There are many challenges in starting a new or trying to grow a small nonprofit with mostly volunteer staff members and no cash flow. The most difficult challenge is raising money to support the overall organization including daily operations and programs or services.
We receive many calls asking for our assistance to seek grants for start-up costs. Some callers think they can win grants of $250,000 to $1.0 million in start-up funds when they have $50,000 or less in annual income.
Grantmakers will not invest in an organization that does not have income streams above the amount they are requesting to replace the grant funds once they expire. This is true for all types of grantmakers including different levels of government, foundations, and corporations.
Plus, many more grantmakers will not accept grant proposals from new nonprofit organizations that have operated for less than three years, the period that the Internal Revenue Service (IRS) considers probation for new tax-exempt charities.
Unfortunately, you cannot use grants to start your nonprofit. Yes, there are those that will tell you there is all this free money through grants for just this purpose. We want you to understand the truth: these types of grants do not exist.
Other points to consider for new or extremely small nonprofits:
- You cannot secure grants while your nonprofit status is pending. Even though you filed your paperwork with the IRS to receive a designation as an Internal Revenue Code (IRC) 501(c)(3) tax-exempt charity, no grantmaker will provide you with a grant to operate your programs based on speculation. The only way you could secure a grant at this early stage is to work with a fiduciary agent such as another nonprofit with an established track record.
- With new nonprofits, the annual income for start-up costs must be derived from sources other than grants. As stated earlier, grants are not the source for start-up costs for your organization. You must understand the nature of fundraising and learn how to solicit individuals, encourage all of your board members to make annual financial contributions, and secure corporate sponsors. Take a course or two from the nonprofit service organization within your state or at a local university that offers a certificate program in fundraising. Go to the library or online and obtain books on fundraising. Whatever you do, learn what it takes to raise money annually to support your organization. Please see our Resources and Workshops pages for a listing of books and classes.
- Grants for general operating support are very rare. Since the early 2000s, there has been a shift in the way grantmakers want to support organizations. Most want to provide grants only for new programs and one-time only projects including capital items such as buildings, renovations, and equipment purchases. Others only want to fund programs that have a direct impact on the target population that you serve. Only until you have an established relationship with a grantmaker that supported your past program efforts will you be able to possibly secure an annual grant to assist with your general operating support costs.
Continuation grants are even rarer. Foundation and corporate grantmakers no longer guarantee grant awards from year-to-year. In fact, many blatantly state that if your organization does not meet the outcomes outlined in your proposal, your program personnel do not file their reports on time, or the funds allocated through the grant were incorrectly spent, they have the right to revoke any future funding to your organization. Bottom line: you cannot rely on grants to be a perpetual source of income for your organization.