A residential area in Puero Rico, near Ocean Park in San Juan, during the sunset.
Image credit: Christian Ouellet on istock.com

Financing challenges often stymie nonprofits. This reality became starkly evident in the journey of the Center for Habitat Reconstruction (CRH) seeking supplemental funding to keep a large public contract it had won. Yet even after having been awarded an $11.2 million contract, CRH was initially blocked from obtaining access to needed capital.

As a Puerto Rico-based nonprofit that leverages community-based abandonment inventories, community–municipal partnerships, a rehabilitation and construction team, and in-house legal expertise to convert abandoned buildings and lots into opportunities for community-led development, the lack of access to financing nearly destroyed the organization. This is the story of how that outcome was narrowly avoided, underscoring the urgent need to amplify local lending power in Puerto Rico and beyond.

CRH’s salvation eventually came in the form of a collaborative approach, pivoting toward a combination of emergency funding provided by a small family foundation; a nonprofit, non-extractive loan fund; a third-party investment firm; and a coalition of Latinx community development financial institutions (CDFIs). This alliance had the required funds and was structured to align with CRH’s mission and operational ethos.

The lack of access to financing [meant that the grant] nearly destroyed the organization.CRH’s journey serves as a poignant reminder and rallying cry: purpose-driven entities, with the right partnerships and a touch of innovation, can navigate the most daunting financial mazes—even if they shouldn’t have to.

Winning the Lottery?

CRH is the only organization in the colonized territory actively collaborating with communities to transform the ever-present blight of abandoned buildings into habitable affordable housing and healthy community spaces. At the start of 2023, when CRH was five years old, it won a contract from the Puerto Rican Department of Housing, using federal funds, for $11.2 million as the result of over a year-and-a-half of proposals and negotiations.

This contract had the potential to empower community members to inventory the abandoned spaces in their neighborhoods and begin imagining and designing uses for such spaces that serve their human needs first. At the same time, everyone was aware that failure could pose significant risks to the organization and its team, Puerto Rico’s entire housing system, and those who rely on it. Community leaders also knew that if they didn’t act, profit-seeking firms would, exacerbating the already grave problem of dwindling affordable housing in Puerto Rico.

The contract award, in short, was a huge win, but for CRH leadership and staff, celebration quickly turned to concern. The contract was structured as reimbursable, which meant that for CRH to expect to see any of the committed funds, significant capital would be needed to jumpstart the project. CRH had mere weeks to staff up, office up, and equip up, with only a few weeks of operational dollars in the bank. Executive Director Luis Gallardo calculated that the nonprofit would need half a million dollars in the best-case scenario and, more likely, a million dollars to reach the first milestones. 

In Search of Capital

After being awarded the $11.2 million grant, CRH needed to obtain the working capital necessary to complete the first milestones. In January 2023, Gallardo brought the urgent capital needs to the first CRH board meeting of the year. Initially, all members, including Gallardo himself, assumed the process would be easy.

However, the process proved to be anything but easy. From the outset, traditional banking institutions like Banco Popular Puerto Rico (BPPR) and First Bank offered responses ranging from inflexible lending policies to sheer inaction. BPPR at first required cash collateral, while First Bank stated up front that they did not lend to nonprofits but said CRH could apply for a $20,000 grant—far less than the need.

Puerto Rican credit unions were not much better. For example, one credit union told CRH that it did not qualify because CRH lacked a physical office (all staff worked remotely since the arrival of COVID-19 and spent much of their time in the field).

Gallardo found the entire situation surprising. “We are in a post-disaster recovery that costs billions of dollars and the fact that no banks have thought, ‘Let’s create a loan product for reimbursable grants,’ is perplexing,” Gallardo said. Puerto Rico had been allocated a historic amount of federal funding to fuel its disaster recovery since Hurricane María—nearly $84 billion since 2017.

It didn’t seem unreasonable to believe that banks and credit unions would have created financial instruments to support nonprofits in accessing much, or at least some, of this funding.

For the CRH team, the search for funding wasn’t merely about numbers on a balance sheet; it was about the very future of the organization, staff livelihoods, and the needs of the communities they serve. Their mission reflects a broader housing system trend: organizations like CRH provide more affordable housing than for-profit entities. However, despite emphasizing profit over community service, for-profit companies usually have an advantage in winning these types of contracts because they have cash on hand—and many nonprofits do not.

