College resorts to £700k loan from local council

College resorts to £700k loan from local council

A college has turned to its county council for a £700,000 loan to help address a “need for short-term cashflow support”.

A Carlisle College spokesperson told FE Week on Tuesday (January 5) that the loan from Cumbria County Council would be repaid “in May 2016”.

The announcement prompted general secretary of the Association of School and College Leaders Brian Lightman to say that he was “not surprised” colleges were having to turn to alternative sources of finance, bearing in mind the precarious financial situation for the sector.

“All FE colleges are under immense financial pressure at the moment,” he added.

When asked by FE Week why Carlisle College did not ask the Skills Funding Agency (SFA) for a loan, which a number of colleges have done to tide over their finances, he said it had “followed Department for Business, Innovation and Skills (BIS) guidance published in October 2015.

“It states that ‘exceptional financial support (EFS) will only be considered when it is clear that the college, following full consideration by its Governing body, has exhausted all other options’.

“The college, having identified a need for short-term cashflow support and in line with the guidance approached an alternative lender, in this case the County Council, for consideration of such support on a commercial basis. The college kept the SFA informed of its actions.”

He added that the college’s financial health remained “satisfactory”.

“The loan fulfils a cash flow requirement until May 2016, given that the revenue funding payment profile restricts the cash paid to colleges between January and March then makes it up between April and June,” he said.

It comes after college’s principal, Moira Tattersall, reportedly told the Cumbria-based News and Star: “Normally in a situation like this we’d would just go and get an overdraft, but banks are nervous nationally because there is a lot of uncertainty in the sector at the moment.”

“This is also happening elsewhere in the country and other colleges are being encouraged to go to their local authorities and ask for loans.”

Cumbria County Council declined to comment to FE Week on the loan.

However, draft minutes from its cabinet meeting on December 18 showed the council agreed to provide a “short term secured loan at commercial rates” in response to the college’s request for financial support.

A spokesperson for the Local Government Association said it did not collate data on the number of councils that have given loans to colleges.

A spokesperson for the SFA said it was unable to comment on specifically on the council loan to Carlisle College.

However, she added: “We work with colleges to seek assurance, that as independent institutions they are taking responsibility for their own financial health and developing robust recovery plans.”

The Association of Colleges declined to comment.