A council is set to loan up to £21m to its own housing company - which lost £6m of public cash - to prevent it going into liquidation.

Norwich City Council set up the housing firm, called Norwich Regeneration Ltd (NRL), in 2015, to build 1,000 homes in Bowthorpe.

And the council has lent the firm millions of pounds towards completing the project - known as Rayne Park - and could see the loans eventually total £27m.

A leaked council report revealed how the authority lost almost £3m on the first 80 houses, and is set to lose £2.8m on the rest of the initial 150 houses.

READ MORE: Revealed: How a council lost £6m of public cash on a housing development

The development was built to “Passivhaus” standards, but the homes were sold for £20,0000 less than they cost NRL to build.

And now the council plans to increase the amount the company is able to borrow by over £9m, taking its loan facility - the maximum amount NRL could borrow from the council - to £21m.

The figure is currently capped at £11.4m, which the council agreed to lend in November 2019.

Cabinet papers published ahead of the council’s meeting next week recommend to the authority, “as lender and shareholder, an increase in the loan facility for NRL up to a maximum of £21m”.

READ MORE: Council owed £6m from housing firm which made ‘financial loss’

The council also plans to increase its stake in the firm from £2.7m to a maximum of £6.2m - by purchasing upto £3.5m in shares.

The report, from the council’s chief executive Stephen Evans, stated that NRL wrote to the council to request support.

NRL told the council it needed the money because of a “cash flow issue”, delays to building work due to the coronavirus outbreak, and the impact on potential sales.

And the council said “without further cash financing” NRL would be unable to pay suppliers in order to complete the remaining Rayne Park homes.

The report said it was “reasonable” to provide the funds, based on “the council acting commercially” and that the alternative “would result in the early termination of the contract and liquidation of the company”.

READ MORE: Behind closed doors deal to lend £11.4m for new homes on edge of city

The council says it could lose upto £10.4m on the investment - less than the £11.1m it would lose if the firm went under.

But the report also warned that due to “considerable uncertainty” there was a risk its losses could “prove to be greater than if the council refuses the loan to the company”.

The city council was contacted for comment but did not respond ahead of publication. READ MORE: Serious concerns raised over council-owned firm failing to carry out audit