What Is an Economic Development Fund?

An economic development fund (EDF) is a program tasked with assisting economic growth in targeted areas. An EDF may be established through local, regional, or national government initiatives, or may be created as a non-profit foundation. The main functions of an economic development fund may include offering loans and grants to qualified applicants, making strategic investments to promote economic growth, and ensuring the future of the EDF through funding management.

The establishment of an economic development fund is often in response to circumstances that may be depressing growth in a targeted area. For instance, a factory town that loses its main job provider may lobby local government for the creation of an EDF to help develop new sources of jobs and community growth. In developing nations, where access to financial infrastructure such as banks may be limited, an EDF can provide people and businesses with the mechanisms to receive loans or grants to start schools, businesses, and community programs.

Some EDFs work to target specific segments of a local economy for growth. One example of targeting might be encouraging local agricultural development through business and property loans for small farmers. A targeted approach can create a positive influence on an economy as a whole; by funding local agricultural pursuits, an EDF can encourage the use of available land, increase job opportunities, and reduce the cost of food for local residents.

The process of receiving funding from an economic development fund depends on availability of funding and individualized application requirements. Applicants may be required to submit detailed information about their existing or proposed project, and usually need to provide frequent updates and data that help ensure that funding is being applied correctly. Depending on the rules of the fund, applicants from particularly depressed regions may have preference over those from more affluent areas, even if both locations are under the umbrella of the fund. Funding may be dispensed as a grant, a loan, or even as the creation of necessary infrastructure that will permit a project to proceed.

An economic development fund may also pursue its mission of growth through investing. By providing capital in return for a percentage of a business, an EDF can stimulate growth while funding its own continued existence. Investing in new businesses can bring a measure of risk, however, since businesses can easily fail despite generous start-up funds. Perhaps because of this risk, not all EDFs use an investment-based structure, relying instead on funding from private donors, endowments, or government revenues as a means of financial survival.