Newcastle City Council has allocated £100,000 to invest into crowd-funding for city businesses in a bid to draw in further local investors.
The council is using Funding Circle, a well-established site that has already been used to lend £27.5m to small businesses in the North East which have been unable to secure loans through traditional routes including banks.
Newcastle is only one of eight councils in the UK to chose this method of boosting funding in their areas, with several million pounds so far being delivered by the authorities.
But Funding Circle believes council interest is growing in the group’s system, which sees fledgling firms receive an average investment of £60,000 from investors who can plough in sums as small or as large as they like.
Funding Circle’s David de Koning said: “So far, £7m has been lent by five councils and a further three, including Newcastle, have recently started to lend.
“We strongly believe this network will evolve over the next period to create a blueprint for an equivalent 21st Century regional banking network.
“This partnership with Newcastle City Council will allow us to help even more of the region’s businesses going forward.”
In 2013 the Government injected £20m into Funding Circle’s marketplace for the first time, helping more than 2,000 businesses to access a combined total of £140m and creating an estimated 6,500 new jobs.
Newcastle City Council has arranged for the £100,000 it has put in to be spread out in smaller investments to multiple businesses in need. Council leader Nick Forbes said that this was a great way to encourage local investment, set up better links between investors and businesses, and make a good return on the council’s contribution.
Ambic Ltd, an educational furniture manufacturer in County Durham, has already benefited from Funding Circle, borrowing £100,000 at a rate three times cheaper than a traditional bank loan.
The company was started more than 30 years ago with Newcastle City Council help when director David Potter was given a £200 overdraft by the Enterprise Workshops.
Potter said this new way of encouraging business and investment in Newcastle as the way forward for businesses like his.