Blackpool Teaching Hospitals Foundation Trust is seeking a loan of £27m from its local council because it can offer better interest rates than the Department of Health and Social Care.

The new deal, which is recommended for approval by Blackpool Council’s executive committee next week, would follow a £9m loan last year that was used to support the trust’s cash position and transformation projects.

The trust appears to have struggled with cash flow pressures in recent years, paying fewer than half of its invoices within the statutory 30 days in 2015-16 and 2016-17.

It is expected to post a deficit of around £6m for 2017-18, which would represent a £3m surplus after sustainability and transformation funding.

The new loan would enable the FT to restructure an existing debt with the DHSC that dates back to 2009, the council papers said. This appears to relate to “normal course of business” loans that were issued for capital projects.

While the £9m loan was secured against the trust’s multistorey car park, the new deal would be unsecured “on the basis that all liabilities of a foundation trust are protected by the Department of Health and Social Care”.

Foundation trusts that are not in receipt of “interim” cash support are able to seek external finance without approval, though the DHSC has previously told HSJ it would expect any loans to represent value for money and it reserved the right to block deals.

The department said previously: “External financing is often poor value for money compared to government loans. This is because the government can usually borrow money more cheaply, the department does not usually charge a margin on top of borrowing costs and interest payments on departmental loans are recycled within the NHS.”

The DHSC typically charges interest of 1.5 per cent on long term loans.

The council papers said the interest rate for the £27m loan will be set at the mid-point of the FT’s current loan rate and the standard public works loan board rate, while a one off “arrangement fee” of 0.5 per cent would also be applied.

Tim Bennett, director of finance and deputy chief executive at the trust, said: “The trust has had initial discussions about refinancing an existing loan.

“Blackpool Council does have the ability to access loans at a much more favourable rate than our current terms and we are looking at the possibility of taking advantage of that opportunity which will lead to a saving for the trust and provide funds to reinvest into patient care.

The trust does not publish a detailed finance report within its monthly board papers, so information on its latest financial and cash position is not publicly available.

The trust would not answer further questions from HSJ.

This story was updated with additional information at 4pm on 16 May 2018.