Many nonprofits across the country struggle with financial viability, according to a recent report based on data provided by GuideStar. The majority have less than one month of operating reserves, and 30% face potential liquidity issues.  Rather than shy away from these nonprofits, funders can play a special role in stabilizing their infrastructure.

The report offers several suggestions including additional support for overhead, more flexible funding, and policy changes for government funders. But it misses one critical way funders can help these organizations: program-related investments (PRIs). PRIs are essentially a loan or investment that counts toward a foundation’s 5% distribution requirement. Rather than funds permanently leaving the foundation’s corpus, the funds go out, do good, and come back to be used again.

The Marion I. & Henry J. Knott Foundation in Baltimore has skillfully used PRIs to support its community. In 2003, after two years of research and work behind the scenes, the Knott Foundation introduced its cash flow loan program modeled on a similar program hosted by the Meyer Foundation in Washington, DC. Through this program, the Knott Foundation provides loans at a lower cost and with a quicker turnaround time than typical lenders.

PRIs and cash flow loan programs aren’t just tools for large foundations. Funders of all sizes can use these tools to create a big impact in their communities and help nonprofits navigate difficult financial situations. All it takes is some creativity, due diligence, and the willingness to take on a little bit of risk.

Read the full article about creative funding opportunities for foundations by Brendan McCormick at Exponent Philanthropy.