Council bosses are set to move up to £500,000 of the authority’s savings out of international banks and into Preston.
Elected members approved the project, which will see the local investment of some of the council’s cash.
The scheme, described as a “fantastic circle that can create social good”, could see up to £150,000 being lent to any individual organisation.
Speaking after Thursday’s full council meeting, Coun Martyn Rawlinson, cabinet member for resources, explained the idea behind the investment fund.
He said traditional investments were paying very little interest per year, and said: “With things being so tight locally, people are still very short of money and Preston is still struggling. We need to try to invest some money locally rather than sending it abroad into stocks and bonds.” He said local investments could include businesses or charities, social enterprises or green energy schemes.
Coun Rawlinson said: “It might be a loan to them or an actual investment in something they are doing that will yield a return, so there’s any number of things we could invest in with that £500,000.”
He said there was a maximum of £150,000 for each individual organisation, and said: “We don’t intend to invest it in places where they are going to collapse - we will have a very hard look at the business case before we do it.”
He said: “The council gets the money from the bank but we can lend it to them with a lower interest rate. We can borrow it at an even lower interest rate and make a little bit of money out of it, but that money will stay in Preston and come back to Preston and we can lend it out again, so it’s a fantastic circle that can create social good.”