A document uncovered by kecl over on TalkSwindon shows that Swindon Borough Council’s £450,000 loan to the company installing wifi across the borough is far from secure.

The new company will need to generate sufficient income to repay the loan provided by the Council. Should this not be the case, security is provided through the loan agreement which requires transfer of the ownership of the company’s assets to the Council in the event of default. The physical assets will be purchased at a cost of around £250k

What the cabinet briefing to Mr Bluh and Mr Edwards doesn’t mention is what those physical assets might be worth once installed: no doubt considerably less than £250k. Still, never mind, the council would have a share in an unsuccessful network and a defaulting company.

In addition there will be value in the virtual network that will cover all of the Borough and in the Council’s shareholding in the company.

The document also indicates how woefully unprepared the company was just a couple of months before launching the service.

While providing the loan is not without risk, based on the Business Case it appears that the risk that the loan repayment period may need to be extended is more likely than the risk of complete default…. The success of the company, particularly in the early stages, and consequently the potential for Swindon Borough Council to achieve a return from its shareholding will depend to a large extent on the success of the marketing campaign. A formal marketing plan has not yet been developed, but a Brand Consultant and Marketing Specialist have been informally assisting the project.

So that’s a loan made of the basis of a business plan that lacks a plan for what financially is its most important part.

Over 50% of households in Swindon already had broadband access in 2006. That’s half the potential market for the new company’s paid-for services gone before they even start. Many of the remainder are likely to have neither the interest nor the money to pay for wifi services either. The business case must be very optimistic.

According to the document, the report and its recommendations were approved by the two cabinet members without reference to the rest of the council’s cabinet. The issue has now been referred to the Audit Commission.