Program-Related Investments: How Nonprofits Can Access Social Enterprise Capital

What Are Program-Related Investments?

Program-related investments, commonly known as PRIs, are a form of mission-aligned capital that foundations provide to nonprofits and social enterprises. Unlike traditional grants, PRIs are investments that foundations expect to be repaid, though typically at below-market interest rates or with flexible repayment terms. The IRS allows private foundations to count PRIs toward their mandatory five percent annual distribution requirement, which creates a powerful incentive for foundations to use this tool.

PRIs come in several forms, including low-interest loans, loan guarantees, equity investments, and linked deposits. What unites all PRIs is that their primary purpose must be charitable, educational, or scientific rather than purely financial. The foundation must demonstrate that the investment advances its philanthropic mission, not merely its investment portfolio. For a broader understanding of how foundations operate and make funding decisions, our overview of the grant landscape, ethics, and foundations provides essential background.

Why PRIs Matter for Nonprofits and Social Enterprises

PRIs occupy a unique space in the funding landscape because they provide capital that is not available through traditional grants or conventional lending. This matters for several reasons:

• Access to capital for revenue-generating activities: Nonprofits launching social enterprises, affordable housing projects, or community development initiatives often need capital that functions more like a business loan than a grant. Traditional lenders may view these ventures as too risky, while grant funders may see them as too commercial. PRIs fill this gap.
• Larger funding amounts: Because PRIs are repaid, foundations can often provide larger amounts than they would through outright grants. A foundation might award a $50,000 grant but make a $500,000 PRI, knowing the capital will eventually return to the foundation for redistribution.
• Leveraging additional investment: A PRI from a respected foundation signals credibility to other investors and lenders. It can serve as first-loss capital that de-risks the investment for conventional funders, unlocking financing that would otherwise be unavailable.
• Recycling philanthropic capital: When PRIs are repaid, foundations can reinvest those dollars in new charitable projects. This creates a multiplier effect where the same philanthropic capital generates impact repeatedly over time.

Common PRI Structures

Understanding the different structures helps you determine which type of PRI best fits your needs and communicate effectively with potential PRI funders:

Below-Market Loans

The most common PRI structure is a loan at zero to three percent interest, with flexible repayment terms that may include extended grace periods, interest-only payments during early stages, or graduated repayment schedules. These loans fund specific charitable activities such as facility construction, equipment purchase, or working capital for social enterprise operations.

Loan Guarantees

Rather than lending money directly, a foundation provides a guarantee that backs a loan from a conventional lender. If the borrower defaults, the foundation covers the loss. This allows nonprofits to access commercial lending at terms they could not secure independently.

Equity Investments

For social enterprises structured as for-profit entities with a social mission, foundations can make equity investments as PRIs. The foundation receives an ownership stake and the potential for a financial return, but the primary purpose must remain charitable.

Positioning Your Organization for PRI Funding

Foundations that make PRIs evaluate applicants through a lens that combines philanthropic impact assessment with financial due diligence. To position your organization effectively:

• Demonstrate a clear charitable purpose. The activity funded by the PRI must advance the foundation's mission. Revenue generation alone is insufficient. Show how the activity produces measurable social or community benefit.
• Present a credible financial model. Foundations need confidence that you can repay the investment. Develop detailed financial projections, identify revenue sources, and demonstrate that your management team has the financial acumen to execute the plan. For guidance on building rigorous financial frameworks, review our article on grant budget fundamentals and cost principles.
• Articulate your theory of change. Show the logical connection between the investment, the activities it will fund, and the social outcomes it will produce. A well-constructed theory of change demonstrates strategic thinking and increases funder confidence. Our guide on logic models and theory of change walks through this process in detail.
• Identify the right foundations. Not all foundations make PRIs. The Ford Foundation, the MacArthur Foundation, the Kresge Foundation, and the F.B. Heron Foundation are among the most active PRI makers, but many smaller foundations also use this tool. Research foundation 990-PFs to identify those that have made PRIs in the past.

Challenges and Considerations

PRIs are not appropriate for every organization or every situation. Consider these factors honestly before pursuing PRI funding:

• Repayment obligation: Unlike grants, PRIs must be repaid. Organizations that cannot generate revenue or achieve cost savings sufficient to service debt should not take on PRI obligations.
• Legal and administrative complexity: PRI transactions often involve legal agreements, collateral requirements, and ongoing reporting obligations that exceed the administrative demands of standard grants.
• Organizational readiness: Your organization needs sophisticated financial management capacity to manage debt obligations responsibly. Boards must understand and approve the commitment.

The Growing Opportunity

PRIs remain a small fraction of total foundation grantmaking, but they are growing as the impact investing movement gains momentum. Foundations are increasingly interested in deploying their endowments for social impact, and PRIs offer a tax-advantaged way to do so. Nonprofits and social enterprises that understand this tool and can present both mission impact and financial viability are well positioned to access a source of capital that most organizations overlook entirely.

Ready to explore every funding mechanism available to your organization? The Complete Grant Architect course covers the full spectrum of philanthropic funding, including how to position your organization for grants, PRIs, and other forms of mission-aligned capital.

Learn more about grant writing strategies at Subthesis.