This resource—which is one of many instrument summaries offered by the Clean Energy Finance Solutions Center—provides in-depth information about loan guarantees, including best practices, case studies, design and implementation information, experts and training opportunities.
Loan guarantees are financial mechanisms that provide assurance to a lender that loans will be fully or partially repaid in the event of borrower default. Loan guarantees redirect some or all of the credit risk away from a project and onto the entity providing the guarantee. Assuming the entity guaranteeing the loans is highly rated and credit worthy, this should result in a lower cost of capital, even after factoring in the fees associated with the guarantee itself. In the case of partial guarantees, the resulting risk profile may be a blend of the underlying project risks and the strength of the entity providing the guarantee.