Bridge Loans as Lifelines

The Trump administration’s dismantling of USAID last year threatened the survival of a program that helps victims of sexual violence in Ukraine. Operated by the U.S. charity HealthRight International, the program nearly shut down amid the administration’s chaotic handling of the grant that paid for the work.

The grant was transferred from USAID to the State Department — it was also paused, then terminated, and ultimately reinstated. What had been quarterly advances to pay local workers in Ukraine became reimbursements, meaning HealthRight would have to pay workers first and hope the grant came through later.

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More and more often, late government payments on grants and contracts are creating short-term funding gaps at otherwise financially sound nonprofits. Many charities, including HealthRight, have limited reserves and can’t afford to pay staff when promised money doesn’t arrive on time.

Increasingly, charities are turning to bridge loans —  short-term advances, often repaid within six to 12 months — that provide the funds to keep operating until money from a government grant or contract comes through. While bridge loans can be a lifeline, they can also be costly and may become more difficult to obtain as providers face their own challenges. And while some grant makers are stepping in to help nonprofits with various kinds of financing, most private foundations remain reluctant to subsidize such loans.

“We get one or two requests per week from nonprofits that are experiencing payment delays,” says Taj Tabassoom, a partner at SeaChange Capital Partners, which has $35 million in two funds that make short-term loans to nonprofits. “What we’ve heard from organizations and leaders is that the problem is much worse now than ever.”

‘A Bridge to Somewhere’

As HealthRight confronted its financial squeeze, Gabe DiClerico, the charity’s chief financial officer, reached out to an organization called Open Road Impact for help.

While banks are big commercial lenders, they are not a huge source of bridge loans to nonprofits. Rather, community development finance institutions like the Nonprofit Finance Fund and Propel Nonprofits, and others with a mission of improving the sector, such as Open Road, are key lenders.

Open Road determined the State Department was highly likely to make the delayed payment on the grant by the end of the year, says Caroline Bressan, Open Road’s CEO. It advanced the charity $350,000 in September at 10 percent interest, with an expected repayment by January. The loan kept HealthRight’s program operating and prevented what could have been an expensive disruption if HealthRight had been forced to furlough and then later rehire its Ukrainian employees.

“We found Open Road to be more responsive, and more comfortable with the uncertainty, than the bank would have been,” DiClerico says.

However, the market for such loans is tightening. Even loan providers with a mission of supporting the nonprofit sector must weigh the possibility that they’ll never be repaid — an outcome that derails the aim of such funds, which is to recycle capital into new loans to help more charities.

“The problem with bridge loans,” Bressan says, “is that there has to be a bridge to somewhere.”

Lenders Are More Conservative

CDFIs are also facing uncertainties that may make it harder for charities to obtain short-term loans at attractive rates. The federal CDFI Fund, which has come under attack from the Trump administration, makes grants to CDFIs, which they use to attract additional support to make loans to nonprofits and others that serve low-income areas.

For example, for every $1 million Propel has received from the CDFI Fund, it has attracted another $3 million from foundations or banks, says Ellie O’Brien, the group’s chief financial officer.

Propel has cobbled together about $4 million from philanthropy and its own assets to start a special program offering bridge loans at reduced rates to charities that are heavily reliant on federal funds. But at the same time, Propel is adopting a more conservative approach with its balance sheet, increasing cash reserves because it expects loan losses to grow.

“More than half of our portfolio has been dependent upon the repayment cycle from the federal government,” O’Brien says. “We no longer have the expectation that federal funding is going to be certain.”

Bridge loans don’t come cheap. Unless subsidized by philanthropy, lending rates are typically much higher than mortgage rates, reflecting the risks of lending to organizations that don’t have much collateral. Interest rates of about 10 percent are common.

Will Foundations Help?

Some foundations and donors have stepped in to help directly with loans, which can make them more available and bring down interest rates.

Open Road raised $13 million from foundations in early 2025 for a special fund to help charities affected by USAID payment delays. The philanthropic support allowed Open Road to lend to 20 charities at no interest, and 85 percent of the loans have already been repaid, Bressan says.

During the government shutdown in October and November, Head Start chapters around the country faced delayed payments on federal grants. When Frank Fernandez, president of the Community Foundation of Greater Atlanta, learned that three of the Atlanta area’s largest Head Start providers were considering closing, he scrambled to get approval for a bridge loan from his board and loan capital from other local foundations.

Within days, the community foundation raised commitments of more than $7 million. As of mid-December, the three charities — YMCA of Metro Atlanta, Easterseals North Georgia, and Sheltering Arms — had borrowed more than $4.7 million at an interest rate of just 3 percent.

“Philanthropy tends to be a risk-averse space, but when we are able to pool risk, it enables us to do things we typically wouldn’t be willing or able to do,” Fernandez says. “That’s something we should lean into given the times we’re in now.”

Funders have even helped groups find better terms on longer-term loans. During COVID, the Tenement Museum in New York nearly went under due to both a costly mortgage and lost revenue when it was forced to temporarily shut its doors. An anonymous donor at FJC: A Foundation of Philanthropic Funds, a provider of DAFs that also has a bridge-loan fund, enabled the group to replace the mortgage with a new loan at a subsidized interest rate of 1 percent, says Sam Marks, FJC’s CEO. The museum has already paid off $7 million of the $9.5 million loan.

“The biggest bottleneck we have,” Marks says, “is convincing more donors to think creatively about their capital and the innovative uses you can put it to.”