By: Mike Gricius, Senior Manager at Blue & Co.
While not-for-profits rely heavily on grants and donations to fund their charitable missions, they can also explore other funding options, such as Program-Related Investments (PRIs).
PRIs offer a unique opportunity for not-for-profit entities to invest in a way that generates both social impact and financial returns.
However, PRIs remain an underutilized funding tool despite their potential benefits.
In this article, we will explore what PRIs are, the requirements that must be met for a PRI to qualify, and how they can serve as a valuable alternative to traditional grants for not-for-profit entities looking to achieve their charitable mission.
So, What are Program-Related Investments (“PRIs”)?
PRIs are a way for not-for-profit entities, particularly private and public foundations, to invest in a manner that advances their charitable missions, but with the expectation of repayment of the investment.
Basically, PRIs allow not-for-profit entities to make an impact in their respective communities while recovering funding for future investments.
The not-for profit entities’ intent with this tool must be to pursue charitable activities and not generate future income.
What Requirements Must a PRI Meet?
To qualify as a PRI, the investment must meet three requirements as defined by the IRS:
- The primary purpose is to accomplish one or more of the not-for-profit entities exempt purposes,
- Production of income or appreciation of property is not a significant purpose, and
- Influencing legislation or taking part in political campaigns on behalf of candidates is not a purpose.
Typically, not-for-profit entities opt to make grants to generate a positive return for the community. The difference between grants and PRIs is that PRIs attain a financial return while still positively impacting the community through lending.
PRIs can be viewed as a low interest or below market loan. Not-for-profit entities can recycle the repayment of PRIs for other charitable investments and purposes.
If not-for-profit entities are exploring ways to stretch their granting dollars, PRIs may be a solution as they can serve as a granting alternative to achieve the not-for-profit’s charitable mission.
If you have questions regarding PRIs, please contact your local Blue & Co. advisor. We will do our best to ensure you get the help and answers you need.