Philanthropic Loans: An Innovative Force for Positive Change 

Avenue 360 provides critical, comprehensive health care services to Houston’s community members that are all too often underserved. Whether it’s pregnant moms, newborns, people living with HIV, or those struggling with depression, Avenue 360 provides in-clinic and virtual access to quality health care with compassion. With seven locations throughout Greater Houston, their clinics use a 360-degree approach to address medical needs and social and environmental challenges, like housing, faced by communities of color. Avenue 360 strongly believes that income should not determine the level of and access to healthcare, serving patients with and without insurance. 

One day during this stressful season, Kenneth Bohan called Dr. Flash and immediately noticed she spoke to him with a heavy heart. After a brief discussion and niceties, Bohan cut straight to it, asking Dr. Flash what was weighing on her. Dr. Flash shared her difficult position with him, knowing he would have sage business advice as the former CEO and Founder of The Liberty Group and a longtime trusted supporter of Avenue 360. 

After hearing about the situation that Avenue 360 was in, a nonprofit that Bohan fiercely supports, he asked her, “What if I give you a loan?” Dr. Flash was floored by his response and especially glad to have his vote of confidence in her and Avenue 360. 

Bohan immediately called Greater Houston Community Foundation (Foundation) to discuss the process for a loan to Avenue 360 from his Donor Advised Fund. Bohan worked with the Foundation to set up a multi-year loan to Avenue 360 with very reasonable interest. 

As of January 2023, the loan was established through Bohan’s Donor Advised Fund at the Foundation. As Avenue 360 pays back the loan, the payments go back to Bohan’s Donor Advised Fund. 

Bohan and Dr. Flash are passionate about sharing their story of strategic philanthropy to inspire and create meaningful change with our donors and for our community. Bohan intentionally listened to Dr. Flash’s concerns and what Avenue 360 needed. In turn, Bohan became a strategic, vital partner to Avenue 360, creating philanthropic impact in a very innovative way. Many nonprofits throughout Houston and beyond are unaware that receiving a multi-year loan from a Donor Advised Fund is an option. 

Continue reading: What is a donor advised fund?

“The advice and mentorship [from Bohan] is a powerful supplement to the dollars themselves and is of profound value. I believe the reward to be bidirectional and the legacy of service and support will provide robust impact,” stated Dr. Flash.

Conversely, many philanthropic Houstonians are unaware that they can engage in impact investing this way. 

Bohan shared, “It can be a win-win situation. A win for the donor or a foundation and the charity or nonprofit. It also allows a certain degree of short- and long-term flexibility. This loan allowed me to support a charity I believe in, and it serves a specific purpose.” 

The Foundation is no stranger to working with fundholders to establish a loan to a public charity from a Donor Advised Fund. The Foundation is pleased to share that, to date, there have been no defaults on loans made through a Donor Advised Fund at Greater Houston Community Foundation. 

Philanthropic loan FAQ

What is a philanthropic loan?

A philanthropic loan is an innovative giving tool that allows donors to provide financial support to nonprofit organizations through structured lending rather than traditional grants. Unlike outright donations, philanthropic loans are repaid to the donor’s charitable account over time, often with modest interest. They create a sustainable funding cycle in which the same charitable dollars can be used to support multiple causes over the years.

Philanthropic loans are a form of strategic philanthropy that bridges the gap between traditional grantmaking and impact investing. They’re particularly valuable for nonprofits facing temporary cash flow challenges, financing capital projects, or needing working capital to scale their operations. 

How do loans for philanthropic funding work?

Loans for philanthropic funding typically work through a donor advised fund or other charitable giving vehicle. The process begins when a donor identifies a nonprofit organization in need of loan funding rather than a traditional grant. The donor works with their sponsoring organization—like Greater Houston Community Foundation—to structure the loan terms, including the repayment schedule, interest rate, and duration.

