LOANS SCHEME
FOR
SCHOOLS
September 2001
INTRODUCTION
Purpose of the scheme
The purpose of the loan scheme is to make more effective use of school balances by
enabling schools to apply to the LEA for a loan which will be repaid in subsequent
years. For the school it offers the opportunity to carry out building works or make large
equipment purchases which could not normally be funded from the formula allocation
in one year.
The LEA will consider loans of between £5,000 and £100,000 subject to a restriction
that the total loan(s) made to a school result in an annual charge for principal and
interest which does not exceed 5% of their income in any financial year. There are two
reasons for restricting the size of loans; the £100,000 limit is to ensure that a small
number of schools do not use up all the resources available; the 5% limit is to protect
individual schools by setting a prudent limit on future commitments. Schools which
have deficit balances may not apply for a loan.
Schools will have to agree a timetable to repay the loan over a period of up to five years.
Before a loan is approved, the school will need to be able to demonstrate that they will
be able to repay the loan over an agreed timescale.
How the scheme is funded
The scheme will be funded from the total of school balances held by the Authority. It is
unlikely that all the schools which have surpluses held by the Authority will spend them
in the same financial year, and therefore it is possible to use these balances to make
loans to schools. In order to be prudent it is proposed that the level of loans made
would not be allowed to exceed 30% of school balances in any one year.
The scheme does not mean that any particular school’s surplus is taken away to finance
the scheme; each governing body will continue to have the right to draw on their full
balances.
Will Schools pay interest?
Within the current arrangements individual school balances are treated differently
depending upon whether or not the school makes use of a local cheque account. If the
school holds its own bank account then any positive balance is held within the school’s
individual bank account and earns interest for the school. If the school does not hold its
own bank account and uses the central payments system then any balance, positive or
negative, is held within the Borough’s accounts and the interest earned or lost is not
passed onto the school.
Because of this discrepancy in the treatment of school balances it would not be
equitable to introduce a loan scheme which treated all schools the same. Therefore the
Scheme will include a “mixed” approach whereby when a loan is awarded to a local
bank account school interest will be chargeable at base rate, fixed at the date of the loan
on a reducing balance basis; for all other schools loans will be interest free.
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What the scheme can be used for
The scheme is designed to support “one-off” expenditure, either on building works or
equipment and not on-going spending. It will be possible for schools to use this
procedure to contribute to the costs of projects partly funded from external sources. The
terms and conditions of the Scheme (see below) set out in more detail the purposes for
which the loans can be used.
If the funds available are oversubscribed, recommendations for approval will be
prioritised on the basis of the contribution which the projects will make to raising
educational achievement as part of school development plans.
Where schools use this scheme to purchase equipment which depreciates in value
relatively quickly - especially information technology equipment - it will be expected
that they will repay their loan over a two or three year period.
Guidance Notes for Self Help building projects
A revised set of guidance notes relating to self help building projects are available from
the Asset Management Planning and Review Officer, Lifelong Learning Department,
Unity House, Luton, LU1 5NP.
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TERMS AND CONDITIONS OF LOANS
The amount of loan which would be available
1. The minimum and maximum level of loans to be granted will be:
 minimum: £5,000
 maximum: either £100,000 or that the total loan(s) made to a school result in an
annual charge for principal and interest which does not exceed 5% of their income in
any financial year, whichever is the lowest.
2. Schools will not receive the loan in the form of income, instead they will be allocated a
central code to which they will charge the expenditure for which the loan has been
approved.
Type of project which would be eligible
3. The type of projects for which a loan will be considered are:
a) repairs, maintenance or improvements to school properties
b) investment projects which produce a future revenue saving (for example schemes to
improve energy efficiency)
c) projects to improve security in schools or to meet Health and Safety requirements
d) purchases of large scale equipment.
Period of loan and interest rates
4. Principal and interest (if applicable) will be repaid over a minimum period of two years and
a maximum period of five years based on an agreed schedule. The charge will be made
directly to the school’s account at the beginning of the financial year, the first repayment to
take place in the year following the one in which the loan was granted.
5. If a school so wishes, the schedule can be altered so that the loan is repaid earlier than
anticipated. It will not be possible to lengthen the period of the loan. Within a school’s
budget plan the repayments of the loan must be treated as the first priority in planning the
budget.
6. Interest will be charged to schools who manage a local cheque account at the time of the
application If the school does not manage a local cheque account at the time of the
application then no interest will be charged. Where interest is charged the rate to be used
will be base rate.
Criteria against which loan applications will be judged
7. The granting of all loans will be at the discretion of the Director of Lifelong Learning and
subject to the financial circumstances of the Council at the time.
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8. In order for a loan application to be eligible schools will need to demonstrate the following:
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the ability to repay the loan from the formula allocations in future years,
a resolution of the Governing Body supporting the application,
that the project to be funded is of a “one off” nature and fits into one of the
categories listed above,
that full use is being made of any current balances held by the school,
that any building scheme is in accordance with LEA provided Guidelines for Self
Help building projects and that accommodation changes would normally not lead to
changes in the Standard Number of the school.
9. In addition, where there is pressure on the funds available, priority will be given to those
applications which can demonstrate the following:
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that the project will make a positive contribution to raising education achievement
as part of the School’s development plans,
that the project will attract additional funding from external sources.
Timetable and Application procedures for loans
10. Schools will be invited to apply for loans before the beginning of each financial year.
11. The funds available for loans in each financial year will be a maximum of 30 per cent of
the total net school balances held by the LEA, taking account of loans currently in
existence, as at the start of the relevant financial year. For example, the funds available for
2002/03 will be 30 per cent of the net balances as at 31 March 2002.
12. Applications will be invited before the beginning of the financial year in which loans will
be granted. Applications will be prioritised and approval will initially be given for loans
up to a maximum value of 20 per cent of the net surplus at the start of the previous
financial year. Approval will then be given to other schemes bringing the total loans up to
the maximum 30% of the balances available in the relevant financial year, once these have
been identified.
13. The approval required for the loan will be made by the Director of Lifelong Learning. All
loans agreed will be reported to the Education Committee. The Director of Lifelong
Learning will make an annual report on the operation of the scheme to the Education
Committee following the end of each financial year, which will include any recommended
amendments to these terms and conditions.
Amalgamations
15. Where an Infant and Junior school amalgamates the new Primary school will be obliged to
continue loan repayments for either of the previous schools.
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