So long as the loan is not more than $250,000, you don't have to worry.  But it is not a totally crazy idea. 

The general rule under Section 7872 of the Tax Code is that interest income is imputed to the lender of an interest-free or other below-market rate loan and the amount imputed is therefore generally taxable income to the lender.  The tax is not based on the amount that the borrower generates from the loan, but on the amount of income imputed to the lender. There are a number of exceptions to the general rule, however, and a loan to a charity that does not exceed $250,000 is one of them.  This can be a very helpful way for charities to fund operations in a difficult economic time.  (See Ready Reference Page:  “Check List for Dealing With Tough Economic Times.”)