A proposal to loan more than half a million pounds to Royal & Derngate has been recommended for approval by Northampton Borough Council.
The £566,000 would help pay for construction costs of a second cinema screen at the Errol Flynn Filmhouse, with the total cost for the project set to be £826,000.
If approved, the money would be paid back to the council - which is the landlord for the whole Royal & Derngate site - over 11 years as part of the rent payments. The current Errol Flynn building was also loaned money by the Borough Council on a similar basis.
Chief finance officer Glen Hammons - who wrote a paper to be considered by cabinet members next Wednesday - said the filmhouse was already profitable.
He said: “The success of EFF has greatly assisted the financial viability of Royal & Derngate as a whole and they now wish to construct a second screen.
“This will allow more films to be shown on release dates as well as broaden the range of films.
“By having two screens, the R&D will be able to capitalise on successful films by showing them more often and will be able to develop more community-led programming strands, building on the success of the monthly Bollywood, QFilm and Cult Film clubs.”
The filmhouse has seen almost 104,000 people through its doors since it opened in June 2013 and operates at 60 per cent capacity - almost triple the national average.
Theatre bosses expect the second screen to operate at 36 per cent capacity, a little higher than the break even figure of 27 per cent.
Mr Hammons said that if the theatre trust was to become financially unviable during the repayment period, the council would incur significant costs.
However he said LGSS Finance department had scrutinised the business plan and were confident it was a good one.
Mr Hammons said: “Financing would be drawn down once invoices have been provided by the contractor, thus providing certainty that the work has been done.
“Any delays in the building project would be at risk to the Royal & Derngate.”
Work will start in March and the screen should open in October 2016.