Balancing the Mission Checkbook

Hidden gems of foundation funds

One of the hidden gems in foundation grant guidelines is a type of funding that is too often overlooked. Program-related investments (PRI) are essentially loans from a foundation, but with terms that are very flexible and preferential. PRIs are a great option for nonprofits that are able to generate cash in the future from capital campaigns or program income. The name program-related investment refers to the requirement in IRS rules that PRIs must be primarily intended to serve the foundation’s charitable mission rather than to generate market-rate income. Because of this requirement, PRIs usually have low interest rates, few fees, and no requirement for collateral. The foundations do evaluate both program plans and financial information carefully for quality of planning and repayment ability. To learn more about PRIs, read the resources available from the PRI Makers Network or the guide from Grantcraft.

An example of a good use of a PRI is an organization that received a $250,000 PRI to renovate a building to expand their jobs training program. Because the program generates program income from the sale of furniture built by the participants, they have the ability to repay a PRI over a period of time. While a capital campaign for the renovation would have been great, the time and expense would have slowed down the project unnecessarily. A PRI application was submitted and approved within a few months compared to the year or so required for the fundraising effort.

Between 1990 and 2001, US foundations advanced 2,900 PRIs totaling $1.7 billion. PRIs are used by nonprofits in all fields, dominated by community development organizations. Nonprofits Assistance Fund, for example, uses PRIs as a source of capital for our loan funds. The foundations that have been most active in PRI funding include the John & Catherine T. MacArthur Foundation, The Ford Foundation, and Minnesota’s own Otto Bremer Foundation. There is growing interest from other foundations of all sizes in learning more about PRIs and developing PRI programs in their grantmaking.

Kate Barr believes that every nonprofit financial question relates to strategy, structure and mission impact. She enjoys interpreting financial information to find stories numbers can tell. She loves writing, teaching, and talking with interesting people.