Parish Councils: Borrowing for Capital Purposes Amar Jandoo

If a town or parish council is looking to borrow for capital purposes, it must complete a two-stage process.

The first stage involves applying for approval from the Secretary of State via the local county association. The purpose of the borrowing must be detailed on the application form as well as in a report to council.

There are also a range of supporting documents which must be provided, including a copy of the council minute with the resolution to seek the Secretary of State’s approval for the proposed borrowing, a copy of the council’s budget for the current year, showing the provision made to meet the loan repayment costs, and the full report/business case to council. Approval usually takes around 20 working days subjects to checks.

Once these requirements have been met, stage 2 involves the council applying to a lender for a loan. Councils may submit the application form in advance, but it cannot be processed until borrowing approval has been granted.

While most town and parish councils can borrow from any source, most do so from the Public Works Loan Board (PWLB) Lending Facility. Current interest rates range from 1.00% to 2.30% depending on the length of the loan.

To do so, an application form ‘LC1’ must be submitted to the local county association at least one week before a loan is required. The PWLB will contact the Council when the checks have been completed, and a telephone application may then be made. The cash will arrive in the council’s bank account two working days later.

Although borrowing from the PWLB has been the traditional source of borrowing for all local authorities including town and parish councils, alternative sources are often more cost effective.

Among these alternative funding sources, borrowing from other local authorities often presents the best value. Local authorities are able to borrow from their peers on a short-term basis at rates close to the Bank of England base rate, currently 0.10%. The inter local authority market has been growing rapidly over the past decade and currently totals £13 billion, offering plenty of funding opportunities for councils of all sizes with a borrowing requirement.

Arlingclose has many years’ experience of arranging loans between local authorities. Our platform matches borrowers and lenders for short-term loans while our team of advisers negotiates rates and terms for longer-term loans.

Related Insights:

Parish Councils: are your deposits protected?

Parish Councils: Long-term investing