In the past colleges seeking loans to finance campus development have had to negotiate with individual banks. Now a new, not-for-profit organisation has just been formed, Education Capital Finance Plc, to borrow large sums of money from several banks then lend from that pooled cash to individual colleges.

Peter Impey, ECF’s general manager, said that the idea was to generate funds more cheaply than colleges, doing smaller individual deals, could. He aims to ensure that the terms of loans are not unduly onerous or restrictive.

So far, some 80 colleges have signalled an interest in taking out loans over the next three years. Loans from pound;500,000 upwards are available. Smaller loans may also be available but without the same standardised terms or fees.

Mr Impey added that one of the purposes of ECF was to find new lenders for the sector.

ECF came into being after the former Further Education Funding Council and the Association of Colleges approached the Housing Finance Corporation, which raises money for social housing, to see whether a specialist lending scheme could be created for the FE sector.

The first two loans to colleges have been announced. Walsall College of Arts and Technology has been lent pound;2.5 million for a new student services and fitness centre.

Brockenhurst College, in Hampshire, has agreed a loan of pound;1.8m to help fund improvements including a performing arts centre and a reprographics centre.

ECF has succeeded in raising funds from new banks that have not previously lent to the sector. These are a large Japanese bank, Sumitomo Mitsui Banking Corporation, and a Belgian bank, KBC Bank NV.

Mr Impey emphasises that if any one college defaults on an ECF loan this would not affect the termsof any other ECF loan. Each loan is ring-fenced from the other.

John Harwood, chief executive of the Learning and Skills Council,said:

“Education Capital Finance provides an excellent example of how public and private sectors can work together to deliver real value for learners.”