Beyond the Grant: What Nonprofits Need to Know About Impact Investing, PRIs, and Recoverable Grants

If you've been paying attention to the funder landscape lately, you may have noticed some new language creeping into conversations about nonprofit financing — terms like "impact investing," "program-related investments," and "recoverable grants." These aren't just buzzwords. They represent a real shift in how some foundations and funders are thinking about deploying capital, and nonprofit leaders who understand them will be better positioned to navigate those conversations.

Let's break it down.

What is impact investing?

Impact investing refers to investments made with the explicit intention of generating both a financial return and a positive social or environmental outcome. Unlike traditional philanthropy, impact investors expect their capital back — often with interest or a return on equity. Unlike purely profit-driven investing, impact matters as much as the financial upside.

Common vehicles include green bonds, community development loans, social impact bonds, and mission-driven private equity funds. The field has grown dramatically — the Global Impact Investing Network estimates the market now exceeds $1 trillion.

Impact investing is the broadest of the three categories in terms of who does it. It's not exclusively a foundation tool. Dedicated impact investment funds, development finance institutions like the U.S. International Development Finance Corporation, and community development financial institutions (CDFIs) — mission-driven lenders like Enterprise Community Partners and Local Initiatives Support Corporation (LISC) — are all active in this space. Mainstream asset managers and even some banks are participating.

For nonprofits, this matters because impact investors are increasingly seeking organizations and social enterprises that can demonstrate sustainability, measurable outcomes, and the capacity to generate revenue or repay loans.

What are program-related investments (PRIs)?

PRIs are a specific tool that private foundations use to deploy capital in ways that serve a charitable purpose — but that go beyond a traditional grant. The term comes directly from the IRS tax code, so by definition, only private foundations make them. Legally, PRIs count toward a foundation's required annual distribution of 5% of assets, the same as a grant. The key distinction is that PRIs are structured as investments — most commonly, low-interest loans, loan guarantees, or equity investments — and are expected to be repaid or to generate returns that are recycled back into the foundation's grant-making.

Well-known foundations with active PRI programs include the Bill & Melinda Gates Foundation, the Ford Foundation, and the MacArthur Foundation. Regionally, foundations like the Gates Family Foundation (Colorado) and the Saint Paul & Minnesota Foundation have used PRIs extensively for affordable housing and community development. The IRS requires that the primary purpose of a PRI be programmatic, not financial — a foundation can't use PRIs as a backdoor to make market-rate investments dressed up as philanthropy.

For nonprofits, PRIs are most relevant for organizations that have a project or initiative with some revenue potential — a social enterprise arm, a capital project that will eventually generate fee income, or a bridge financing need. If you've ever wondered whether a foundation might "invest" in your work rather than just grant to it, PRIs are likely part of that conversation.

What are recoverable grants?

Recoverable grants occupy a gentler middle ground. They look and feel like grants upfront — the funder gives you money, typically with no hard legal repayment obligation attached. But there's a shared understanding that if the project succeeds and generates revenue, you'll return some or all of the funds so the funder can deploy them again. If the project doesn't succeed financially? It functions as a regular grant, no strings attached.

Because recoverable grants aren't defined by tax code the way PRIs are, a wider range of funders use them. Private and family foundations, donor-advised fund providers like Fidelity Charitable, and intermediary organizations like The Conservation Fund and Social Finance have all used recoverable grants as a tool. They're especially common in areas like affordable housing, conservation, and community development — sectors where projects have a clear path to revenue or reimbursement.

This structure is particularly useful for early-stage or experimental initiatives where the outcome is genuinely uncertain. It allows funders to take on more risk than they might with a standard grant — and it signals to nonprofits that the funder is invested in long-term sustainability, not just one-time support.

So what does this mean for your organization?

You don't need to transform into a social enterprise to benefit from understanding these tools. But you do need to be fluent enough to recognize when a funder is signaling interest in a different kind of relationship — and to respond thoughtfully.

A few practical takeaways:

• Know your revenue story. Even if you're a traditional nonprofit, understanding where fee-for-service income, earned revenue, or cost recovery exists in your model helps you speak to loan repayment potential.

• Ask questions. If a funder mentions PRIs or recoverable grants, don't nod along — ask what that would look like in practice for an organization like yours. The Mission Investors Exchange maintains a searchable directory of foundations actively making PRIs — a useful starting point if you want to know who's doing this in your sector.

• Think about sustainability in proposals. Funders using these tools are often looking for evidence that a program can eventually stand on its own. Build that narrative into your applications where genuine.

The philanthropic funding landscape is evolving. Foundations are under pressure to make their capital work harder and go further. Impact investing, PRIs, and recoverable grants are part of how they're responding. The more fluent you are in the language, the better positioned you'll be to access it.