Social Impact through Revolving Grants

Henry, a Boston Foundation donor who has a green energy business, is an enthusiastic benefactor of Interise, a local nonprofit that promotes economic revitalization in low-income communities by helping small businesses grow and thrive.

He got interested in the organization after a chance meeting with CEO J. Jean Horstman in a coffee shop, where he learned about Interise’s Streetwise MBA ™ program now being taught in 42 cities around the country.

So when Jean told Henry in January of 2009 that she was having a terrible time trying to procure financing in the worst economic climate since the Great Depression, he wanted to help.

“We were having dinner, and I was venting about the difficulty we were having in getting a line of credit to help us manage our Small Business Administration contract, which was growing from $400,000 to $600,000,” Jean recalled. “As we know, in 2009, nobody was getting a line of credit, and we were a nonprofit with no physical assets. It was affecting me in terms of sleep and stress management. Henry asked, ‘How much do you need?’ and when I said $100,000, he said, ‘I can help you with that.’ I was surprised, because I didn’t recognize Henry had resources like that.”

Henry, who was already a major donor to the nonprofit, wanted to extend a lifeline that would be more sustainable than an outright gift. Because he was doing most of his charitable giving out of a Donor Advised Fund he had established at the Boston Foundation a few years earlier, he decided to consult with Foundation staff. They settled on a mechanism whereby Henry would establish a separate DAF, fund it with $100,000, and then make “revolving grants” to Interise that the organization would use to pay staff and contractors while waiting for its government grants to come through. When it was able, Interise would pay the money back into the DAF, interest-free.

“I thought this was a business/philanthropic model that made sense,” Henry said.  While most Boston Foundation DAF holders give money away, a few others are using their funds in a similar way. 

This arrangement falls under the umbrella of social impact investing, where funders invest in projects that yield social or environmental impact, expecting to get their principal back but not necessarily any other kind of financial return.

“The difference between revolving grants like Henry makes and a traditional line of credit or a revolving loan is that there is no interest paid, and no contract between the donor and the donee,” said Kate R. Guedj, the Boston Foundation’s Vice President of Development and Donor Services. “It’s all done on trust."

Trust was not a problem in this case, as Interise was a Boston Foundation grantee and Henry was a friend, Jean said. Indeed, since Henry established the revolving grant fund in 2009, Interise has drawn on it repeatedly as needed.

“We’ve used the same $100,000 to manage the cash flow and grow from an organization that had a budget of roughly $800,000 in 2008 to one that has $2.4 million today,” she said.  “Henry’s gift has allowed us to maintain the relationships we have with employees and subcontractors,” during government shutdowns and other difficult periods. “We can make sure that people dependent upon us are not in any way damaged. When people don’t have to worry about their next paycheck – and this was especially true during the recession – it means we can stay focused on the mission and our work.”