A Program Related Investment (PRI) is a loan or other type of investment made by a foundation to support a charitable purpose. The investment can be counted toward a foundation’s distribution requirement as long as it meets the following basic requirements from federal tax law:
- The PRI serves a charitable purpose, recognized as such by federal tax law
- Producing income is not a significant purpose of the PRI
- PRIs cannot be used directly or indirectly to lobby or for political campaign purposes.
PRIs can be a powerful and flexible tool to add to your grantmaker’s toolkit. For small foundations, PRIs can be an effective way to leverage the impact of limited assets, since the funds generally come back to the foundation to be used for other PRIs or for grants.
Other benefits of PRIs include their power to leverage other financing for nonprofits, create longer-term relationships with grantees, and offer a way to build capacity in grantees.
Foundations may make PRIs to any organization—including a for-profit enterprise- that will carry out work that advances the foundation’s philanthropic activities. If the recipient is not a public charity, the foundation must exercise expenditure responsibility, which is a set of procedures defined by the IRS to ensure that a grant serves charitable purposes. PRIs may be made directly to a recipient organization or to an intermediary. They can be short-term (90 days, for instance) or long-term (10+ years), depending on their purpose, goals, and application.
While slightly different from traditional grantmaking, PRI-making needn’t be intimidating. As a grantmaker, you already have most of the tools and knowledge to make a sound PRI, but be sure to seek outside assistance when working out the details as risks do need to be managed.
See Leveraging Your Assets with Loans and Other Program Related Investments (only $10 for members).