Of the many ways a nonprofit organization can get funding, grants often seem like the holy grail. Fill out a quick application and boom! No-strings-attached money in your account and you are off to change the world.

If only it were that easy.

There is a lot more to grant funding than “free money.” Before you start applying for grants, you need to understand where the funding is coming from and the expectations from that organization.

Grant funding should be a part of your 501(c)(3)’s income stream but knowing the different types of grants available for nonprofit organizations will help you choose the ones that make the most sense for the resources you have available.

Understanding Grants for Nonprofit Organizations

Foundations gave almost $91 billion in grants in 2021. According to the U.S. Department of Health and Human Services, the government awarded $726.1 billion in grants in 2021. So, it’s no surprise that grant funding is popular among nonprofits. But grants are not without their challenges. Nonprofit organizations should include grants as part of their funding mix, but you need to be intentional about the ones you apply for.

Because grants don’t need to be repaid, many new nonprofit organizations start there to fund their fledgling programs. But it can be hard to find grants that will help in that way. Typically, grantmakers are looking to scale current programs or assist an established organization launch a new program. Grants that help with direct operating costs, such as your rent payments or staff salaries, are harder to find. That’s why grants should be one piece of your funding pie, which also includes direct donations and fees for programs or services

Another reason to be intentional about the grants you try for is because most grants require significant staff resources to apply for and manage. If this is your first time applying for a nonprofit grant, expect to spend up to 50 hours gathering information for and submitting a foundation grant application. Government grants are often more complex and can take much longer. If you plan to make grants a significant income stream, you may consider building a relationship with a grant writer or two to take the onus off your staff.

While the movement for Trust-Based Philanthropy is growing, most grants do have significant reporting requirements throughout the award period and once the grant cycle ends. Grantors want to see how their funds were used and whether you were able to make progress in the impact areas the grant focused on.

Types of Nonprofit Grants

There are several types of organizations that provide grant funding, and each one has their own requirements for applications and reporting. But there might be a place for one or more of them on your balance sheet.

Government Grants (Federal, State, Local)

These grants are funded by different departments within the government. The first stop for government grants is www.Grants.gov. There are other repositories, but this is the primary source. Here you can search for grants by keyword, by the type of organization that is eligible for the grant, the agency in charge of the grant, or the grant category. There are a ton of resources to help you understand the process and how to use the workspace while applying.

You may find local pass-through grants on grants.gov, where federal money is provided to the state or county government to decide how to best use the funds to achieve the outcomes they are looking for. But generally, information on state or local government grants takes a little more work. Start on your state or municipality’s website and look for a grant portal (like this one in Virginia) or alerts you can subscribe to (like this one in D.C.). You can also call the office of your elected official for more information.

As with most government-related topics, you will encounter many abbreviations while applying for and managing a government grant. Before you jump into the process, familiarize yourself with the common terms, such as UEI (Unique Entity Number) and FOA (Funding Opportunity Announcement).

Are government grants difficult to obtain and manage?

Because they are easier to find through grants.gov, government grants tend to be highly competitive. You’ll be going up against organizations that have more experience with these types of nonprofit grants. That means you’ll need to be incredibly organized and make sure you follow all the requirements and meet all the deadlines if you want to have a shot. The agencies that award the grants often have detailed reporting requirements. You’ll need to have an established system for tracking your fund accounting, in case you are audited. The benefit of government grants is that they are fairly standardized. After you get your first one, you can replicate your processes for the next one.

Are government grants good for my nonprofit?

Government grants could be good for your organization if your team is organized, and you have strong processes for reporting and grant writing. It’s also helpful if you have a network of contractors to make sure you avoid any potential conflicts of interest if you need to outsource any part of the work based on the requirements of the grant. And of course, government grants could be good if you are planning to get more than one. There is too much work involved to stop after your first one.

Federated Fund Grants

You are likely familiar with Federated Funds, though maybe not by that name. Federated Funds are local organizations that create a portfolio of charities and funnel donations to that portfolio. Some of the big names in this space include the United Way, UNCF, and the Combined Federal Campaign. These organizations gained popularity by working with local businesses to enable employee giving.

While still strong in many communities, Federated Fund organizations are being replaced by Corporate Social Giving programs at larger organizations, where those companies and employees have greater say in where the money goes. Younger donors also want more control over their giving and want to tie their giving to their values, instead of sending their money to an organization that distributes the funds for them.

Are Federated Fund grants difficult to obtain and manage?

