have a panel locally that will look at applications and make a decision as to whether we are prepared to forward some funds,” added Coun Meeson. “Birmingham will do the administration but the decisions will be taken in Solihull.”

The Conservative councillor said the move had been prompted by feedback received from economic forums.

“We have regular economic summits and feedback concerned the situation with employment and what we could do to help,” said Coun Meeson. “Unemployment rates are high so we want to do all we can to ensure more jobs are created and retained.”

Under the scheme loans of between £100,000 and £200,000 will be made available to companies in Solihull who meet the required criteria. Smaller loans of between £50,000 and £100,000 may also be considered in exceptional circumstances.

Another driver behind the scheme was the fact many companies have struggled to obtain bank funding.

“It is really to encourage small and medium sized businesses that have had difficulties getting funding through the normal banking system,” said Coun Meeson. “The complaint has been from small and medium sized businesses that the banks have not been prepared to lend or have made it extremely difficult.

“The difficulties in small and medium sized businesses raising funds also came up at economic summits and we thought what can we do? This seemed a sensible way to make funds available.”

The fund will draw from the council’s cash balances which are currently placed with the debt management office, money market funds and other local authorities.

“All councils have money coming in through council tax being collected, which is normally invested elsewhere and we would still be getting a return on it,” said Coun Meeson. “The return will probably be as good as we would get on a normal investment but at the same time we’re making the facility available to local businesses to encourage them.”

Although the primary aim is not to make money, according to Coun Meeson, the council will still benefit from the interest charged, though it will pay an administration charge to Finance Birmingham.

“We will charge a normal commercial rate of interest but money will be available when it might not be from a bank. It is not a making money exercise. We are using it to help create jobs, retain jobs and help small businesses to expand. We will not be charging more than a bank would charge and it could well be less.”

The move was initially approved by the Solihull cabinet before being rubber-stamped by the full council.

Along the way concerns were raised as to the level of risk and also whether companies from outside the borough might benefit, which were countered by Coun Meeson, who added that the scheme would be reviewed after 12 months and expanded if it proves successful.

“We have looked at Birmingham’s experience so far and it has been very good,” he said. “They haven’t had any bad debts, though like all councils we have bad debt contingency and provision.

“There is always a slight risk with any business -–that is why we are having a panel to actually look at it and take a judgement as to whether a company is sound an what it wants to spend the money on. is sensible and viable.

“They need to come along with a business case and convince the panel it is a sound business case.”