There are many types of investment structures that can be used to fund projects. The investment structure should match with the type of project, the funding request by the project and the risk level and mitigation of such that the investor requires meeting their Investment criteria.

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We will describe the different types of investment funding structures available and the types of projects they could be used for.

 

Humanitarian Projects (Not for Profit)

The funding structures typically used for funding not for profit business types are grants and endowments. There are some situations that loans are used as well but mainly when tied to the purchase of real estate. We will discuss each below.

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Grants

Grants are non-repayable funds or products disbursed or given by one party, often a government department, corporation, foundation or trust, to a recipient, often a nonprofit entity, educational institution, business or an individual. As the definition identifies, grants can be given to both not for profit AND profit businesses.

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Grants can be made with or without restrictions. The difference between the two is that without restrictions means that the grantee has the ability to use the granted funds as they so choose without any oversight. If a grant is made with restrictions then the grantor (you as the investor) can identify exactly how the funds will be used. You may grant the funds identifying them to be specifically used to buy something like computers or funding for a group home, etc. Another condition of restriction is that you provide a grant with restrictions that does not allow the grantee to sue the funds at all. In this case, the funds are placed into an investment with the returns from the investment being used by the grantee with or without restrictions. Depending upon the current tax code in places at the time of the grant will determine if the grantor can deduct the grant from its taxes filed in the current year. The amount of tax benefit for the grantor may be the driving factor as to whether or not a grant is even made.

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Endowments

A financial endowment is a legal structure for managing, and in many cases indefinitely perpetuating, a pool of financial, real estate, or other investments for a specific purpose according to the will of its founders and donors. As you can see here, endowments are just another term given to or very similar to grants.

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Another type of endowment is a grant endowment. ... The endowment may specify the area that they wish to fund, the amount of funding available as well as any restrictions. For example, some endowments cannot be used to fund general operating expenses or for programs that are not located in a specific region.

 

What are the three types of endowments?

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• True endowment (also called Permanent Endowment). The UPMIFA definition of endowment describes true endowment in most states. ...

• Quasi-endowment (also known as Funds Functioning as Endowment—FFE). ...

• Term endowment.

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The difference between grant and endowment is that an endowment is a legal financial structure where a grant is like a donation. The endowment legal structure is either given to the grantee or provided to the grantee to use the returns from the endowment with or without restrictions. Again one should view their current tax code to determine what tax benefit the grantor may have in providing the endowment.

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Loans

Loans can be provided to a not for profit based upon whatever agreeable terms are reached between lender and debtor. The loan could be structured with or without underlying security. The loan could be with or without interest and payment terms agreed to by the parties. An example, different than a standard loan for not for profit, is in the purchase of real estate. Lender could loan money for the purchase of real estate giving security interest of the real estate to the lender until repayment allowing the lender to structure the loan as a balloon loan due in 10 years and at the end of the 10 years forgive the loan and give the property to the not for profit. This is a complex structure but the tax benefits may provide a better outcome this way and give security to lender for a period of time to allow the not for profit to obtain traction without debt repayment.

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Regardless of how one choose to fund a humanitarian project the benefit of the funding should consider more than just funding.