6 Realities of Foundation Grants for Nonprofits

Grants Have Their Place, but Are Not a Cure-All

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Too often nonprofits think that grants are the Holy Grail. That they will help a nonprofit get started, save it from going under, or meet next month’s bills.

That’s because there is wide misunderstanding about how nonprofits fund themselves and the role that foundation grants play in that funding.

Here are some of the realities about foundation grants that your nonprofit needs to understand so that you can put them in perspective.

 Make sure that you develop a well-balanced basket of resources that will sustain your organization for the years ahead.

1. Grants Will Not Help You Start Your Nonprofit.

Primarily foundations give grants to established organizations.  Foundation grants are not where you look for start-up funds for your new charity.

Founders often use their own resources to get going and/or have private funders ready to help financially.  Sometimes, a charity can get a bank loan, but there still must be some collateral, someone to guarantee the loan, and the business plan has to be especially good with an excellent path to sustainability.

Fiscal sponsorship is another way some new charities start.  Sometimes, a charity or a charitable project that is not yet a 501(c) (3) can receive a grant through its fiscal sponsor

But in general, don’t count on grants until your organization is well established and looks like it is going to be able to sustain itself.

When will you be ready? See Is Your Nonprofit Ready to Apply for Foundation Grants?

2. Foundation Grants Rarely Fund Operating Costs.

It is rare for a foundation to provide money just to keep your organization’s doors open.  Grants are usually intended to fill what Janet Levine and Bo Martin, in Getting Grants Step by Step, call “gap reduction.” Grants work well to help create a new program or grow an existing one.

 But they are not meant to sustain an organization or even a particular program.  

While some operating expenses can be prorated and included in the funding for a specific project, foundations are not usually really interested in keeping the lights on.

Grant applications always ask what your plans are for sustaining your project for the long term. Grants are meant to be short-term infusions of money to achieve a particular purpose.

3. Foundation Grants Are a Very Small Part of Any Organization’s Finances.

How do nonprofits finance themselves?  According to the National Center for Charitable Statistics, in 2011 public charities reported over $1.59 trillion in total revenues. Of that,

  • 22% came from contributions, gifts, and government grants.
  • 72% came from fees for service, which include government fees and contracts.
  • 6% came from other sources such as dues, rental income, special event income, or goods sold.

Nonprofits earn the bulk of their income. For instance, a university charges tuition and a hospital charges for its services.  A small therapeutic riding center for disabled children charges for its sessions, and contracts with local schools. The local YMCA charges membership dues.

Foundation grants are included in the charitable giving statistics.

Of that, the bulk comes from individuals.  A sliver (15 percent) comes from foundations, and an even smaller chunk (6 percent) comes from corporations (Giving USA).

Just like any business, nonprofits have to come up with most of their funding on their own. Self-generated income is the foundation of a successful nonprofit’s finances.

4. Grants Take a Long Time

Grants just can’t be procured quickly or instantly. It takes time to find the appropriate foundation that is most likely to fund your project.  It takes time to develop the proposal, and it may take even longer for it to be accepted or rejected.  If a nonprofit is in financial trouble, going after grants is not going to help.

Also, grants have conditions and restrictions.  They are meant to address a particular problem and funds must be spent strictly on that project.

  There are reporting requirements and oversight. Sometimes, foundation grants require the nonprofit to find the money to match the grant before it is awarded.

Procuring a grant takes time and resources. Charities that are the most successful in getting grants have ongoing grants programs where someone is constantly looking for grant opportunities, and there is dedicated staff to write, monitor, and report on the grants. 

Grants are “soft” money. That is, they can’t be counted on for sustained periods of time. That’s why most charities make sure they have other, more sustainable sources of income and don’t depend on grant money.

5. Foundation Grants Come in Limited Flavors

The most common types of grants are:

  • Project grants. These support specific programs or projects for a pre-determined period.
  • Capacity building grants. These help organizations increase their ability to do more in a particular area. For instance, a college might get a capacity building grant to help it develop its counseling and career services.  A charity might receive one to help it develop its fundraising capacity. These grants are about a process rather than a project.
  • Operating fund grants give ongoing support to an organization. They help with operating expenses. These are highly sought but hard to find. Small, family foundations are more likely to provide operating fund grants than larger, well-known foundations.
  • Research grants are typically found in academia and research-oriented nonprofits. In academic settings, they are often attached to a particular faculty member and go where he or she goes.
  • In-Kind grants provide non-monetary help, such as equipment or even pro bono personnel.  In-kind donations and grants are most often supplied by corporations.

6. Small Nonprofits Should Seek Grants Locally

While it’s not out of the question to receive a grant from a large, national foundation, small charities that serve a particular town, city or state will often find the most success locally. 

There are thousands of small family foundations in every geographical area that might fund your project.  They are not as easy to find as the large foundations, and you might have to work a little harder just to find someone to talk to. 

Family foundations, it was found in a 2009 survey, are much more willing to provide operating support for the charities they work with. Small family foundations usually have particular causes that they hold dear over an extended period and are more invested in their success. They are also not inundated with proposals and competing needs as large, well-known foundations often are.

Small foundations often have very limited interest areas.  And many are not professionally staffed.  You can often find them through the contacts you already have on your board, among your volunteers, and even the people who use your services. Talking with other development professionals in your area may also turn up promising leads.

For more about how to approach small family foundations, see How to Make a Grant Proposal to a Small Family Foundation.

Grants certainly should be a part of any charity’s basket of income. But it’s important to keep perspective. It’s like the old food pyramid.  Self-generated income is at the base, and the “gap” is filled in with various forms of charitable giving, including foundation grants, which occupy the upper levels of the pyramid.

Sources:

Applying for Funding from Family Foundations: Results of a New Survey, Guidestar.

National Center for Charitable Statistics

Giving USA