Kresge-led Consortium Launches $31 Million Loan Guarantee Pool

A group of organizations led by Michigan’s Kresge Foundation has committed $31 million in catalytic capital to a first-of-its kind loan guarantee pool, which aims to help high impact projects deemed risky by traditional lenders secure loans.

 

The Community Investment Guarantee Pool is expected to unlock $150 million or more for small business loans, affordable housing development, and climate change mitigation projects for under-resourced communities. The first batch of guarantees is expected before the end of the second quarter of 2020.

 

The group of guarantors, which would only contribute funding if the loans are called for lack of payment, include nine U.S. foundations, one nonprofit lender and one health system. The vehicle will back projects across the U.S., with some geographic preference given to the focus areas of some of the guarantors, including California, Colorado, Delaware, Florida, Georgia, Michigan, Maryland, New Mexico, North Carolina, Texas, Virginia and Seattle.

 

Foundations have billions of dollars on their balance sheets, almost entirely unlevered. Some have done single guarantees over their history, but there's no domestic example of foundations coming together to create a guarantee pool, Aaron Seybert, managing director of Kresge's social investment practice, told Crain’s Detroit Business.

 

"We're lowering the barriers to entry," Seybert said. "We're trying to make it easy to say you don't have to build an entire social investment practice. You can join a vehicle ... that's stood up with some big foundations that have strong expertise in this space, get your toes wet and see what you think."

 

Kresge committed $10 million to the pool. The other guarantors are Annie E. Casey Foundation, The California Endowment, Chan Zuckerberg Initiative, CommonSpirit Health, Gary Community Investments, Jessie Ball duPont Fund, Phillips Foundation, Seattle Foundation, Virginia Community Capital, and Weingart Foundation.

 

Locus Impact Investing, a subsidiary of Virginia Community Capital, will serve as the program manager, working with the investors, underwriting guarantee commitments, and monitoring and managing the portfolio for both impact and risk.

 

The goal is to grow investor commitments to more than $75 million for greater impact in under-resourced communities across the country, organizers said.

 

In 2017, Kresge commissioned a study on the use of guarantees by impact investing and philanthropic organizations through the Global Impact Investing Network. It found that while many organizations had an interest in using guarantees as an additional impact investing tool, they did not always have the skills, knowledge or capacity to take on highly customized transactions.