If you fit the profile the Federated Fund is looking for and get accepted into their portfolio, the organization will do most of your marketing and fundraising for you. But getting into the portfolio can be challenging. Your organization must fit the profile and requirements of the fund. The United Way, for example, requires significant recordkeeping so you can show impact. That typically requires you to know exactly who engages with your services, which might be hard for organizations that work with people who would prefer to remain anonymous for privacy reasons. You usually must have a track record of serving the community, so these grants are not good for new or highly niche nonprofits that don’t have a broad audience.

Is this type of grant good for my nonprofit?

Working with a Federated Fund could be great for your organization if you are an established nonprofit and fit the criteria of the fund. You will also need the resources and platforms for the required reporting. Keep in mind that, while the organization will help raise your profile in your community, you may not get the actual donor information. Those details will likely stay with the larger organization.

Grantmaking Foundations

There are more than 86,000 grantmaking foundations in the U.S. Of the types of grants for nonprofit organizations, grantmaking foundations have the most variety. Grants can range from a few hundred dollars to millions and are available to new nonprofits as well as those that are more established. You are more likely to find grants that cover operating and infrastructure needs as well as to grow specific programs. Funding decisions are usually made by a board of directors at the foundation or a panel of community members, based on the foundation’s focus area. Here are a few types of grantmaking foundations you should keep in mind:

  • Corporate: These are the charitable arms of large companies. These foundations can align with specific causes or impact areas, such as the Land O’ Lakes Foundation, which focuses on hunger, local communities, and education. The Coca-Cola Foundation, on the other hand, takes a broader approach, looking to make a difference in the world.
  • Community: Individuals, organizations, and businesses will often pool their resources to create a foundation specific to a geographic area. These community foundations work to address issues that affect the people who live in that area.
  • Independent and Family Foundations: Often funded by an endowment from an individual, family foundations are run by that individual or someone in the family, such as the Bill and Melinda Gates Foundation. The individual or the family members have a significant say in the funding and direction of the foundation. Independent foundations are still funded by an individual or family, but the decisions and direction are set by a leadership team and board with less oversight from the family, such as the Walton Family Foundation.

While there is a lot of opportunity for funding with grantmaking foundations, you will need to do a little work. Many smaller foundations don’t have websites, and many of the larger foundations don’t take unsolicited applications.

There are several databases to help you find foundations, such as Candid, GrantWatch, and Community Foundation Locator, but you have the most chance for success if you have something in common with the foundation. Start locally with your search. Look for charitable arms of larger businesses in your area, including banks and major employers. You can also search for grants specific to your impact area. Look for organizations that focus on the issues your nonprofit is trying to address, such as food insecurity or pre-kindergarten education.

Are grants from foundations difficult to obtain and manage?

For large corporate or family foundation grants, the competition will be fierce. It never hurts to apply if you have the time and resources, and you are a strong fit for what they are looking for. But your best chances for funding will be from foundations that know your organization and your work.

The application process will be different for most foundations. Some will have a few questions and little in the way of reporting requirements. Some will be much more in-depth. But once you establish a positive relationship with a foundation, it can provide continued resources for your organization over the long term.

Is this type of grant good for my nonprofit?

Use grantadvisor.org or other resources to see reviews for different foundations. This will help you determine if the process is worth the time and effort for your nonprofit organization. Also, read the eligibility requirements for the grant carefully and make sure you match what they are looking for.

What to Look for When Researching Grants for Nonprofits

Before you spend hours chasing grant applications that aren’t a good fit, make sure you understand the resources you have and the characteristics that make your organization stand out.

Be realistic about what your organization has time for. Know how much time and resources you can dedicate to finding grants and submitting applications. Can your leadership team spend weeks putting together a single grant application? Do you have the reporting capabilities to meet the requirements of the grant? Be wary of applications that are a dozen pages and require a lot of reporting if you don’t have staff to gather that information.

When you have an idea of the type of grant you are looking for, start specific. Look for organizations that provide grants for your community (e.g., Chicago or West Texas) or your specific impact area, such as community health or literacy.

Take Your Nonprofit Finances to the Next Level

When you have a mission, you find a way to fund it. But managing your accounting in spreadsheets can only get you so far. Purpose-built fund accounting software makes it easy to see what’s working with your finances and what’s not. As your nonprofit organization starts to win more grant funding, the reporting requirements will quickly become more than your spreadsheets can handle.

When you are ready to take your nonprofit to the next level, find a cloud-based fund accounting platform that works for you. Learn how Blackbaud Financial Edge NXT® can help you efficiently manage the grants you receive.

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The post Types of Grants That Every Nonprofit Should Know first appeared on The ENGAGE Blog.