What are the typical interest rates and financing terms used by impact investors and low-cost foundation capital sources; and how do these vary by US state?

Determining the expectation for return of impact investors will vary by capital source, investor risk tolerance, and the ongoing variation in the performance of projects and investments already in the investor’s portfolio.  It is a common misconception that the creation of community, environmental, and social benefits comes with an expected decrease in return, and financial performance can often be correlated with the robust monitoring, tracking, and reporting of social and environmental performance or compliance.

It is notable that impact investors will often offer longer time horizons than other investor groups such as venture capitalists or hedge funds. The expected pay back or break even point for impact investors can extend towards twenty-year time horizons, as opposed to three to five-year payback periods expected by venture capitalists.  Exits, or investor expectations for cashing out are often less commonly prioritized by impact investment and philanthropic capital sources than in venture deals.

As a result of longer time horizons, the reference to “slow growth business models” is a commonly referenced investment priority in the impact investment profession. However, longer time horizons are often paired with a lower risk tolerance. This means that many projects funded by impact investors require strong internal cash flows with predictable and regular revenues and expensive.  If a project developer can show reduced risk in their cash flows either through credit enhancement achieved through partnership with public sector co-signers better costs of capital can be negotiated.

Given the longer time horizon seen on impact and philanthropic capital Treasury Bonds, often called “T-Bonds,” are regularly used as a benchmark for performance.  T-Bonds are often issued with a maturity of ten to thirty years, with a yield ranging between 2%-3% depending on their duration.

Karina Zafiro