Most philanthropic funding follows a familiar model: a funder makes a grant, the organization uses the money, and the capital is gone.
But that ignores the potential for the funding to be used beyond the initial investment.
What if the funder's initial investment could be used again. And again. And again?
That is what a recoverable (or recyclable) grant brings to a partnership.
A recoverable grant is funding that is provided as a traditional grant, but with an expectation that some or all of the money will be returned if certain agreed-upon conditions are met.
For example, a foundation might provide $500,000 to help a nonprofit launch a program. If the program reaches agreed financial or impact milestones, the nonprofit can repay all or some of the funding back to the donor. The foundation can then recycle that capital into another opportunity, either with the same implementing partner or a different one.
If the program does not succeed, depending on how the agreement is structured, the organization may not be required to repay the funds.
Why would a funder use a recoverable or recyclable grant?
They can be particularly valuable when:
There is a potential source of repayment. An organization may be developing a program with the potential for revenue generation.
The partner is awaiting another source of funds. If the organization is waiting on financing or other expected funds, the recyclable funding can help serve as a bridge.
The opportunity is too risky for conventional investment capital. A funder may be willing to accept uncertainty that an investor or lender would not.
The organization needs flexible, patient capital. Repayment can be tied to realistic milestones rather than a rigid schedule.
The partner doesn't want to rely on donor funds. If funds are returned, there isn't a "beholden" feeling towards the donor.
When is a recoverable or recyclable grant NOT the best option?
If an organization has no realistic path to repayment, adding repayment expectations can create unnecessary financial pressure. Sometimes a grant really should just be a grant.
That's why the more important question isn't:
"Could we make this grant recoverable?"
It's:
"What type of capital is best suited to what we're trying to accomplish?"
Recoverable grants are one tool within a much larger spectrum of philanthropic capital that can include grants, guarantees, low-interest loans, equity and other structures.
The opportunity for funders is not simply to use more non-grant capital. It's to become more intentional about matching the right capital to the right need.
Curious what experience you've had with this type of funding!