A gay sex club in Dundee could have a £15,000 loan awarded to help set up the business withdrawn.
Club Kudos on Prince Street was launched last month and already has a membership of more than 160.
Owner John Gibson opened the premises on the site of a former sauna for gay men with the assistance of a £15,000 loan.
The money was awarded by an arms-length organisation called DSL Business Finance Ltd, which helps firms to gain funding.
DSL administers the Scottish Microfinance Fund, which is supported by the Scottish Government through the Start-up Loans Company and the European Regional Development Fund.
Firms can apply for loans of up to £25,000. They are not charged administration fees or penalties if they pay the loan off early.
The Scottish Government is now investigating whether Club Kudos should have been awarded any money in the first place.
If it decides the club was not eligible for a loan, its funding may be withdrawn.
Club Kudos is primarily aimed at single men, although Mr Gibson said couples and women were also welcome to attend.
It describes itself as an “alternative lifestyle club for the gay, bi and swinger community.”
Annual membership costs £15 and members pay a £13 entry fee each time they visit.
An annual pass providing free entry is also available for £2,800.
Mr Gibson has said the club also promotes sexual health and acts as a “safe venue” for men.
The club has links to the Terence Higgins Trust and has already become involved in sex education for adults.
It is hosting an event last week where members could get tested for sexually-transmitted infections.
Conservative North East Scotland MSP Bill Bowman said members of the public might be surprised to learn that premises such as Club Kudos are able to benefit from government-supported funding.
He said: “I think some people may question if this is an appropriate use of public money.
“Within reason, no-one should tell consenting adults what they can or cannot do, and we should not be interfering in people’s chosen lifestyles.
“However, at a time when councils are looking to cut the number of strip clubs in our cities, government funding for this type of venture seems out of step.”
A Scottish Government spokesman said: “Club Kudos has received no direct Scottish Government funding.
“If a contractor has awarded funding to an non-eligible business that funding can be reclaimed in full.
“We have asked the contractor providing the grant to investigate this case.”
Mr Gibson said he had no concerns about the legitimacy of the funding agreement.
He said: “There was no grant. I received a personal loan for business use.”
DSL did not respond to a request for comment.
