Rationale and Goals for Loan Loss Reserve Funds
Grantees can use a loan loss reserve fund (LRF) to entice a potential financial institution partner to offer products for financing energy efficiency and renewable energy projects. The main goals of the energy efficiency and renewable energy loan program are to:
Use public funds to mobilize, leverage, and support the financial institution partner, so it will offer, or pioneer and gain experience with, new financing products
Broaden access to finance for more borrowers (e.g., homeowners) by allowing the financial institution partner to modify its underwriting criteria and accept more risk than it would otherwise. Grantees should note that the “risk” may, in fact, be “perceived risk” as opposed to actual and demonstrated risk, due to the financial institution’s lack of experience with energy efficiency lending
Lengthen loan tenors (i.e., the timeframe of the loan might be extended from 3 years to 7 or 10 years)
- Reduce loan interest rates, reflecting the lower risk associated with the LRF coverage.
The LRF supports a clean energy loan program initiated between a government agency (the American Recovery and Reinvestment Act grantee) and a financial institution partner (or partners). Other program partners or stakeholders, such as utilities, contractors/vendors, or not-for-profit energy efficiency organizations may also be involved in the grantee’s energy efficiency and renewable energy program to help coordinate and/or run it—conducting program marketing, installing projects, doing measurement and verification, and more.