Tapping Revolving Loan Funds for Business Finance

I recently returned from a regional Economic Development Administration (EDA) meeting in Philadelphia where the National Association of Development Organizations (www.nado.org) sponsored a roundtable discussion of local revolving loan fund (RLF) operators.   EDA has funded these RLFs for decades, and their quality and local impact can vary wildly.  Some have become key investors in local firms; others make few if any loans in a given year.  Either way, these RLFs are managing hundreds of millions of dollars that is theoretically available to small businesses.  (A 2002 EDA study identified 450 different RLFs that had lent out more than $670 million.) An added benefit is that many of these RLFs operate in rural or underserved areas. 

These RLFs, and other Federal loan programs (such as those operated by USDA), can and should be a big part of current national efforts to jump start small business lending.  In addition to starting new programs–such as the new programs at the Small Business Administration—the Obama Administration should also examine how to get these already obligated funds out on the street.   We heard a lot of good ideas at our meeting in Philadelphia, and NADO is planning to dig deeper into this topic in coming months.  But, the bottom line is pretty straightforward–the rules and regulations for RLFs and related loan programs were developed many years ago and are not well suited to today’s economic landscape.  These regulations needs to be streamlined and updated in a manner that makes the RLF loan products more competitive in marketplace, more relevant to business needs, and easier to manage.  These funds are already budgeted and obligated–no new Federal dollars are required.  It’s time to make this money work for the indended customer—small business owners who are desperate for capital.

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