Bridge Loans: Short-Term Financing, Long-Term Impact

In an ever-evolving financial and political landscape, foundations and philanthropists are increasingly seeking innovative ways to ensure their mission-driven work is both sustainable and impactful. When used appropriately, bridge loans — a tool for short-term financial flexibility — can offer a unique solution to help foundations fill funding gaps, seize timely opportunities, and provide nimble and adaptable support. 

 

This Virtual Learning Opportunity (VLO) May 20 from 10:30 a.m.-Noon PT/1:30 p.m.-3 p.m. ET explored an overview of bridge loans and an in-depth look at how foundations can strategically use these loans to support critical infrastructure in their communities. MIE members can login to view the recording below, and the recap is open to all.

 

Bridge Loans are not always the correct tool to use. It’s important to think of impact first when considering if a bridge loan is the right investment structure. Bridge loans are most often used as a bridge to capital that exists, but the timing doesn’t align with the needs of the nonprofit or social enterprise (e.g. grant timelines that differ from payment requirement timelines or rebates where enterprises don’t have the upfront capital). If the loan scenario is too uncertain, other impact tools (such as grants or recoverable grants) may be more appropriate.

 

As a lender, it’s important to define your own risk tolerance, because different types of bridge loans can have different levels of risk. For example, bridge loans that are guaranteed by a grant or rebate can be less risky than bridge loans for cash flow for a pending application. Bridge loans can be a challenge to underwrite if you aren’t sure that all of the grant money will be distributed.

 

If you’re looking to begin making bridge loans, working with an organization that has been a previous grantee is a great way to start. When starting bridge loans, it’s important to have a patient capital perspective in order to maximize your impact. Finding legal counsel that understands loan documents for foundations is also an excellent way to ensure your loans are financially prudent and impact-centric.

 

“The world has gotten much more uncertain in the last five months, so for Open Road (instead of pulling back our lending), our approach has been to tranche our disbursements and give (borrowers) a runway (to stay afloat) with a smaller loan amount (and make additional disbursements as needed).” – Caroline Bressan, CEO, Open Road Alliance

 

“Don’t just completely rely on your contractual arrangements (for due diligence)], rely on ensuring that your relationships (with borrowers) have frequent check-ins so that you know what’s going on with the project, when they’re running into challenges, and then you can make adjustments into your contract.” – Kathlyn Mead, Chief Impact Officer, BQuest Foundation

 

“Government contracts and grants are paid in arrears, so these organizations don’t have any upfront capital. So we’ve found ourselves filling in that gap upfront, whether it’s property acquisition or pre-development costs. We’re able to identify the need, and we’re able to identify which tool is most appropriate for it. There’s some situations where it’s a grant, a bridge loan, and a tag-along PRI for a longer term.” – Chris Crothers, Director of Impact Investing, Jessie Ball duPont Fund