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Professor Perspectives: Deploying bridge loans, pay-for-success and other creative responses to the COVID-19 crisis



The economic and community-level impacts of the global COVID-19 epidemic continue to reveal themselves layer by layer. Many of the impact sector’s most crucial services and interventions are being delivered by organizations whose very existence and continued operation might well be threatened by the crisis and its financial side-effects.

Below, several members of the Impact & Sustainable Finance Faculty Consortium share their thoughts on how impact investors and other wielders of impact capital can deploy financial interventions to bridge financial gaps, finance solutions, and support basic needs during the crisis. 

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Across the impact space, we’re seeing heartening headlines and quotes about new funds, philanthropic grace, and impact finance practitioners sharing their approaches to the crisis.

In seeking viewpoints from professors of impact investing and sustainable finance, we will explore the overall potential of financial actors to take action and consider creative and powerful approaches to shore up our community organizations and social businesses to help them persevere.

Bridging the chasm

Bbridge loans, grants, and guarantees and other financial inputs can help organizations make it from point A to point B. Such mechanisms are in high demand and of great importance during the current crisis.

Typical and even newly-urgent impact investment and grantmaking processes take time to dispense funding. Due diligence, screenings, investment committees and other steps that can span weeks to months. In addition, these tried-and-true approaches and their inherent terms might no longer be well-suited to the realities and timing of the new world in which we are all operating.

As a short-term measure, bridge financing can mean the difference between operation and failure for crucial organizations in this unprecedented financial and human crisis. 

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“Grants and bridge loans occupy a unique space of flexible, short-term support,” says professor Rehana Nathoo of Georgetown. “Many organizations already administer grants through online systems which make approvals, wire transfers, and accessing funds relatively straightforward.”

Bridge loans can be a great tool to help fill anticipated financing gaps organizations that are investment-ready, Nathoo explains. “These are short-term loans that help companies secure permanent financing or satisfy existing debt and can be repaid once market confidence and capital flows are restored.”

Nathoo and others urge grantmakers, foundations, corporations, and investors to quickly consider and implement bridge financing tactics and deploy capital quickly to shore up essential organizations. 

Paying for success

One of impact finance’s most innovative tools today is the pay-for-success approach. The model, used elsewhere to fund intervention in education, job training and criminal justice reform, draws on investor capital to cover the up-front costs of programs. If program’s achieve the desired outcomes, government or other outcome payers repay investor capital with a return. 

Impact investing is, at its core, about “leveraging the tools of finance and the power of private capital to have impact at scale,” says professor John Tobin-de la Puente of Cornell University.

The key question in deploying pay-for-success models during the COVID crisis, he says, is identifying a system in which an investment in an intervention today can save a large amount of money tomorrow. If so, he says, the next question is whether we can structure a deal in which investors today might be willing to bear the risk and invest in that intervention today in exchange for a share of those future savings.

“The coronavirus may be a system – short-term investments in personal protective equipment, for example, or novel uses of existing drugs – well-suited to this kind of thinking,” he says. Nimble players may have “the ability to save lives and at the same time make a return by deploying capital quickly to the right solutions.” 

Funding basic needs

Along the spectrum of impact capital, philanthropy anchors its own end. In some circumstances, market-based solutions may be improbable and in the current situation, impossible. 

The current health crisis is already having dire economic consequences for workers in informal labor markets across fragile economies worldwide, says professor Vicente Servigon Caballero of ESPAE in Ecuador.

“In Ecuador only 38.5% of the population has formal jobs with social security benefits, for instance,” says Servigon. “Since underemployed persons usually work and make earnings on a daily basis – performing informal trade on the streets – concerns arise that poverty will dramatically increase due to the quarantine imposed by the government.”

Solutions and safety nets for such communities and populations might well not come in the form of investable and returns-based financial measures. Public support and philanthropy might be better tools for the job. “Given this scenario, those critically affected will need charitable funding to satisfy their most essential needs, like food and healthcare,” says Servigon.

When we consider philanthropic levers for impact, we often consider first and foremost foundation and corporate philanthropy, even global aid.

Servigon encourages even everyday givers to consider the flexibility and rapid-response possible through a donor advised fund. “The deployment of donor advised funds certainly will help address short-term needs of low income communities, while other impact investments mechanisms could make long-term economic recovery viable and sustainable.”

Acting fast, thinking broadly

Urgency and using the right tool for the right job are the emerging themes.

Nathoo encourages the creative use of bridge financing to help organizations make it from now to when they reach a more solid footing.

Tobin calls on the sector to hasten its adoption of outcomes-based financing that recognizes and pays forward the savings and progress to be reaped from successful deployment of proven interventions.

Servigon reminds us that not everything can be an investment in a moment of crisis. He calls on institutions and individuals to consider the more vulnerable and less investment-ready needs of communities and people for immediate deployment of impact funds. 

None of us have lived through a moment like this one, nor have our impact financing approaches and vehicles been designed for today’s global public health and economic crisis. When the situation calls for it, we must adapt and respond, even from our living rooms and kitchens as we connect in new and different ways to a world we struggle to fathom.

Whether innovative, like pay-for-success, or longstanding, like simple contributions to safety net organizations, this is a time to act.

When we do act, it is essential for investors, grantmakers, and donors to do so with a broad perspective. When we only see the people in closest proximity to ourselves (from a safe distance of 6 to 10 feet, of course), we fail to recognize the communities in which we do not sit and whose children do not pass in front of our windows and across our sidewalks.

We live in silos of need and privilege, of want and plenty. Our investments, grants, loans, and gifts have the power to recognize these divergences and be directed accordingly.  


Megan Kashner is a professor at Northwestern University.

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