The tides began to turn when CRH reached out to its network. Connections, trust, and shared values came into play, and hope turned into leads in the nick of time.

Unexpected Solutions

The nonprofit industrial complex is often characterized by competitiveness that shows up as a reflection of the for-profit world. There are likely many reasons for this, but prime among them we suspect are 1) the consistent narrative that competition leads to innovation and 2) scarcity, or perceived scarcity, of funding. In the case of Puerto Rico, that scarcity is not just perceived but very real as those large foundations that piled in post-María started piling out later on as Puerto Rico fell out of the headlines.

The nonprofit sector in Puerto Rico is sometimes worse—and sometimes better—than other places in how competitiveness affects the sector. Gallardo’s closest collaborators include a tight-knit group of other passionate directors of new nonprofits with systems change missions. He trusted them enough to share the plight of CRH with them, and they ignited their networks and pooled their resources. Two organizations, La Liga de Ciudades de Puerto Rico and La Maraña, each independently offered CRH an organization-to-organization interest-free or low-interest loan in recognition that their missions were intertwined and mutually dependent.

Alexandra Hertell, executive director of Fundación Segarra Boerman (FSB), a small local family foundation practicing trust-based philanthropy, got wind of this and got to work. She was invited to a small gathering to consider whether an anti-colonialist, non-extractive loan fund (financial practices focused on circulating and building wealth within communities rather than extracting it) was needed and possible in Puerto Rico. Although she was unable to attend, it got her thinking.

Hertell researched recoverable grants (that is, grants offered with an expectation that the funds will be returned when possible) and presented the possibility to her board as an innovative financing mechanism that offers a less extractive way to support impactful projects, without stretching the foundation’s topped-out grant budget. FSB approved a grant of $100,000 to CRH—the first known recoverable grant in Puerto Rico. It came with the expectation that the funds would be returned in full to the endowment at an unknown time in the future but without punitive consequences if it did not happen. This is trust-based philanthropy at its best.

The recoverable grant bought another month, but time was running short for CRH. Fortunately, the network was paying off. An ally had reached out separately to Seed Commons, a cooperative network of funds that finance worker cooperatives across the United States. They were, however, unable to provide a loan to CRH in part because they did not have a member fund in Puerto Rico but also because the organization and needs were outside their existing scope (CRH is not a worker cooperative). Separately, the same ally had reached out to Chordata Capital, an anticapitalist wealth management firm that had already mobilized funds for community-based projects in Puerto Rico via its network, connected through the same person.

These collaborations are a testament to the solidarity that can be fomented between nonprofits, cooperatives, financial institutions, and philanthropists.On their own, Seed Commons and Chordata Capital were not the right partners. However, members of both organizations also reached out to their networks, including Radical Planners, an informal group that seeks to apply an equity and justice lens to financial decisions. This connection helped them realize that together they could make a difference.

Kate Poole of Chordata organized her investors, capitalizing on the existing relationship and trust built with Seed Commons, using the detailed and conservative estimates that Gallardo provided to secure the financial backing needed to create a half-million-dollar line of credit. leo freeman, former director of fund development at Seed Commons, organized his fellow team members, who adapted their one-page values-based non-extractive loan agreement to structure the line of credit with no collateral, five percent interest, and a repayment schedule adjusted to the project.

At almost the same time, CRH’s long-term relationship building with the National Association for Latino Community Asset Builders (NALCAB) was paying off as well, as the association also offered a loan to CRH, with favorable terms, shortly after CRH received the contract from Seed Commons.

As with the other players, NALCAB ventured outside its usual scope of operations to meet this opportunity. The association typically lends only to its members to help capitalize their loan programs or to nonprofit developers of affordable housing for physical development projects. The terms for the loan offered to CRH were tailored to its cash flow management needs, allowing it to begin loan payments as deliverables were completed and the Puerto Rico Department of Housing began disbursing reimbursement payments. The relationship did not end with the loan, as CRH became a NALCAB member and is now pursuing CDFI certification.

