Economic Development Revolving Loan Funds (ED-RLFs)
link to page 2 
Updated November 2, 2020
Economic Development Revolving Loan Funds (ED-RLFs)
Revolving loan funds (RLFs) are instruments frequently
programs can provide credit to businesses and markets that
used to finance water, wastewater, infrastructure, disaster
may be underserved by commercial lenders, including small
recovery, and community development activities. RLFs can
or nontraditional businesses and minority-owned
also be used for economic development purposes. Federally
businesses. Participating in an ED-RLF program may help
funded economic development RLFs (ED-RLFs) are one of
small or new businesses build credit and receive additional
many tools that public agencies and non-profit
services, like technical assistance or business coaching.
organizations use to make loans to finance small business
Some ED-RLFs serve businesses that need gap financing or
growth, deploy capital to underserved markets, and
micro-loans that may be unavailable from traditional banks.
incentivize development activity. The main advantage of
As a development tool, ED-RLFs can often be sustained
using an RLF compared to other program design options is
without requiring ongoing grant support because they have
that the RLF can be configured in a way to be “self-
the capacity to grow over time as funds “revolve” and ED-
replenishing,” thereby reducing the need for annual
RLF administrators collect interest and loan repayments.
appropriations or up-front federal credit subsidies. This In
Focus provides an overview of how ED-RLFs work, a
Issues and Considerations Related to
summary of federal support for ED-RLFs, and a brief
RLFs
review of current issues.
There are limitations and challenges associated with the
creation, expansion, and maintenance of RLFs. Both
How Does an ED-RLF Work?
borrowers and intermediaries may need technical assistance
Initial funding for the ED-RLF capital base and
and “hand-holding” to get started and to remain sustainable.
administrative expenses may come from a variety of
Thus, ED-RLFs might need to be paired with technical
sources, such as government agencies, foundations, or
assistance to borrowers (often at an additional cost to the
private financial markets. Federal programs support ED-
funder, lender, or borrower) to promote maximum
RLFs by providing grants or loans to capitalize the fund and
effectiveness of the fund’s proceeds. Loan losses are a risk
cover administrative expenses. The initial funds can be
to ED-RLFs and may decrease the capital base over time.
combined with additional capital from other public and
Interest rates and fees have to be sufficient to cover loan
private sources. For comparison, some researchers note that
losses, administrative expenses, and inflation. ED-RLF
banks and other financial institutions may use deposit
administrators must balance the demand for services and
accounts to capitalize loan funds. The repayment of
the need to meet social goals while also assessing and
principal, interest payments, and fees replenish RLFs so
managing risk. According to some researchers, the demand
that future loans can be made to eligible borrowers and the
for ED-RLF loans can be episodic and depend on economic
loan fund can eventually be sustained or “revolved” without
factors that are outside the control of ED-RLF
subsidy.
administrators at the local, state, and regional level. High-
performing ED-RLFs may need additional funds to
ED-RLFs borrowers include for-profit businesses, non-
recapitalize the fund when an ED-RLF has an active base of
profit organizations, or government entities. ED-RLFs are
borrowers. ED-RLFs that receive federal support may face
often designed to target businesses in specific industries,
constraints related to program regulations. Reviewing the
geographic areas, or distressed communities, or to target the
performance of ED-RLF programs is challenging because
unmet needs of borrowers for products and services such as
of insufficient data and other limitations.
micro-loans or gap financing. ED-RLFs are also designed
to finance development initiatives, such as infrastructure
Federal Programs That Support ED-
and revitalization projects sponsored by local government
RLFs
or other entities.
Table 1 provides a summary of selected federal programs
that support ED-RLFs. The terms, eligibility requirements,
Many ED-RLFs report that they create some form of direct
and other conditions of federally-supported ED-RLFs vary
or indirect economic benefit to the region served. Directly,
based on the agency’s program objectives and statutory
the ED-RLFs may increase the number of jobs created or
requirements. The federal agency’s regulations may specify
retained, businesses expanded, or business startups created.
that the ED-RLF programs or loans contribute matching
Indirectly, ED-RLFs that finance public infrastructure or
funds or meet other requirements. Some ED-RLFs are
community development projects facilitate growth by
administered by the federal agency directly; others are
supporting entrepreneurs, encouraging investment, and
administered by an intermediary. ED-RLF intermediaries
improving the conditions that expand facilities or amenities.
