Running on debt: Financing land protection with loans

Abstract

Abstract New land protection is expensive, and many conservation NGOs rely on loans to help fund land acquisition in the short term. Conservation loans are offered by a range of philanthropic organizations that often allow much more flexible terms than traditional loans. Thus, conservation loans may behave differently from other types of loan. There are costs and benefits to relying on loan financing to fund land protection that organizations need to consider, but few data are available to inform such evaluations. Here, we focus on estimating the financial cost of these loans, by analyzing loans used to support land protection projects that were provided through an internal revolving fund at a large U.S. conservation NGO. We estimate loan financing cost through accrued interest and test deal‐level characteristics for their ability to explain or predict loan interest. We find that loan performance can be highly uncertain and costs can be substantial in relation to the total purchase price. An improved ability to estimate the overall cost of conservation loans upfront may determine just which conservation projects are prioritized for investment and avoid costly misallocations of conservation resources.

Keywords

• conservation planning
• environmental non‐profit
• finance
• NGO
• opportunity cost
• revolving loans