Finding and attaining funding for a nonprofit is a long and continuous process. Nonprofits are funded through grants, individual giving, major gifts, and sponsorships. All of the different types of funding available for nonprofits come with it’s own set of benefits and challenges.
Grants: There are a variety of different types of grants that can be pursued to support a nonprofit. Some are restricted, meaning that funds can only be used to cover certain expenses, and unrestricted which means the organization can use the funds for what it needs the most.
Unrestricted Grants: Unrestricted grants are usually referred to as general operating support. These are funds that can be spent by the organization as they see fit. It can cover salaries and other overhead costs or be used for programmatic expenses. This is the most sought after type of grant funding and one of the hardest to attain. Only 20% of grant funding in the U.S. is unrestricted (Social Startup Success: How the Best Nonprofits Launch, Scale Up, and Make A Difference).
Restricted Grants: Restricted grants, just as the name implies, are grants that provide funding only for specific expenses. Commonly these are program/project support grants, government grants, and capital campaign grants. Typically, these types of grants only provide limited or no support for covering staff salaries or other overhead costs for the organization. Although, if a staff position is essential to program/project success it might be covered. More often than naught, the focus for these types of grants is to cover the cost of program supplies and equipment. Most funders will be explicit on what expenses can be covered by the grant in the request for proposals.
Despite the efforts required to produce and report on a grant, if a grant opportunity aligns well with the priorities of the nonprofit and time and attention to detail is provided to produce a strong proposal, there is a higher chance that the proposal will be successful in bringing in a significant amount of funds for the organization compared to other fundraising strategies.
Individual Giving, Major Gifts, Sponsorships: In general, these types of gifts are unrestricted, though a donor may indicate that they prefer which program most of the gift support, they don’t have as stringent standards as grants.
On the flip side, this funding is reliant almost exclusively on individuals, from people who make $5 donations up to high-net-worth individuals who give six figure gifts. It can take a lot of work to get new donors and to keep current donors engaged and increasing their gifts regularly. Getting new donors takes a lot more time and effort than it does to retain donors. Depending on the donor, traditional engagement opportunities like thank you events, newsletters, thank you notes, and the like might not be enough to keep them engaged and you might have to go above and beyond to help keep them supporting the organization and taking staff time away from providing services. Also, individuals tend to be open to have more unexpected financial disruption than traditional grant funders, so it can never be guaranteed that supporters will be able to give at previous levels or give more.
As nonprofits are developing their fundraising strategies, it should be considered how much time and effort is needed to pursue each type of funding and the potential return on investment. For some organizations, including grants is easy to do with dedicated staff or a grant writing service. For others, individual giving, major gifts, and sponsorships might be easier to pursue, but can be inconsistent. A healthy diversification in different funding strategies is the best way to go for sustainability of a nonprofit!
Written by Danyelle Dosunmu, Grant Writing Consultant at The Empowerment Center
For more information about different types of funding, write us at firstname.lastname@example.org
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