include local governments, non-profit organizations,
The purpose of ED-RLFs typically is to supplement—not
utilities, universities, and economic development agencies,
replace—conventional lending activity where business and
including economic development districts and councils of
development credit needs are not fully addressed. ED-RLF
governments. Some ED-RLF programs, such as the ones
https://crsreports.congress.gov
link to page 2 Economic Development Revolving Loan Funds (ED-RLFs)
supported by the Appalachian Regional Commission and
Business Credit Initiative (SBCI) program (which is no
EDA, are awarded through existing grant programs with
longer providing states with additional funding) are not
specific guidelines for the use of funds as ED-RLFs.
included in this summary. Both offer or formerly offered
Through the Department of Housing and Urban
loan or guarantee programs for businesses—usually through
Development’s (HUD’s) Community Development Block
intermediaries such as community banks, CDFIs, and state
Grant (CDBG) program, grantees may opt to use CDBG
economic development agencies.
funds to capitalize an ED-RLF. The Department of
Agriculture programs offer stand-alone RLF programs
The ED-RLFs described above often complement the
designed for targeted lending activities or specific types of
business capital provided by financial institutions, the Small
rural borrowers. The Department of the Treasury,
Business Administration, and Treasury programs. For more
Community Development Financial Institutions (CDFI)
information, see CRS Report RL33243, Small Business
Fund’s Financial Assistance awards program and its Small
Administration: A Primer on Programs and Funding.
Table 1. Summary of Selected Federal Programs That Support the Creation and Operation of ED-RLFs
Federal Program
Administering Federal
(CFDA No.a)
Agency/Authorizing Statute
Brief Description
Economic Adjustment
Department of Commerce, Economic
EAA grant funds can be used to establish an RLF to make loans to businesses
Assistance (EAA RLF)
Development Administration (EDA)
that cannot obtain traditional bank financing and to governmental entities for
(11.307)
Public Works and Economic
public infrastructure. The loans enable smal businesses to expand and create
and maintain jobs. EAA RLF loan programs must leverage private investment.
Development Act of 1965, as amended,
Section 209 (42 U.S.C. 3149)
Community
Department of Housing and Urban
CDBG funding may be used for grants or loans, including ED-RLFs. The award
Development Block
Development
process is established by each state and entitlement community.
Grants (CDBG)
Housing and Community Development
Administration of ED-RLF funds must be consistent with rules governing the
(14.218)
Act of 1974, Title I (42 U.S.C 5301-
federal CDBG program, including the ability to meet one of HUD’s National
5321)
Objectives, and the grantee’s Consolidated Plan.
Appalachian Regional
Appalachian Regional Commission
ARC provides grants to eligible recipients, which include states, local
Commission (ARC)
Appalachian Regional Development Act
development districts, and other non-profit multicounty organizations to
Business Development
of 1965 (40 U.S.C. 14101-14704)
operate a lending program to support the creation and retention of private-
RLF Grants
sector jobs. Eligible borrowers include private, for-profit firms that do
(23.001)
business within the Appalachian Region and government entities. Loans using
ARC RLF sources may not be made in ARC-designated attainment counties.
Rural Economic
U.S. Department of Agriculture (USDA),
USDA provides grants to qualified intermediaries for the purpose of
Development Grant
Rural Business-Cooperative Service
establishing a RLF. Grants require a 20% match from an intermediary. The
Program (REDG RLF)
Rural Electrification Act of 1936, as
ultimate recipients repay the intermediary directly. The program serves rural
(10.854)
amended, Title III
areas with populations of 50,000 or fewer. Loans made from the RLF to the
(7 U.S.C. 930-940c)
ultimate recipient may cover up to 80% of the project’s cost.
Intermediary
USDA Rural Business-Cooperative
The IRP provides low-interest loans at 1% to intermediaries that re-lend to
Relending Program
Service
businesses to improve economic conditions and create jobs in rural
(IRP RLF)
Consolidated Farm and Rural
communities. Ultimate recipients may be individuals, public or private
(10.767)
Development Act, Section 310H
organizations or other legal entities in rural areas. Funds loaned to the
(7 U.S.C. 1936b)
ultimate recipient by an intermediary must not exceed 75% of the cost of the
ultimate recipient’s project.
