“Program Related Investments are like planting a seed for social good. You’re providing the initial resources, but the project itself will grow and flourish, with a return that allows you to support yet more positive change.”
By Invest Nust
Foundations constitute a significant amount of social good due to the funding they provide in terms of healthcare initiatives and protection of the environment. However, the deployment of resources is not restricted to only the grant model. PRIs or the program-related investments are something most foundations today engage in, differing from traditional grants. Here’s the difference: PRIs vs. grants – what’s the best option for you?.
Traditional Grants: Business as Usual
Traditional grants are the lifeblood of foundation funding. They are a simple gift of money awarded to a nonprofit organization or the contribution toward a project that fits in with the donor’s vision, mission, and values. Generally speaking, grants do not have a payback provision attached, meaning that capital received is debt-free for the recipient.
Pros:
- Straightforward and uncomplicated: The application and award process is established, making it easier for both foundations and recipients.
- Flexible funding: Grants can be used to support a wide range of activities and operating expenses, providing critical support to non-profits.
Cons:
- One-time deal: Grants are a one-time deal, limiting their long-term impact.
- Limited resources: Foundations may find grants less sustainable where a fixed pool of funds exists for an ongoing project.
Program-Related Investments: A Strategic Option
PRIs are investments by foundations in mission-aligned initiatives with an expectation of payback-usually at a below-market interest rate. In this way, the foundations can reach further and support initiatives that potentially generate revenue.
Pros:
- Sustainable impact: Money recovered from PRIs can be recycled to fund new initiatives, thus creating a cyclical impact.
- It attracts more investment: PRIs can act as “anchor capital,” giving confidence to traditional lenders and attracting further investment for a project.
- Financial discipline: Loan structure compels organizations to develop strong financial plans for repayment.
Cons:
- Complex process: PRIs have a much more involved application and due diligence process compared to grant monies.
- Not everyone qualified: Organizations without a definite plan for how they will repay may not qualify for PRIs.
Choosing the Right Method
The correct method, either grant or PRI, depends on the specific goals of the foundation and those it will pay off through the organization. Here is a quick reference guide:
- Choose a grant if:
- You need immediate funding for unrestricted activity.
Recipient organizations have less than average funds.
Project timelines are short. - Choose a PRI if:
- You seek to support a project with long-term impact and the potential for achieving self-sufficiency.
You have a small pool of funds and want to maximize coverage.
The recipient organization has a transparent path to repaying the investment.
Beyond the Basics: More Advanced Considerations for PRIs and Grants
Now that you have a good foundation for understanding PRIs and grants, you need to consider much more when it comes to strategic funding decisions. Here are some advanced concepts for deeper consideration:
Risk Tolerance and Due Diligence
Traditional grants are not that risky to the foundation as they are little more than a donation. But PRI has much higher due diligence over investment. The foundation does need to determine financial feasibility of the project and ability to repay by the group. It could include evaluating business plans, financial projections, and previous group performance.
Impact Measurement
Grants and PRIs should be evaluated from the perspective of impact to the foundation’s mission. When designing a PRI, you could want to synchronize goals for impact measurement along with financial repayment goals. That is, there could be impact accounts on social or environmental impacts being updated daily and corresponding repayment deadlines.
Collaboration and Innovation
Founding models can be used to come up with new funding models for foundations. For example, a foundation can create a grant with a PRI to an organization through which seed funding is offered as equity and a loan in scaling up initiatives that have successes.
Regulatory Considerations
Foundations must ensure that their PRIs satisfy the tax laws of the land. The IRS has stipulations on what constitutes a PRI, insisting that the primary purpose of an organization should have charitable intent rather than gain from financial benefits. This is advisable since complex PRIs are advised to hire a tax professional to draft them.
Finding the Right Fit
The right funding model must be matched with the right organization. Foundations can partner with intermediary organizations specializing in matching foundations with suitable PRI opportunities. These intermediaries could help vet the potential recipients and facilitate structuring PRIs that meet the aims of the respective parties.
The Future of Philanthropic Funding
The landscape of philanthropic funding is always changing. It is here that PRIs will gain prominence as foundations seek to impact maximally and bring about long-term social change. With grants and PRIs jointly and strategically used, a mighty toolkit for funding will be created for innovative and high-impact organizations working towards a better world.
Conclusion
In conclusion, entering the world of philanthropic funding is not an easy grant versus PRI. Foundations can actually unlock a wider range of possibilities with both approaches and maximize their impacts in the contexts where they are most effective. A more nuanced view of PRIs can open up additional avenues for extending the impact of charitable dollars, enable organizations to achieve financial sustainability for much greater impact, and do so in a way that makes such social change positive and enduring. It’s also important to keep in mind that sometimes the best strategy is a strategic balance of grants and PRIs, crafted carefully to meet the specific needs of both the foundation and the organization applying for funding. As the giving landscape continues to shift and evolve, innovative approaches such as PRIs will play an integral role in building a more just and equitable future.
