Rationale and Goals for Loan Loss Reserve Funds

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State and local governments can use a loan loss reserve (LLR) fund 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. State and local governments should note that the risk may, in fact, be perceived risk as opposed to an 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 LLR coverage. The LLR supports a clean energy loan program initiated between a government agency and a financial institution partner (or partners). Other program partners or stakeholders, such as utilities, contractors and vendors, or not-for-profit energy efficiency organizations may also be involved in the state and local government's energy efficiency and renewable energy program to help coordinate and/or run it—directing program marketing, installing projects, conducting measurement and verification, and more.