Rural Business
USDA Rural Business-Cooperative
The RBDG is designed to provide technical assistance and training for smal
Development Grants
Service
rural businesses; i.e., fewer than 50 new workers and less than $1 mil ion in
(RBDG RLF)
Consolidated Farm and Rural
gross revenue. Capitalization of RLFs is one of several categories of eligible
(10.351)
Development Act, Section 310B
activities that may be funded by the program. RBDG funds must be used for
(7 U.S.C. 1932)
projects that benefit rural areas or towns with populations of 50,000 or fewer.
Rural
USDA Rural Business-Cooperative
The RMAP provides loans and grants to Microenterprise Development
Microentrepreneur
Service
Organizations (MDO) to help launch and grow microenterprises and provide
Assistance Program
Consolidated Farm and Rural
training and technical assistance to microloan borrowers and
(RMAP)
Development Act, Section 379E
microentrepreneurs. The program’s loan element provides loans of $50,000
(10.870)
(7 U.S.C. 2008s)
to $500,000 for establishing a microloan RLF, managed by the MDO. MDOs
may make microloans for qualified business activities and expenses. This
program serves rural areas with populations of 50,000 or fewer.
Source: Compiled by CRS based on information from agencies, including program regulations.
a. CFDA No. refers to the Catalog of Federal Domestic Assistance, a searchable database of federal domestic assistance programs. Each
program is identified by name and a five-digit number.
Julie M. Lawhorn, Analyst in Economic Development
Policy
IF11449
https://crsreports.congress.gov
Economic Development Revolving Loan Funds (ED-RLFs)
Disclaimer
This document was prepared by the Congressional Research Service (CRS). CRS serves as nonpartisan shared staff to
congressional committees and Members of Congress. It operates solely at the behest of and under the direction of Congress.
Information in a CRS Report should not be relied upon for purposes other than public understanding of information that has
been provided by CRS to Members of Congress in connection with CRS’s institutional role. CRS Reports, as a work of the
United States Government, are not subject to copyright protection in the United States. Any CRS Report may be
reproduced and distributed in its entirety without permission from CRS. However, as a CRS Report may include
copyrighted images or material from a third party, you may need to obtain the permission of the copyright holder if you
wish to copy or otherwise use copyrighted material.
https://crsreports.congress.gov | IF11449 · VERSION 4 · UPDATED
Updated November 2, 2020
Economic Development Revolving Loan Funds (ED-RLFs)
Revolving loan funds (RLFs) are instruments frequently
programs can provide credit to businesses and markets that
used to finance water, wastewater, infrastructure, disaster
may be underserved by commercial lenders, including small
recovery, and community development activities. RLFs can
or nontraditional businesses and minority-owned
also be used for economic development purposes. Federally
businesses. Participating in an ED-RLF program may help
funded economic development RLFs (ED-RLFs) are one of
small or new businesses build credit and receive additional
many tools that public agencies and non-profit
services, like technical assistance or business coaching.
organizations use to make loans to finance small business
Some ED-RLFs serve businesses that need gap financing or
growth, deploy capital to underserved markets, and
micro-loans that may be unavailable from traditional banks.
incentivize development activity. The main advantage of
As a development tool, ED-RLFs can often be sustained
using an RLF compared to other program design options is
without requiring ongoing grant support because they have
that the RLF can be configured in a way to be “self-
the capacity to grow over time as funds “revolve” and ED-
replenishing,” thereby reducing the need for annual
RLF administrators collect interest and loan repayments.
appropriations or up-front federal credit subsidies. This In
Focus provides an overview of how ED-RLFs work, a
Issues and Considerations Related to
summary of federal support for ED-RLFs, and a brief
RLFs
review of current issues.
There are limitations and challenges associated with the
creation, expansion, and maintenance of RLFs. Both
How Does an ED-RLF Work?
borrowers and intermediaries may need technical assistance
Initial funding for the ED-RLF capital base and
and “hand-holding” to get started and to remain sustainable.
administrative expenses may come from a variety of
Thus, ED-RLFs might need to be paired with technical
sources, such as government agencies, foundations, or
assistance to borrowers (often at an additional cost to the
private financial markets. Federal programs support ED-
funder, lender, or borrower) to promote maximum
RLFs by providing grants or loans to capitalize the fund and
effectiveness of the fund’s proceeds. Loan losses are a risk
cover administrative expenses. The initial funds can be
to ED-RLFs and may decrease the capital base over time.
