Economic times are tough, donations are down. Everyone is looking for ways to stretch a buck and make the make sure that the money given to charity is spent wisely. Finding ways to pay for arts, cultural, educational, social, scientific, and religious programs is more challenging than ever. The need has increased for many programs; so expenses are up and income is down. Many people have turned to charitable foundations as a source of funding their project.
What is a Charitable Foundation?
A foundation is a nonprofit corporation with the specific goal of giving grants (money) for charitable purposes. These grants can be given to organizations, institutions, or individuals that are not related to the foundation.
There are two types of foundations: public and private.
Public foundations get the money they give away from (you guessed it) the public. In other words, many unrelated people donate money to the foundation so the foundation can give it away. Public foundations are most frequently set up to help pay for a specific type of cause such as cancer research or environmental change. Often the public is solicited for donations to the foundation through fundraising campaigns which highlight the good work the foundation funds.
Why would anyone donate to a public foundation?
Tax breaks and accountability.
Money given to a foundation is tax deductable. So, the person giving the money pays fewer taxes. But the foundation does not have to give the money to a nonprofit corporation. Say for example, you and some of your friends wanted to pay for a new home for a family whose home was lost in a fire. If each of you and your friends gave the family some money, none of you could claim a tax deduction for the donation. But if each of you gave the money to a foundation and the foundation gave the money to the family, you could each take a tax deduction. In this example it would be the foundations responsibility to hold the family accountable to spend the money they received only on their new house. If you and your friends gave the family money separately, the family could use some or all of it to take a well earned vacation to Disneyland. You would not be able to do anything about how the family chose to spend the money.
How are Private Foundations different from Public Foundations?
Private foundations are similar to a public foundation except that the money comes from a small group of people (usually one family or corporation). Generally, private foundations do not engage in fundraising. The family donates the money and the family decides how it is spent. Most often private foundations will give money in line with the interests of the family. But, as no money has been raised to further a specific cause, private foundations are not limited to giving money to meet any specific need. Private foundations receive less tax breaks in return for the donors having more control over their money.
This is an oversimplification of the laws governing foundations; but, as a generalization is accurate. There are, of course, exceptions and hybrids of private foundations doing fundraising and public foundations giving to programs outside of their specific cause.
The Foundation Center has more detailed information at www.foundationcenter.org/what is a foundation.
Who gets money from foundations?
Foundations usually give money to nonprofit (501©3) organizations. They do not give money to for profit businesses. The most important criteria foundations look for is that the organizations purpose and project matches the funder's interests.
Public foundations give money to the organizations that are specifically doing work in areas the foundation was set up to fund. For example: An environmental foundation might give money to a nonprofit organization that distributes energy efficient light bulbs to lower income families. Private foundations give money to organizations that are doing work which interests the family or company that set up the foundation. For example: A family that is concerned about education may provide scholarships as well as fund a nonprofit that provides equipment for classrooms. They may give money to a variety of unrelated programs and organizations.
Federal law allows foundations to make grants to individuals and organizations that do not have nonprofit status. But they must follow a set of very specific rules and file a number of reports certifying that the money was spent solely for the charitable purposes spelled out in the grant. Most foundations do not want to go through all the paperwork even if the person is doing exactly the type of work the foundation wants to fund.
Some individual people may be able to get a grant by affiliating with an existing organization that is eligible to receive grants and willing to act as sponsor. This is known as fiscal sponsorship.
What is the process for applying to get money?
The most important step in applying for grant money is to research foundations to find the few that might be most interested in your work. The next step is to research those particular foundations for trends in their giving. This homework is tedious but saves many hours of paperwork later. Applying to a foundation that does not match your work is a waste of time for you and the foundation. The Foundation Center maintains a database of foundations and their basic information. You can access this database free at any Foundation Center Library or at a Cooperating Collection. You can also use this database on-line for a subscription fee.
After you have chosen a couple foundations that seem most likely to fund your work, you should call to determine their process of grant application. Most will require a letter of inquiry. This letter should demonstrate that your project matches their interests in giving. The goal of a letter of inquiry is to get the foundation to ask you to submit a full grant proposal.
After a grant proposal is submitted the foundation will go through an internal process to determine who will receive funding. Every foundation has a slightly different process and different timelines for considering proposals. Generally someone screens out the grant proposals most suited to the foundation and submits them to a committee or board. The Board (which may meet as often as once a month or as little as once a year) then decides who receives money and how much each project receives. Usually it takes several months for the foundation to decide if they will fund your work and several more weeks to receive a check once you have been notified.
Many foundations will require updates and reports on the work you have done with their money. Be prepared to submit any reports they require in a timely manner if you expect to receive funding in subsequent years.
It is recommended your start the research and application process 9 months to a year before you actually need money for your program.
What information is included in a grant proposal?
Grant proposals should include:
- Cover Letter
- Executive Summary
- Statement of Need
- Project Description
- Organizational Information
Writing a grant proposal is a huge undertaking. Some people have made careers of proposal writing. But, if you have the time and are willing to do the work, you can write a better proposal than the professionals. You know your program and its benefits better than anyone. You have the passion for your work and you are the expert at what you do.
My favorite guide to grant proposal writing is:The Foundation Center's Guide to Proposal Writing
You will also want to check out http://www.grantproposal.com.
How much money can I expect to receive?
Foundations generally do not give equal dollar amounts to the programs they decide to fund. But, each foundation does operate within a range of giving. For example: one foundation may give grants from $1,000 to $5,000 while another works with the $25,000 to $50,000 range. You will be able to determine that range in your research. Foundations almost never fund an entire program. Grantmakers want to see community participation in your program as well as in the donations for the program. So, be realistic in your expectations. Foundations cannot meet all or even most of your financial needs. More than 80% of the money donated to nonprofit organizations is actually given by individuals. Ask for what you need in the grant proposal, but expect to receive far less than what you ask for. Most often you will receive money to be used directly in meeting some of the needs of people benefitting from the program. You will probably not receive money to cover administration fees or any overhead costs.
So, is applying for a grant really worth my time?
Absolutely, YES … unless you only want the money.
The added benefits of working through this process are:
- You might develop relationships with potential donors on the foundations board. Even if the foundation does not fund your work, the individual board members may be or know someone else who is interested. Generally, board members are extremely well connected in the community.
- You will solidify the mission statement and goals of the organization through the process of writing a grant proposal. Many newer organizations have not really paid attention to defining statements and goals. Older organizations can benefit by using this time to refine and reevaluate.
- You will focus on a solid budget for each program. Very few people like crunching numbers and living on a budget. This process forces the organization to evaluate the finances of both the company and the individual programs.
- You will develop the basic material for marketing projects by gathering information for your grant proposal.
- You will learn to answer the question, “Why should I give you money to do your work?” briefly and in a way that compels funders to give more than they originally planned.
If you only want to apply for a grant to get the money this may or may not be the best use of your time. Your organization will have to evaluate how much work it will be to possibly receive a grant vs. other fundraising strategies. Volunteers can be used to help with portions of the grant proposal, but for the most part the work will need to be completed by staff. Does your staff currently have the time to devote to the process? Is your organization able to wait 9 months to a year before receiving grant money? If so, the process of grant application may help to solidify your organization with finances and a clearer vision.
Have you successfully received grant money? Have you tried and received nothing for all your efforts? Leave a comment telling us your story!