These collaborations are a testament to the solidarity that can be fomented between nonprofits, cooperatives, financial institutions, and philanthropists when recognizing the obstacles that each faces in pursuing systems change goals. While some financial entities were constrained by rigid processes, FSB, Seed Commons, Chordata Capital, and NALCAB saw the broader picture, recognizing the transformative potential of movement alliances.

Lessons Learned

What can we take from this story? Three core themes emerge from CRH’s experience.

The value of relationships

In nonprofit financing, relationships play a pivotal, often understated, role. It’s not just about how much is lent or granted but how the funds are lent or granted and the underlying relationships that can be nurtured, neglected, or twisted by power dynamics. The passion in this project moved friends of CRH toward helping them achieve their shared vision of ni gente sin casas, ni casas sin gente (neither people without homes nor homes without people).

This emphasis on relationships, trust, and shared values starkly contrasts with traditional financing models, where transactions are regulated by a warped definition of risk in which those who will suffer loss the least are the most protected from potential loss. In arroz y habichuelas (plain language), as we say in Puerto Rico, if a millionaire lost a thousand dollars they’d barely notice, but for someone living under the very low or low poverty line in Puerto Rico, that could represent over a tenth of their yearly income.

Chordata Capital is working to reveal the real risks hidden in our financial system. In Kate Poole’s words, “We are trying to shift how people think about risk. Investing in Wall Street is extremely risky because those investments are destroying communities and the planet. We are supporting our investors in taking strategic financial risks that reduce risks to a community, like investing in a community (instead of a slumlord) taking control of their apartment complex.” (See Chordata’s zine for a deeper exploration.)

Integrated capital as a key tool

In today’s economic landscape, the need for holistic financing solutions is more pressing than ever. Enter integrated capital, a new approach that combines grants, equity, loans, and other financial tools to support transformative projects. Unlike traditional financing, which often operates in silos, integrated capital recognizes the interconnectedness of modern ventures and provides a multifaceted support system.

This approach is particularly valuable in addressing systemic challenges where individual financial tools might fall short. By leveraging the strength of diverse capital sources, organizations can navigate complex scenarios with greater agility and resilience. The foundation of this strategy lies in trust-based relationships. In essence, integrated capital is not just a financing approach; it’s a mindset that prioritizes collaboration, enables agility, and nurtures emergence.

Recognizing the risk of inaction

The climate and infrastructure bills passed in the last session of Congress will inevitably reshape America’s communities and impact its equity landscape. Whether for better or worse depends not only on the Justice40 initiative, which mandates sending at least 40 percent of all new federal funding todisadvantaged communities,” but also on the funding mechanisms used to achieve this goal.

Death-by-reimbursement is a known threat that reinforces inequities between nonprofits. The California Nonprofit Equity Initiative has advocated for AB 590, a model for one potential remedy, as it “ensures nonprofits can secure up to 25 percent of contracted funds up front, with a priority of nonprofits serving vulnerable communities or those with modest reserves.”

The promise of Justice40 is not merely financial—it’s a pledge to combat systemic challenges that marginalized communities face. Systemic challenges, including but not limited to banking obstacles and a lack of expertise in securing capital, are not merely operational hurdles; they are symptoms of deeper equity issues. To truly harness the potential of Justice40, bridges must be built to allocate funds and address these challenges, ensuring that every dollar advances the cause of equity and community sovereignty.

We are told competition is necessary for innovation, but, in this case, collaboration proved far more important.

The Need to Question Old Narratives

CRH’s journey to receive and implement the contract awarded by the Puerto Rico Department of Housing supports a counternarrative about innovation and competition. The idea that competition fuels innovation is taken to be common sense. But is it accurate?

In this case, every stakeholder we met felt their hands were tied. Yet collaborating with others opened up new ideas and possibilities for innovative solutions.

The dominance of financial capital as our society’s most important, most real source of value unquestionably underpins many problems nonprofits address. Until this narrative is toppled, we’ll be like Sisyphus, rolling the boulder of these injustices and inequities up a never-ending hill.

We are told competition is necessary for innovation, but, in this case, collaboration proved far more important. What might the implications be if people were more innovative in collaboration than in competition?