Could grant-makers borrow their way through the recession?

By John Copps 30 June 2009

This week-end I bumped into a friend who works for a big UK corporate foundation. We were in a field in Somerset ankle-deep in mud, listening to music, and sipping cider.

She was bemoaning the funding crisis that will hit her foundation at the end of the year. As the effects of the financial downturn trickle through, trustees of grant-making trusts will be forced to cut annual budgets.

A recent survey by the Association of Charitable Foundations, the membership body for trusts and foundations in the UK, found that 55% of grant-makers anticipated that they would have to cut their grant-giving this year, and 75% reported a ‘signficant decrease’ in investment value over the last 12 months.

That set me thinking. It is a shame that grant-making is affected in the same way as everyone else by recession. Just as demand for charities’ services rise, possibly their most important source of funding is cut. Does it have to be this way?

Gordon Brown, the UK Prime Minister, has been criticised for trying to spend his way out of recession and increasing public sector borrowing to record levels. The wisdom of more borrowing might be questioned in politics but might it offer part of a solution in grant-making? Could grant-makers borrow to maintain their activity over the next few years, until their sources of income recover?

Many grant-makers rely on regular sources of income – from the profits of a company or an endowment. Is there a way that they could borrow against these future sources of income and maintain their level of grants in the downturn?

Many foundations have decades (or even centuries) of good credit histories. Surely they are a good bet for lending? Of course practical problems stand in the way, not least culture among trustees. But could this be a potential solution to the forthcoming drop in grant-making and a way for innovative foundations to prove their value? Given that the grants given over the next two years are likely to be more valuable to charities than ever, might this even be a way of increasing foundations’ impact in the long-term?

Is this a new idea? What do you think: good or bad ? Comments are welcomed.