An impact loan is a loan that recognizes sustainable investments and rewards the borrower with a lower interest rate. Banks often make this type of loan available to small and medium-sized enterprises to incentivize more sustainable initiatives.
These types of loans may require the financial support of development banks or state-funding agencies to achieve a low interest rate. In this case the risk and reward and shared across the private bank and public development bank.
Loan applicants must justify that they meet one or more criteria as defined by the lender. Dependent on industry and geography, these criteria may be environmental and/or social performance-based and require third party certification programs, government labels or others.