combined with additional capital from other public and
Interest rates and fees have to be sufficient to cover loan
private sources. For comparison, some researchers note that
losses, administrative expenses, and inflation. ED-RLF
banks and other financial institutions may use deposit
administrators must balance the demand for services and
accounts to capitalize loan funds. The repayment of
the need to meet social goals while also assessing and
principal, interest payments, and fees replenish RLFs so
managing risk. According to some researchers, the demand
that future loans can be made to eligible borrowers and the
for ED-RLF loans can be episodic and depend on economic
loan fund can eventually be sustained or “revolved” without
factors that are outside the control of ED-RLF
subsidy.
administrators at the local, state, and regional level. High-
performing ED-RLFs may need additional funds to
ED-RLFs borrowers include for-profit businesses, non-
recapitalize the fund when an ED-RLF has an active base of
profit organizations, or government entities. ED-RLFs are
borrowers. ED-RLFs that receive federal support may face
often designed to target businesses in specific industries,
constraints related to program regulations. Reviewing the
geographic areas, or distressed communities, or to target the
performance of ED-RLF programs is challenging because
unmet needs of borrowers for products and services such as
of insufficient data and other limitations.
micro-loans or gap financing. ED-RLFs are also designed
to finance development initiatives, such as infrastructure
Federal Programs That Support ED-
and revitalization projects sponsored by local government
RLFs
or other entities.
Table 1 provides a summary of selected federal programs
that support ED-RLFs. The terms, eligibility requirements,
Many ED-RLFs report that they create some form of direct
and other conditions of federally-supported ED-RLFs vary
or indirect economic benefit to the region served. Directly,
based on the agency’s program objectives and statutory
the ED-RLFs may increase the number of jobs created or
requirements. The federal agency’s regulations may specify
retained, businesses expanded, or business startups created.
that the ED-RLF programs or loans contribute matching
Indirectly, ED-RLFs that finance public infrastructure or
funds or meet other requirements. Some ED-RLFs are
community development projects facilitate growth by
administered by the federal agency directly; others are
supporting entrepreneurs, encouraging investment, and
administered by an intermediary. ED-RLF intermediaries
improving the conditions that expand facilities or amenities.
include local governments, non-profit organizations,
The purpose of ED-RLFs typically is to supplement—not
utilities, universities, and economic development agencies,
replace—conventional lending activity where business and
including economic development districts and councils of
development credit needs are not fully addressed. ED-RLF
governments. Some ED-RLF programs, such as the ones
https://crsreports.congress.gov
link to page 2 Economic Development Revolving Loan Funds (ED-RLFs)
supported by the Appalachian Regional Commission and
Business Credit Initiative (SBCI) program (which is no
EDA, are awarded through existing grant programs with
longer providing states with additional funding) are not
specific guidelines for the use of funds as ED-RLFs.
included in this summary. Both offer or formerly offered
Through the Department of Housing and Urban
loan or guarantee programs for businesses—usually through
Development’s (HUD’s) Community Development Block
intermediaries such as community banks, CDFIs, and state
Grant (CDBG) program, grantees may opt to use CDBG
economic development agencies.
funds to capitalize an ED-RLF. The Department of
Agriculture programs offer stand-alone RLF programs
The ED-RLFs described above often complement the
designed for targeted lending activities or specific types of
business capital provided by financial institutions, the Small
rural borrowers. The Department of the Treasury,
Business Administration, and Treasury programs. For more
Community Development Financial Institutions (CDFI)
information, see CRS Report RL33243, Small Business
Fund’s Financial Assistance awards program and its Small
Administration: A Primer on Programs and Funding.
Table 1. Summary of Selected Federal Programs That Support the Creation and Operation of ED-RLFs
Federal Program
Administering Federal
(CFDA No.a)
Agency/Authorizing Statute
Brief Description
Economic Adjustment
Department of Commerce, Economic
EAA grant funds can be used to establish an RLF to make loans to businesses
Assistance (EAA RLF)
Development Administration (EDA)
that cannot obtain traditional bank financing and to governmental entities for
(11.307)
Public Works and Economic
public infrastructure. The loans enable smal businesses to expand and create
and maintain jobs. EAA RLF loan programs must leverage private investment.
Development Act of 1965, as amended,
Section 209 (42 U.S.C. 3149)
Community
Department of Housing and Urban
CDBG funding may be used for grants or loans, including ED-RLFs. The award
Development Block
Development
process is established by each state and entitlement community.
