Caistor Town Council (CTC) has been asked to provide a loan of £750,000 to Caistor and District Community Trust Ltd (CDCT) to support the redevelopment of 2-4 Market Place.
Caistor Town Council (CTC) has been asked to provide a loan of £750,000 to Caistor and District Community Trust Ltd (CDCT) to support the redevelopment of 2-4 Market Place.
CTC is a small town council with an income of around £120,000 per annum and general reserves of £50,000, we do not have this level of money to loan to CDCT, we are not a lending organisation, and have no experience of borrowing money to loan it to a community organisation however, we had agreed to apply for a Government Loan to try to raise £750,000 to support the project in the event of a shortfall. The loan to CTC was approved in May 2022, conditional that it was taken within 12 months. This was originally as a 'loan of last resort' meaning that once all other funding had been spent, if the project still wasn't finished, the council would be asked to provide the loan. However, as the project has progressed, unless they are able to secure funding from another organisation, CDCT now need a final commitment to this loan to move to the next phase of their project which is to start the build.
In March 2023, CDCT advised CTC that they would need the loan to support the project. The original loan offer expired in May 2023. At this point CTC seriously considered the implications of taking out this loan, and on what basis the loan should be made to CDCT. CTC requested an extension to the loan from the Department of Levelling Up and Housing Communities, as it was clear that we were not in a position to grant the loan before it expired in May. After a significant amount of work, CTC secured an extension to the loan offer on 31st August 2023.
£750,000 is nearly 7 times our annual income. The annual repayments of a loan of this size are in the region of £60,000 a year, more than half our current income, and over a term of 50 years will amount to a total of just over £1.89million in total loan repayments.
With this in mind, taking out a loan of this size is not something the council can enter into lightly. Government guidelines dictate that we need to follow a due process, including assessing the impact of the loan on the required precept (raised via residents council tax), due diligence to ensure the loan will be repaid and setting up safety nets in the event that CDCT fails to make repayments.
CTC has a responsibility to all residents of the town to ensure the right decision is taken. We are following the due process to:
- Ensure we can secure a sole first charge on the property, meaning that in the event CDCT cannot pay their loan to us, we have some security and can repay at least part of our loan;
- Complete an analysis of the financial viability of the project;
- Develop a legal loan agreement drafted between the town council and the community organisation;
- Consult with residents to advise what the implications of taking this loan out mean to the residents, financial and otherwise. There is likely to be a significant impact on the precept (raised via residents council tax) of taking out this loan.
All of this takes time and costs the council money which has not been budgeted for this year - as stated earlier, this loan was originally asked for as a 'loan of last resort’. However, we remain committed to making the right decision for all of the residents of Caistor and for the future of the town, and will keep residents updated as progress regarding the loan is made.
On 02/11/23 CTC have been advised by our solicitors that we have secured a sole first charge over the property. This means that CTC would be in strong position to recover funds if the project fails and the property is sold, thereby helping to protect the interests of Caistor residents. The next 2 stages in our due diligence are the financial review of the project business plan and Public consultation. The public consultation will take place on the 23rd of November starting at 7pm at the Caistor Methodist Chapel when CTC will engage with the residents of Caistor to advise on the implications of taking up the loan on behalf of CDT.