The usual motivation behind these funds is to make low cost loan finance available for small-scale, community-based projects that would otherwise struggle to raise the capital funding they need. Community-led housing schemes usually need low cost finance to help them deliver homes that are genuinely affordable; revolving loan funds can provide a valuable addition to a cocktail of capital funding.
Revolving Loan Funds can also be used to provide revenue finance to help community-led schemes during the pre-development stage.
Setting up a Revolving Loan Fund will usually involve the following stages:
- Research existing Revolving Loan Funds and source samples of application forms, guidelines, and other materials
- Invite lenders and potential borrowers to participate in the design process
- Establish the purpose of the Fund through a needs assessment
- Set the size of the Fund and agree how it will be financed
- Set the eligibility requirements for borrowers
- Decide how the funds can be used and by whom, plus agree on any prohibited uses
- Set a minimum and maximum amount for each loan
- Decide if the loans must be matched by existing equity or other sources of funds
- Decide on the length of the loan term (which may be flexible)
- Set any fees associated with the loan, to cover administration costs
- Draw up the loan application form and an eligibility check-list for borrowers
- Set up a committee or working group to review loan applications
- Launch and publicise the Fund with partners, community groups and their support organisations
East Cambridgeshire District Council operates a small Revolving Loan Fund that provides revenue funding for pre-development work by community land trusts. Details of the Fund, including the application process, lending criteria and a sample application form can be found here.