Charities will pay interest on Barclays loans that match Modernisation Fund

Bank pledges £9.5m to help charities merge and collaborate, but will lend on a commercial basis

Barclays has agreed to loan voluntary organisations £9.5m to match the amount being loaned by the Government's Modernisation Fund, but the bank will not offer the same interest-free deals.

The fund, which is one of the key strands of the Government's £40.5m third sector action plan, announced in February, was set up to encourage voluntary organisations to merge, work in partnership or restructure in response to the economic downturn.

Futurebuilders England, which jointly manages the fund on behalf of the Government, is offering Modernisation Fund loans of between £30,000 and £500,000 to organisations with incomes above £750,000 at zero per cent repayment terms. It has received about 200 inquiries so far and agreed its first two deals with applicants this week.

Capacitybuilders, which also manages the fund, is awarding grants totalling £7m.

Jon Mosscrop, head of charities at Barclays, said it would offer "favourable terms but on a commercial basis". He said the terms would vary but they would not be 0 per cent.

Barclays has also agreed to provide professional support to charities on how to structure their finances and will run seminars to help charity finance teams.

Mosscrop said the combination of management advice and financial support would help voluntary organisations become "better equipped to withstand the economic challenges they may currently be facing".

Sue Peters, director of investment at Futurebuilders, said her organisation and Barclays would consult applicants on how deals were structured.

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