Grants (CDBG)
Housing and Community Development
Administration of ED-RLF funds must be consistent with rules governing the
(14.218)
Act of 1974, Title I (42 U.S.C 5301-
federal CDBG program, including the ability to meet one of HUD’s National
5321)
Objectives, and the grantee’s Consolidated Plan.
Appalachian Regional
Appalachian Regional Commission
ARC provides grants to eligible recipients, which include states, local
Commission (ARC)
Appalachian Regional Development Act
development districts, and other non-profit multicounty organizations to
Business Development
of 1965 (40 U.S.C. 14101-14704)
operate a lending program to support the creation and retention of private-
RLF Grants
sector jobs. Eligible borrowers include private, for-profit firms that do
(23.001)
business within the Appalachian Region and government entities. Loans using
ARC RLF sources may not be made in ARC-designated attainment counties.
Rural Economic
U.S. Department of Agriculture (USDA),
USDA provides grants to qualified intermediaries for the purpose of
Development Grant
Rural Business-Cooperative Service
establishing a RLF. Grants require a 20% match from an intermediary. The
Program (REDG RLF)
Rural Electrification Act of 1936, as
ultimate recipients repay the intermediary directly. The program serves rural
(10.854)
amended, Title III
areas with populations of 50,000 or fewer. Loans made from the RLF to the
(7 U.S.C. 930-940c)
ultimate recipient may cover up to 80% of the project’s cost.
Intermediary
USDA Rural Business-Cooperative
The IRP provides low-interest loans at 1% to intermediaries that re-lend to
Relending Program
Service
businesses to improve economic conditions and create jobs in rural
(IRP RLF)
Consolidated Farm and Rural
communities. Ultimate recipients may be individuals, public or private
(10.767)
Development Act, Section 310H
organizations or other legal entities in rural areas. Funds loaned to the
(7 U.S.C. 1936b)
ultimate recipient by an intermediary must not exceed 75% of the cost of the
ultimate recipient’s project.
Rural Business
USDA Rural Business-Cooperative
The RBDG is designed to provide technical assistance and training for smal
Development Grants
Service
rural businesses; i.e., fewer than 50 new workers and less than $1 mil ion in
(RBDG RLF)
Consolidated Farm and Rural
gross revenue. Capitalization of RLFs is one of several categories of eligible
(10.351)
Development Act, Section 310B
activities that may be funded by the program. RBDG funds must be used for
(7 U.S.C. 1932)
projects that benefit rural areas or towns with populations of 50,000 or fewer.
Rural
USDA Rural Business-Cooperative
The RMAP provides loans and grants to Microenterprise Development
Microentrepreneur
Service
Organizations (MDO) to help launch and grow microenterprises and provide
Assistance Program
Consolidated Farm and Rural
training and technical assistance to microloan borrowers and
(RMAP)
Development Act, Section 379E
microentrepreneurs. The program’s loan element provides loans of $50,000
(10.870)
(7 U.S.C. 2008s)
to $500,000 for establishing a microloan RLF, managed by the MDO. MDOs
may make microloans for qualified business activities and expenses. This
program serves rural areas with populations of 50,000 or fewer.
Source: Compiled by CRS based on information from agencies, including program regulations.
a. CFDA No. refers to the Catalog of Federal Domestic Assistance, a searchable database of federal domestic assistance programs. Each
program is identified by name and a five-digit number.
Julie M. Lawhorn, Analyst in Economic Development
Policy
IF11449
https://crsreports.congress.gov
Economic Development Revolving Loan Funds (ED-RLFs)
Disclaimer
This document was prepared by the Congressional Research Service (CRS). CRS serves as nonpartisan shared staff to
congressional committees and Members of Congress. It operates solely at the behest of and under the direction of Congress.
Information in a CRS Report should not be relied upon for purposes other than public understanding of information that has
been provided by CRS to Members of Congress in connection with CRS’s institutional role. CRS Reports, as a work of the
United States Government, are not subject to copyright protection in the United States. Any CRS Report may be
reproduced and distributed in its entirety without permission from CRS. However, as a CRS Report may include
copyrighted images or material from a third party, you may need to obtain the permission of the copyright holder if you
wish to copy or otherwise use copyrighted material.
https://crsreports.congress.gov | IF11449 · VERSION 4 · UPDATED