The government has transferred the £27m that remained in the Communitybuilders Fund at the end of March into a permanent endowment fund that is owned and administered by the Adventure Capital Fund.

The Communitybuilders loan fund was set up in 2009 with £60m from DCLG and £10m from the Office for Civil Society to support local community projects. It has been administered by the Social Investment Business which is part of the Adventure Capital Fund.

The new Communitybuilders endowment fund will offer both loans and grants to civil society organisations that want to buy or develop assets or provide services in their local communities.  The loan and interest repayments will ensure the endowment continues in perpetuity to facilitate ongoing investment in community development.

The establishment of the endowment fund solves the problem that was inherent in the rules of the original Communitybuilders fund, that all grants must be spent by 31 March each year. Some recipients had complained that this was impractical and possibly unlawful.

Greg Clark, decentralisation minister, said the implementation of the endowment fund was a “victory for common sense”.

“Voluntary and community groups shouldn’t be forced to distort their plans because of central red tape,” he said.

Sir Stephen Bubb, chair of the Adventure Capital Fund, said loans might be used to support people who want to take over the running of their local library, reburbish community centres or develop new public services.

The fund’s administrators also hope it may grow bigger if other investors or foundations decide to top it up.

The fund is currently closed to new applications but should reopen within a few months.