What Your Board Needs to Know
You have an idea to solve a community need. You found a partner who will fund it, if you can translate the idea into words to convey its wonder. This almost magic cousin-to-a-miracle quality is what many people believe is behind foundation and other organization funding. However, like almost all nonprofit income opportunities, it’s more complex than that. Yet, while foundation and other organization funding is not magic, it is special. This article provides a primer to help you understand and earn this vital source of nonprofit income.
1. Why do foundations and other organizations fund nonprofits?
- To obtain results. Foundations and other organizations seek positive changes in the community. Generally, these entities are not direct service providers. Instead, they rely on nonprofits to help them achieve their missions by providing them with cash and resources.
- To meet legal requirements. In the United States, the Internal Revenue Code requires foundations to distribute about five percent of the average fair market value of their assets each year. Grants and certain operating expenses meet this requirement.
2. What are some examples of foundation and other organization funding?
- The James Graham Brown Foundation funds the Browns Fellows Program. It provides scholarships for 20 undergraduates at Centre College and the University of Louisville to promote future leadership.
- The William G. and Marie Selby Foundation grants the Family Partnership Center funds to upgrade their technology, including laptops for their mobile staff. The later allows them to file reports from on the road rather than returning to the office. This provides more community service because the time saved can be used for family meetings.
- The Kiwanis Club of Rapid City, South Dakota and the Kiwanis International Foundation provides grant funds to purchase shoes and socks for more than 350 children in Rapid City schools.
3. Who is the “other organization” part of this funding source?
Like the Kiwanis Club above, foundations are not the only organizations that offer funding. This category of nonprofit income also includes an eclectic collection of entities that offer grants, including federated giving programs like the United Way, service clubs like Rotary, congregations, and the like. Many organizations offer regular, competitive grant opportunities for nonprofits.
4. What forms of support do foundations and other organizations offer?
- Grants or gifts. The majority of funding received from foundations and other organizations is in the forms of grants. Typical funding provides for capital, program expansions, and new ventures.
- Loans. Some foundations also offer loans to nonprofits. The Community Foundation of Atlanta, for instance, has a loan fund that helps nonprofits with bridge loans.
- Outright gifts. Some organizations select in advance which nonprofits to fund. One client received $150,000 in one-time funding for items on their wish list.
5. Is this a common source of nonprofit income?
Yes, it represents one of seven sources of nonprofit income. (Read about the others here.) All together, foundation and other organization income equals three to five percent of all nonprofit income. The impact, however, is greater than these percentage numbers indicate. These funds often buy “extras” that allow nonprofits to increase quality and take next steps on important projects.
6. Besides the money, what are the benefits of this type of support for nonprofits?
- Prestige. Most nonprofits enhance their brands when they can list foundations and others as partners. In one case, a nonprofit struggled to say “no” to an off-track opportunity from the Ford Foundation. The recognition it would bring was almost harder to refuse than the money.
- Resources with a nonprofit focus. Unlike corporations, foundations are often also focused on outcomes you want to create. Therefore, foundations often have a greater affinity for the work of nonprofits than corporate or government entities.
- Emphasis on Excellence. Again, not universally true, but because one competes for funds, this funding supports nonprofit improvement.
- Community Connections. Foundation leaders know other leaders. They can help you form or deepen relationships.
- Return. Over time, when grant projects have been successful, you can often return to these organizations with additional requests.
7. What are the risks?
- Costs. Project Streamline found that, “Nonprofits must weigh the possibility of funding against the cost of seeking it. At times, the net grant isn’t worth the effort.”
- Needle in the Haystack. In the United States and Canada, over 125,000 foundation opportunities exist. Most organizations can profitably qualify for and obtain funding from about 100 sources.
- Wrong Tree. Nonprofits often want operating funds. Generally, foundations and other organizations fund new projects, project expansions, and capital. While more operating funds have been more available during the last recession, as a rule few foundations offer them under “normal” circumstances.
- Uncovered Cost. In general, grants do not pay for entire programs. Most foundations and other grant programs require matching funds to support the project and to sustain it after the grant.
- Unknown Sustainability. If you have a project that needs ongoing funding, you need to develop a plan to obtain this money. Generally this source will not pay for them.
8. What is your organization’s experience with foundation and other organization support?
Leaders need to learn about their nonprofits’ experience with funding from foundations and other organizations. Here are some starter questions:
- Do you have a list of grant sources where you are usually successful and can return to regularly?
- What are some grant sources you would like to tap? Do you have any connections that can help?
- Are expectations realistic? For instance, when you learn that you qualify for a foundation, identify the reasons why you believe you will stand out. If none exist, reconsider applying.
- In terms of evaluation, what success have you had, e.g. the number of requests you made compared to the number funded? How can you increase your odds?
- Do you have the infrastructure in place to do a stellar job with these funds? Foundations and others organizations place a high priority on reports. Nonprofits often forget this obligation. How is your post-grant reporting?
9. What is the role of the board?
- Most important, create an excellent organization to increase your competitiveness. One sign of excellence is that every board member makes a cash contribution at least once per year. Many foundations do not give to groups that fail to meet this standard.
- The board can also help to establish realistic expectations. Understand how grants work. Learn what they will and will not do. (This primer is a great starting point.)
- As a board member, you might want to gather information for staff about potential sources. However, remember to do a little Google research before you share them, since only .001 (100/125000) of the sources you find will be feasible.
- As appropriate, at staff’s request, carefully form personal relationships with foundation staff and board members. Why carefully? In many cases lobbying foundation officials is an automatic out.
10. What is the general process of developing foundation and other organization support?
Identify sources. Respond to invitations and find additional opportunities by exploring databases. I like the Foundation Center’s online one. Identifying other organization sources is more challenging. Seek local lists. (See: Local Sources for Sarasota, Manatee and Charlotte County Florida.) Continue your research with websites, donor lists, and newspaper announcements.
Develop relationships. If at all possible, meet with the Foundation. Attend public presentations about their work to better understand their interests.
Apply. Follow all the guidelines and deadlines.
Learn. In many, but not all, cases you will receive a notification of funding or a “no thanks.” If you do not hear, it is perfectly reasonable to contact the foundation or other organization to learn the decision. If it is a “no”, ask what you can do better in the future, find out if you can stay in contact, and learn if they have any other organizations they suggest you contact.
Making the Magic Work for You
Foundation and other organization funding is possible for most nonprofit organizations. The magic is that you as a nonprofit can provide a foundation or organization with a chance to move forward on their goals. The work comes in identifying the lucky foundation or organization that you will help – and helping them to see that you offer a special opportunity.
Foundation and other organization funding is only one of seven nonprofit income sources. This article on foundation and other organization funding is #5 in a series about each individual source. For the earlier issues, click here.
For more on nonprofits and funding opportunities, listen to our collection of audio downloads, especially Money-tastic #2: Nonprofit Income Opportunities and Money-tastic #3: Creative Revenue Streams for Your Nonprofit.