Edinburgh City Council is drawing up plans to borrow £55m to help fund the capital's crisis-hit tram project, BBC Scotland has learned.
A report to councillors next week will also confirm tram bosses are discussing whether to end their contract with the German firm building the line.
The tram project is already behind schedule and over budget.
The report says there are still major problems, most notably the dispute with contractor Bilfinger Berger.
Gordon Mackenzie, Edinburgh's transport convener, said it was likely that the project's budget of £545m would be exceeded.
The tram company, Tie, is not yet asking for additional funds but contingency plans are being drawn up to allow Edinburgh City Council to borrow about £55m to pay for the cost over-run.
Mr Mackenzie said: "We don't know yet what the final outcome of discussions with the contractor will be."
He said it was possible that a cost and programme for finishing the programme could be agreed.
The other options were to agree with Bilfinger Berger to "go our separate ways" or to terminate the contract.
Mr Mackenzie said the council was "making plans about how we would raise additional funds".
He said the council would raise the money by borrowing from a range of sources.
The Liberal Democrat councillor said this would not include asking the Scottish government for money.
Mr Mackenzie said the final cost of the project depended on the details of any separation from the contractor.
"Obviously if the contract is terminated through legal means then the courts would have to decide who was liable for what costs, " he said.
"We have not used up the budget so far but we are predicting we will eventually go above the £545m."
Mr Mackenzie said it was possible for a "properly performing" contractor to finish the project by the end of 2012.
But he added: "I don't think it is likely based on the way they have been behaving over the past couple of years, so it is more realistic to think we will be in to 2013."
SNP MSP for the Lothians, Shirley-Anne Sommerville, said it was a "disaster" for Edinburgh and she was concerned for council services.