Private foundations aren’t limited to making grants in support of a charitable cause. They may also make loans, loan guarantees, and even equity investments in for-profit companies and ventures. These Program-Related Investments (PRIs) are generally recovered in part or in whole, and may even earn some return for the foundation in the form of interest or appreciation. In this article, we will discuss PRI loan guarantees. (For more information about PRIs generally and program-related loans, please read Program-Related Investments: An Overview. And, for more information about PRI equity investments, please read Program-Related Equity Investments.)
[callout]Loan guarantees allow a foundation to extend its credit without disbursing cash.[/callout]
PRI loan guarantees allow a foundation to extend its credit to a grantee without liquidating the foundation’s current holdings or disbursing cash (unless the guarantee is called). This type of support is particularly helpful to organizations that have limited ability to access capital (or access capital at reasonable rates) from traditional banks is limited because of a lack of credit history or uncertainty about the eventual success of a project.