How I turned a $100,000 loan into a $400,000 gift
It was about twenty years ago when my phone rang. I had recently taken a company public and my friend Eric was on the Board of a local non-profit called The Johnson House. The Johnson House was one of the first stops on the Underground Railroad and it was in desperate need of repair. Built in 1767, the residence was home to the Johnson Family, Quakers who were abolitionists and hosted runaway slaves from nearby slave state Delaware as they fled north.
I listened intently but really had no connection to The Johnson House or its cause. My family is of Irish decent, arriving in the 1840's and like 98% of Americans at the time, we did not own slaves. Eric was not to be denied by my lack of connection to the cause. He asked me to please meet with him and hear his proposal.
Eric came to my home and, for the first time, told me about Program Related Investments (PRI's). A program related investment is a very powerful and seldom used philanthropic tool. Instead of GRANTING money to a non profit, you LOAN money to a non profit. I had never heard of it before and chances are you have not either. Eric asked me to LOAN Johnson House $100,000. They would use the loan to make repairs and the repairs would be eligible for reimbursement because the Johnson House was on the National Register for Historic Places. The problem, Eric explained, was they Johnson House did not have any capital to make the repairs. If I could lend them $100,000, they would use the funds to make the repairs and be reimbursed by the Federal government.
I thought is was an extremely innovative way to give so I said yes. I did not, however, want to be in the business of making or collecting on loans. So to make it easy on myself , I contacted a local small bank and made them an offer. 'I'll put up a $100,000 certificate of deposit and you give the Johnson House a line of credit secured by the CD." Since banks like to make loans with no risk they saw the genius of the plan and agreed.
About three years went by and I heard from Eric. The loan I had provided fueled $400,000 in repairs and the National Register of Historic Places had reimbursed the Johnson House. The Board wanted to recognize me for my generosity and invited me to a dinner where I was presented a very large photo montage of "before and after" my loan. The results were nothing short of incredible. My white wife and two white kids sat in a room full of black people who presented me with the award. I thanked them for the recognition and shared an old African proverb "If you want to go fast, go alone. If you want to go far, go together". We had gone far.
A few weeks later I visited the bank where I had put up the certificate of deposit. They proceeded to redeem the certificate of deposit and gave me $107,000. The money went back to my donor advised fund to be used for some other philanthopic project.
So, my $100,000 program related investment resulted in $400,000 in repairs and I got my original investment back. I consider this high value giving. If you have a non profit you want to support, this could be an opportunity for you as well. Anyone can provide a program related investment but please note not all donor advised funds support PRI's. In a recent search it appears Fidelity investments donor advised funds support PRI's. Finally, if you are not interested in the tax deduction, you can always make the loan out of your personal account and receive the interest on the loan. I think its called doing well while doing good.
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