A social enterprise that has received more than £500,000 in Scottish Government and council subsidies and contracts is on the brink of administration.

Glasgow Furniture Initiative (GFI), which lost a £200,000 contract with Glasgow City Council earlier this year, will call in the administrators on Friday unless a rescue package can be assembled.

Such a deal is now thought to be unlikely, and key backers are privately pessimistic about the company's future.

It is the second high-profile scheme to hit trouble this year. Social Enterprise Clydebank was liquidated in March, leaving it unable to complete a £2 million recycling centre built with public and lottery cash.

GFI was established in 2007 to bring together the work of several furniture re-use organisations. It was backed with start-up grants from the council of about £30,000 in two successive years and went on to secure a £200,000-a-year contract to pick up bulky items from across the city and repurpose them.

It provides volunteering opportunities and training in skills such as the testing of donated electrical appliances. Its work was also helping Glasgow to save landfill tax charges on waste furniture items.

The firm also produces start-up furniture and electrical goods packs for social work clients going into new tenancies.

It was awarded £225,000 from a Scottish Government sustainability fund in 2008 to help it expand. The sum it eventually received was reduced to £120,000 as Zero Waste Scotland, which administers the cash on behalf of the Government, reassessed its business plans. Earlier this year, GFI lost its main contract after being unable to satisfy Glasgow City Council about its financial stability.

Confusion has surrounded the business for several weeks after its chief executive Robert Stewart wrote to selected MSPs and key figures in the recycling sector last month to warn them it was being put into administration. However, Mr Stewart now says that action was not taken.

"Officially, we don't have an administrator yet," he said. "We are speaking to stakeholders and looking at internally and externally restructuring, but a decision will be taken by members of the board on Friday.

He said the company had seen four people leave voluntarily. It now employs eight but more jobs might have to go. "A fundamental restructuring has to take place, and a plan has been discussed and approved by Zero Waste Scotland (ZWS)," he said.

However, a spokesman for ZWS contradicted this. He said: "Zero Waste Scotland has met management and board members of GFI a number of times in relation to its present financial difficulties.

"Having considered all the evidence available to us from these meetings, we do not believe there is a viable proposal which we could support at this time."

Glasgow City Council also confirmed it had exhausted options for working with the company. A council insider said:. "Ultimately we weren't confident they were financially sustainable."

Glasgow SNP MSP Hamza Yousuf said he had been in touch with the council and ZWS since hearing GFI was in trouble. He said: "We are deeply worried and concerned as the company works in one of the most deprived communities in Glasgow and we know how many families have benefited from their services."

"We are committed to making sure there is some kind of service still available to the people who rely on it."

l Demand for places on upholstery courses has hit an all-time high, with organisers saying waiting lists include former bankers, housewives and school leavers, according to The Association of Master Upholsterers and Soft Furnishers.