Once established, the nonprofit receives the loan proceeds to address their immediate funding needs. As the organization makes payments according to the agreed-upon schedule, those funds return to the donor’s charitable account. With a trusted partner like the Community Foundation, the entire process is managed with proper documentation and oversight to help ensure compliance with donor advised fund rules and IRS regulations governing investments.

Can you make philanthropic loans for nonprofits from donor advised funds?

Yes, you can make philanthropic loans to nonprofit organizations from donor advised funds, though this option is often underutilized. At Greater Houston Community Foundation, we’ve successfully facilitated numerous DAF loans to support Houston-area nonprofits, and there have been no defaults on loans made through DAFs at the Community Foundation.

The process necessitates intentional structuring to ensure the loan qualifies as a charitable use of DAF assets. It must also be made to a qualified public charity, include reasonable terms, and serve a charitable purpose. Interest rates are typically set at modest levels somewhere below commercial lending rates to reflect the philanthropic nature of the arrangement. Working with an experienced sponsoring organization like the Community Foundation can make sure all legal and regulatory requirements are met while maximizing the impact of your charitable dollars.

What are the benefits to making loans to nonprofit organizations?

Making loans to nonprofit organizations offers a host of benefits for donors and the charities they support alike.

Benefits for donors include:

• Sustainable giving model. Charitable assets continue working over time rather than being distributed just once.
• Revolving charitable capital. Loan repayments return to your DAF, allowing you to support the same organization multiple times or redirect funds to new causes.
• Amplified lifetime impact. Issuing philanthropic loans can significantly increase your total charitable impact without requiring additional contributions.
• Deeper engagement. Philanthropic loans often create opportunities for mentorship, strategic guidance, and ongoing collaboration with nonprofit partners.

Benefits for nonprofit organizations include:

• Access to capital. Philanthropic loans provide crucial funding that may be difficult to secure through traditional banking channels.
• Flexible terms. Unlike commercial lenders, philanthropic loan providers offer more accommodating repayment schedules and lower interest rates.
• Mission-aligned support. Working with a lender who understands the nonprofit sector’s unique challenges and constraints.
• Capacity building. Receiving a loan rather than a grant can help organizations build financial capacity and creditworthiness, supporting long-term sustainability.

The benefits extend beyond the financial transaction itself. As Kenneth Bohan’s partnership with Avenue 360 demonstrates, philanthropic loans often deepen the relationship between donor and organization, creating opportunities for mentorship and strategic guidance. This type of engaged philanthropy can be far more valuable than the dollars alone.

Can I earn interest through donor advised fund loans?

Yes, donor advised funds can earn interest on philanthropic loans, though the rates are typically set at modest levels to reflect the charitable nature of the arrangement. When you structure a loan from your DAF to a nonprofit organization, you can include reasonable interest that gets repaid along with the principal. These interest payments return to your donor advised fund, where they can be used for future charitable distributions.

It’s important to understand that the interest rates on philanthropic loans are significantly lower than commercial lending rates. The purpose isn’t to generate investment returns but rather to create sustainable charitable funding while covering administrative costs and helping preserve the purchasing power of your charitable assets.

All interest earned remains within your DAF and must be used for charitable purposes—it cannot be withdrawn for personal use. Whether you’re interested in starting a scholarship fund or supporting multiple organizations through a DAF, philanthropic loans can help you increase your impact and keep your philanthropic dollars working.

The Foundation can help with your philanthropic loan

When you partner with the Foundation, you’re gaining a trusted ally in your philanthropic journey. Our team of knowledgeable philanthropic advisors provide personalized guidance and support, leveraging their extensive network and expertise to help you achieve your charitable goals.

Ready to start your journey? Call us at 713-333-2210 or reach out directly to learn more about how we can help you achieve your philanthropic vision.

More Helpful Articles by Greater Houston Community Foundation: 

• Charitable Deduction Carry Forward: Making the Most of Your Donation
• How To Maximize Charitable Deductions
• The Importance of Charitable Giving In Financial and Estate Planning
• Your Guide to Making Noncash Charitable Contributions
• Should I Be Bunching Charitable Donations?

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