Before Making the Grant, Ask Whether a Grant Is Actually the Right Tool

Philanthropic funders are accustomed to certain questions before making a grant. So for example, they may ask whether the organization's mission is effective. Or if the work aligns with the funder's priorities.

Evidence of impact, leadership support, geographic reach and potential for scale also arise.

But there is one even more critical question funders should be asking themselves before funding a partner:

Is a grant actually the right form of capital for what this organization is trying to accomplish?

Sometimes the answer will absolutely be yes.

But not always.

An organization may be trying to launch a revenue-generating service, finance an asset, expand into a new market, bridge a timing gap or test a model with the potential to generate future income. In these situations, a traditional grant may still be appropriate. But a recoverable grant, low-interest loan, guarantee, outcomes-based structure or combination of grant and non-grant capital may actually accomplish more.

The point isn't to replace grants. It's to match the capital to the need.

A global health example

I recently advised a global health organization that had operated with a largely grant-funded program model for nearly a decade. Leadership wanted to understand whether some of its programming could evolve to attract different forms of financing, including debt and recoverable grants.

We looked at which services might lend themselves to alternative financing, how they would need to be structured and priced, and who the potential buyers might be. The organization ultimately moved from exploration toward implementation, with one of the approaches now being pilot tested.

There's an important lesson here for donors.

Organizations themselves may not always know which capital structures are available to them. And many have spent years designing their programs around the requirements of grant funding because that's the capital donors have historically offered. But funders can help solve this challenge.

Start with the funding need, not the instrument

Imagine a grantee comes to you seeking $1 million.

Instead of beginning with: Should we make this grant?

What if the first conversation were: What does the organization actually need the $1 million to do?

Then: Could any of the capital eventually be returned? Is there a specific risk preventing another investor or lender from participating? Would philanthropic capital be more valuable absorbing that risk than funding the entire initiative? Could a guarantee unlock significantly more capital than a grant? Would a recoverable grant allow the donor to recycle capital into future impact?

Those questions lead to a different kind of philanthropy.

I don't think foundations should look at every grant and ask, “How could we turn this into an investment?” Non-grant capital isn't inherently better.

But, there's a massive opportunity when donor partners ask: "What form of capital gives this organization the best chance of achieving the intended impact?"

Sometimes that's a loan. Sometimes it's a guarantee. Sometimes it's a combination of capital. And sometimes it is simply a grant.

The innovation isn't using a more complicated financial instrument. The innovation is being willing to choose the instrument based on the need rather than typical "go-to".

So where do you stand on this "other" question? Have you been asking yourselves the same?