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Nonprofit Education

Grants 101: How Nonprofit Grants Work

A laptop, phone, and business plan for nonprofit grants.

Developing a solid understanding of how grants work before you launch your nonprofit startup can help you create your business plan and think strategically about the future.

Let’s compare and contrast how grants function for traditional small businesses and 501c3 tax-exempt organizations.

Grants for Traditional Small Businesses

Grants can be ideal for all kinds of small businesses because they don’t require repayment. If your business meets the qualifications, then they’re worth applying for.

Potential Speed Bumps for How Grants Work for Small Businesses

1. Applying for a small business grant often requires a great deal of paperwork, and you’ll need to show how you plan to use the funds.

2.  It can take weeks or even months to receive a notification on whether or not your business has been selected.

3. Small business grants often have strict eligibility requirements that need to be verified before receiving any funds.

4.  There will be “strings” attached to the award. Almost all government-funded grants will have regulations and deliverables you’ll need to produce (such as increasing workforce) or else risk having to return the funds.

Hot Fields for Business Grants

Tech, biotech, pharmaceutical, and other science-engineering companies have an advantage for securing government grants. Small Business Innovation Research grants are often available through federally funded Business Technology Transfer programs.

Alternatives to Grants

For many small businesses, grants can be more trouble than they’re worth. Another option to consider is applying for a business line of credit or a small business loan. Online crowdsourcing is another avenue to consider for raising product development or expansion funds.

How Grants Work for Nonprofit Organizations

Similar to small business grants, grants for nonprofits don’t require repayment. However, unlike traditional businesses, nonprofits have more funding opportunities available to them.

Because grants for nonprofits typically come from large foundations (think Bill & Melinda Gates, Ford, and Robert Wood Johnson), they can provide funds that exceed what can be raised through individual donors.

Successful grant management enhances your nonprofit’s credibility. In your nonprofit’s early years, it’s unlikely you’ll secure funding from large foundations, but every grant you secure builds your organization’s reputation. With time, funding from the “big leagues” can be a possibility.

Common Questions about How Grants Work for Small Nonprofit Businesses and Organizations

These are the top three questions nonprofit entrepreneurs have about grants:

How do grants work to start my nonprofit vision?

Answer:   Unfortunately, foundation grants will not fund launching your nonprofit. For that, nonprofit entrepreneurs will need to use their own resources or enlist private funders.

How do I fund my nonprofit’s operating costs?

Answer: Grant funding can rarely be used to cover operating costs. Grant funds create new programs or expand existing ones. They are not designed to help sustain your organization. For that, you need to employ fundraising and revenue generation practices (i.e. ticket sales, gift shop, or classes).

How do grants work alongside the rest of my organization’s finances?

Answer: Grants from foundations should be a small but steady part of your nonprofit’s financial picture. Grants can help you expand, but ultimately the income you generate through other means will guarantee your success.

How Different Kinds of Grants Work for Nonprofits

Nonprofit directors often want to know how grants work when it comes to funding different programs. There are several kinds of grant writing opportunities to consider. These include:

  • Project grants. Support specific programs for a certain time period.
  • Capacity grants. Capacity-building funds help your organization expand in a particular area you are already working in.
  • Operating grants.  These cover daily operating costs. The best place to look for these is through family foundations dedicated to supporting your nonprofit’s mission.
  • Research grants. These can help nonprofits that focus on science, technology, pharmaceuticals, and engineering.
  • In-kind grants. This kind of grant offers non-monetary support such as services or equipment. Corporate sponsorships are typically a source of in-kind gifts.

Nonprofit Grants: Think Local First

How do grants work at the state or local level?

Startup nonprofits will have a greater chance of securing grants by targeting small family foundations. Look for opportunities through your city, county, or region. Local funders care about achieving success locally and will have a greater interest in investing.

Want to Learn More? Understanding how grants work before you launch your nonprofit can help you develop your strategic plan. Review the pros and cons of how grants work for small businesses and nonprofits to decide which model works best for your ideas! If you’re looking for information on growing your nonprofit, there are numerous online resources to help. Our team is here to support you.