KDK-Harman Foundation is seeking proposals from current grantees for Program-Related Investments (PRI) for its August and November board meetings. The Foundation is looking to its grantees to creatively explore requesting loans to (1) develop or expand their social enterprise efforts; or (2) expand their development and fundraising team. Although PRIs are used primarily for real estate loans for affordable housing or community facilities, the KDK-Harman Foundation will utilize PRIs to support loans to established, financially strong nonprofit organizations within the Foundation's program areas to help grantees expand their scope of services and/or to become more sustainable. Specifically, the Foundation is seeking ways in which grantees could embrace social enterprise as a means to financial stability. Through a loan from KDK-Harman, the grantee could develop or expand its revenue generating operations and within three years repay the loan. Another example is to enhance the development team whereby the Foundation loans funds to hire additional fundraising staff. Within three years, the loan can be repaid through the additional funds raised. Over time, the organization should be much more financially secure with either a financially successful revenue stream or a larger development team. 

Program-related investments (PRIs) can be valuable tools for foundations, applicable in any field where below-market loans or other investments can advance charitable objectives. They may seem like a new idea, but in fact they are the product of the Tax Reform Act of 1969. Program-related investments are loans and equity investments that foundations provide at favorable rates to support activities that have a direct charitable purpose. Frequently referred to as PRIs, they expand the resources from foundations — and, in the right circumstances, can be even more effective than grants. Simply put, PRIs are investments made by foundations in support of charitable purposes, with the explicit understanding that those investments will earn below-market returns, adjusted for risk and mission. Although PRIs are not grants, they count towards the foundation’s payout requirement in the year of disbursement. The vast majority of PRIs are below-market loans or loan guarantees. A few PRI makers make equity investments- mainly stock purchases in social purpose businesses and partnership stakes in community venture capital and microfinance funds. In all cases, repayments must go out again in the year they are received by the foundation through grants or new PRIs. Effective PRI makers tend to think strategically about how program-related investing can stretch a foundation’s resources and expand their own skills as grant makers.

To be eligible to apply for a Program-Related Investment from the KDK-Harman Foundation, organizations must meet all of the following criteria:

• The organization’s primary mission is to break the cycle of poverty through education.
• Be a current or past grantee.
• Be a 501(c)(3) organization or school.
• Operate in Central Texas, which we specifically define as Travis, Williamson, Hays, Bastrop, Caldwell, Burnet, and/or Llano counties. 
• A majority of the organization’s budget is dedicated to education and education related-services.

PRIs must be approved by the Foundation’s board of directors at the quarterly board meetings, just as all grants are. In review of the PRI, the board will consider the extent to which the organization meets the following criteria:

• Possesses outstanding leadership.
• In the case of social enterprise, the business plan provides details of the new or expanded activity and means for loan repayment.
• In the case of expanding the development team, the application provides details for the expansion and means for loan repayment.
• Demonstrates credit worthiness.
• Planning, budgeting, and operating procedures generate confidence in the organization’s capabilities.
• Financial statements are audited by a CPA firm.
• Project outcomes are well-designed, specific, and reasonable.
• Employs an approach that others could adapt and/or could be replicated.
• Demonstrates collaboration with other organizations.
• Organization has been operating for at least three years.

Timeline for August Board Meeting
PRI Proposals Due Electronically……………………………….………..…...July 31, 2009
Funding decision……………………………………………...………..…….......late August

Timeline for November Board Meeting
PRI Proposals Due Electronically……………….……………….…………….October 15, 2009
Funding decision…………………………………………….…...……………....late November

Application Process

Please use the Foundation’s standard application available for download under the Apply for a Grant section. Please name the project with “PRI” in the title to differentiate it from grant requests. Applicants for PRIs are not required to complete the Letter of Inquiry as they are current or past grantees. As a condition of the PRI, a loan agreement will be executed by both parties rather than a grant contract. The loan agreement will outline the repayment terms, typically three years from the date of investment.

Financial Terms

Each application will be considered on its own merits. Depending on the plan for repayment outlined in the application, it is envisioned that the loan would be repaid within three years. No interest will be charged. Full repayment is all that is expected in return for the investment. 

FAQ’s

What are PRIs? How are they different from grants?
Program-Related Investments (PRIs) are special loans that are typically tailored to fit a mission-driven investment. PRIs are not grants and are expected to be repaid. They offer investment capital with a below-market interest rate with terms that support the goals and mission of both the borrower and the foundation. In the case of KDK-Harman Foundation, no interest will be charged. If the supported activity is not going to generate revenue to repay the loan, then a PRI is not the right tool to support the activity.

 What are the potential benefits of PRIs to nonprofit organizations?
(a) Generation of revenues from a charitable effort
(b) Sustainability from additional fundraising capacity
(c) Recycling of the foundation's dollars through repayment for another PRI or grant
(d) Expanded financial knowledge and resources garnered by the nonprofit

If you have any questions as you are completing the application, we encourage you to contact the Foundation’s program officer, Jennifer Esterline, at 512.328.9400 or This e-mail address is being protected from spambots. You need JavaScript enabled to view it .


Resources are also availabe under the Knowledge Center. 

Skills and Strategies for New PRI Funders by GrantCraft 

GrantCraft has a guide available for download where experienced PRI makers walk through the process, offering practical advice at each step — from explaining the concept to your board to structuring and closing your first deal.

http://www.grantcraft.org/index.cfm?fuseaction=Page.viewPage&pageID=822 

PRIs: Smart Grants for Down Markets

Association of Small Foundations has a Primer Series on various topics, each providing key information on specific topics. Their primer for Program Related Investments (PRIs) is particularly helpful. The primers are available for sale at ASF’s website www.smallfoundations.org 

Primer Series: Leveraging Your Assets with Loans and Other Program Related Investments (PRIs)
Small foundations are using PRI loans and other investments to enhance the power of their grantmaking, build capacity, and leverage the impact of their assets. PRIs can be counted toward your foundation’s distribution requirement, and repaid funds are recycled for other PRIs or for grants. The Primer includes a step-by-step guide to making your first PRI, and examples of PRIs from ASF members.  Member: $10 Non-member: $15