Small businesses are what drive the economy. Small businesses create jobs, expand the tax base, and help communities grow. For these reasons and others, many local governments offer revolving loan funds, or RLFs, to foster business growth.
RLFs are designed to fund businesses that cannot get traditional bank loans, either because their owners are seen as credit risks or because the business has not established credit on its own. How Can You Increase Your Chances of Getting a Business Loan? Because they are subsidized or administered by government agencies, many RLFs offer lower interest rates than conventional loans. The interest rate for a particular applicant will vary according to the business’s financial condition and its ability to maintain sufficient profits. As these loans are repaid, money is put back into the fund and made available for additional loans.
While commercial lenders — banks and brokers — are in the loan business to make money, government agencies offer RLFs to generate jobs and support the community. Agencies may extend RLFs to:
- Locally owned startups or expansions that create jobs
- Businesses that employ local workers
- Firms that redevelop land and vacant facilities for commercial use
- Companies that need to procure new equipment and technologies
- High-tech firms
- Businesses owned and operated by minorities, women, and members of other economically disadvantaged groups
To be eligible for an RLF, you must not have delinquent debt to the federal government. In most cases, RLF borrowers must be located within the local area sanctioned by the RLF committee; however, in some instances they may be located outside of the area if the project and its benefits are within the local area.
Before an RLF loan is granted, applicants must demonstrate that they have exhausted all other financing alternatives and that the project will create or retain local jobs. A rule of thumb for most RLFs is that you must create or retain one job for each $10,000 of RLF assistance you receive. Terms and conditions vary widely from state to state. Read more on the Elements of a Successful Small Business Loan Application.
RLFs are handled by either your local Department of Economic Development, Department of Commerce, or similar agency. Loan amounts can run as high as $350,000 or more, but collateral and bank participation are usually required for higher loan amounts. The biggest positive about this program is that the underwriting process is flexible enough to enable even startups and borrowers with past credit problems to get financing for projects that will benefit the community.