The US Economic Development Administration (EDA) provides grants to establish or recapitalize revolving loan funds (RLFs)—self-replenishing pools of money from which operators make loans to small businesses. This report presents the results of a study of EDA’s RLF program and provides recommendations for how EDA can orient RLFs toward the future.

Why This Matters

Small businesses provide enormous benefits to the US economy, creating most new jobs and leading in innovation. Yet small businesses often struggle to access the capital they need to thrive. EDA seeks to address this financing gap through its investments in RLFs.

What We Found

Since the RLF program’s inception in 1975, EDA has made 955 grant awards to 454 RLF operators that we can observe in the program data. Adjusting for inflation, the median grant provided $1.2 million in funding and the average grant provided $2.4 million. Just under half of RLF operators are “EDA–approved district organizations,” or Economic Development Districts; about one-quarter are government agencies or quasi-governmental organizations; and about one-quarter are other nonprofit entities, including community development financial institutions. RLF operators vary widely in terms of lending capacity, approaches to social impact lending, and regional context. We also find considerable differences in operations and performance.

Businesses range in terms of their size, but about half of loans go to businesses with no more than one employee or full-time equivalent. RLF loans provide less than half of the total amount that these businesses raise or borrow, as RLFs often (but not always) leverage bank or other financing when providing loans to businesses. Businesses use funds for both working capital and fixed assets. The top three industrial sectors represented among RLF borrowers in the study period are accommodation and food services, manufacturing, and retail trade

Looking Ahead

We find that the program has strong potential to fill vital small business financing needs and increase positive outcomes, but adjustments are needed to support these advances. We offer the following steps for consideration:

• Adapt fund-level oversight to better match operators’ technical expertise.
• Increase flexibility in grant funding allocation and reallocation.
• Support high-capacity and high-volume operators.
• Expand RLF resources.
• Adopt larger geographic focus areas.
• Focus on smaller loans.
• Provide derisking capital.

How We Did It

We obtained data on EDA grants made to capitalize or recapitalize RLFs between 1975 and 2021 and performance data on loans disbursed between January 2010 and June 2022. We used these data to explore the historical performance of the program and provide in-depth analysis of program performance between 2010 and June 2022. We also conducted interviews and qualitative analysis to explore insights not available from program or secondary data. EDA provided a list of 30 RLF operators recommended by regional administrators for user-focused program insights.