Preparing a Grants or Loans Strategy

We continue to have queries at the office relating to the problems members experience when issuing grants, or wishing to provide loans to community organisations. All councils are reminded that it is a legal requirement that such matters be dealt with competently and this includes a clause in the Account and Audit Regulations requiring that anyone who receives a grant must update the council in writing, within 12 months, showing exactly what they have done with any grant.

There is also a requirement for councils to ensure that they are aware of what a grant is required for, and that it is a proven need and not just a general request for money. Councils must check if they have a power to make the payment, or are able to use their Section 137 allocation, having ascertained that the project benefits all or some of the community.

Regarding loans, typical things that are often missed in the early stages are whether interest is to be charged, how the repayments will be made and the period of the loan. For both grants and loans, they must be approved by the full Council and identified separately in the accounts.

A further matter that is frequently raised is the equality, or lack of it, in the procedure being adopted by the council – e.g., some local bodies get money every year, which they almost come to accept as their right, whereas others get nothing.  Furthermore, most small councils have no agreed policy, nor do they make any provision in their budget to be able to pay any grant, should a need arise to maintain, enhance or set up a community asset.

With this in mind, we have developed a simple procedure which members may wish to use, which is in line with the time scale for producing budgets, making precept applications, etc. A model form has also been produced, and copies are available from the office on request.

Suggested Procedure – Grants

1.        The council needs to resolve whether or not it is prepared to make provision in its budget for a sum of money to be used for grant purposes.

2.        At the Annual Parish Meeting, via newsletters, notice board or other communication channels, let it be known around the parish that there will be an amount of money available during the following financial year for the benefit of the community, and that applications may be made to the council using the application form available from the Clerk.

3.        Set a closing date for applications, which should normally be on later than 31 October each year, to ensure that applications can be properly considered, and sufficient funds can be included in the budget.

4.        Resolve the specific amount to be included in the budget for the following year, having regard to the fact that the council can levy a set amount (Currently £7.20 – 2014/2015) per head of the electorate, under Section 137 of the Local Government Act 1972, to cover expenditure not specifically authorized elsewhere.

5.        Ensure all applications are addressed to the Clerk at the official council address, and not to individual councillors or the Chairman.

6.        Ensure the Clerk has clear direction as to what information the council will require to determine an application.

7.        Notify successful and unsuccessful applicants, in writing, by 31 January each year – informing successful applications that grants will be payable after 1 April.

Suggested Procedure – Loans

It is not recommended that councils seek loan applications and a council would send out the loan procedure only when approached by a community organisation in this respect. Please also note that loans are not given to private individuals.

1.               Upon receipt of a loan application the Clerk should place this on the first available agenda for the council to accept/reject the principle behind the application and whether or not the council regards it as being something they could potentially support.

2.        The council should resolve to either reject the application, or instruct the Clerk to seek relevant additional information on the council’s behalf, to present to the next meeting.

3.        Relevant information would include:

· Amount of loan required

· Reason for loan

· Period for which loan is requested

· Method of repayment – eg. monthly, quarterly

· Whether the request is for an interest-free loan

· Security offered to cover the loan

· Set of accounts and/or other appropriate financial information

4.        The Council should then approve/reject the application and ensure the Clerk responds in writing.

5.        If the loan is approved, a simple contract should be drawn up, ensuring the agreed points are included – eg. rate of interest, repayment period.