Local authorities are able to set up Revolving Loan Funds to support a range of initiatives, including community-led housing. The funds can come from the authority’s working capital or through the Public Works Loans Board, as part of their normal borrowing under the Prudential Code.
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.