A revolving loan fund (RLF) is a pool of capital from which loans are made to provide gap financing, primarily to small and mid-sized businesses. The fund revolves in the sense that it is self-replenishing, utilizing interest and principal payments on old loans to issue financing for new projects. RLFs provide critical financing when credit access may be limited, and are used to fill the breach between the amount a borrower can obtain in the private market and the amount needed to start or sustain a business.
RLFs are frequently created to serve a specific purpose or intended market. Though most RLFs aim to assist businesses, many exist to support specific sectors where private investment may be lacking or nonexistent (e.g. underserved markets, healthcare, environmental sustainability, etc.). Because they are often goal- oriented, RLFs are a financing instrument that can solve a particular need, catering to both the borrower and the objective. If an RLF can demonstrate that lending to such markets can be profitable, it might encourage private lending and thereby create a market no longer requiring support.
- Publication date: April 2019