U.S. Department of Energy - Energy Efficiency and Renewable Energy
Building Technologies Office – Run a Program
Step 4b: Choose Your Program Structure—Revolving Loan Funds
Revolving Loan Funds Can Include:
- Secure/unsecured loans such as energy efficiency mortgages, term loans, and home equity lines of credit
- Lease financing
- On-bill financing.
A revolving loan fund—which is a source of capital from which loans are made to eligible borrowers—can also be an important component of energy efficiency upgrade finance programs. As loans are repaid, additional loans are made. Often, similarly rated loans are grouped together as an investment and resold to secondary market investors, providing program administrators with a replenishing source of capital for new loans. A revolving loan fund is a particularly effective tool for energy efficiency improvements in the $2,000 to $10,000 range (e.g., time-sensitive replacement of failed equipment; home efficiency upgrades such as attic or wall insulation), which are too big for a cash or credit card purchase but too small to merit taking out a second mortgage or equity line of credit.
Revolving loan funds are not limited to the residential market. They can also be used for energy efficiency upgrade projects in the public sector and small business markets. These markets often do not have access to funding for a variety of reasons, so government-sponsored financing programs
fulfill an important role in stimulating cost-effective energy efficiency projects.
Advantages of a Revolving Loan Fund
- Relatively simple to set up.
- Many cities and states already have revolving loan funds, so expert assistance is available.
- Funds revolve indefinitely, creating a source of funding that will be available in the long term.
- Eligibility requirements of loan applicants can be changed over time as market conditions warrant.
View example residential loan characteristics.
The most important advantage of a revolving loan fund is its ability to replenish the pool of lendable funds for new loans for years after the initial seed funding. As with loan loss reserve programs, managing a revolving loan program requires active management and oversight of private partners. Revolving loan programs are also data-intensive and need constant monitoring to ensure that demand is being generated and that skilled energy professionals, underwriters, and loan servicers are in place to help the program run smoothly.
More information on revolving loan funds is available through the DOE Solution Center.
Results: Effectiveness of Revolving Loan Funds
Revolving loan funds for energy efficiency upgrades have proven to be extremely effective in several communities across the country. For example, Seattle's Community Power Works Program, which includes credit enhancements in addition to a revolving loan fund, has sparked local private investments at a ratio of 7 to 1 and is expected to create more than 1,700 jobs, reduce approximately 70,000 metric tons of carbon emissions, and achieve energy savings of 15 to 45% per building upgrade—impressive results that would be impossible to achieve without a financing program.
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