A post to Exponent Philanthropy's blog

How Funders Can Address Nonprofits’ Key Challenges

We are pleased to share excerpts from a tear sheet co-created with Grantmakers for Effective Organizations (GEO).

As funders, your success is tied to the success of organizations you support. Yet there is often a disconnect between the ways funders support nonprofits and the types of support nonprofits say contribute most to their success.

In its publication, “On the Money,” GEO describes several challenges faced by nonprofits:

  • Restrictions on funding. Funders overwhelmingly prefer to support direct programs and services, resulting in underinvestment in the infrastructure nonprofits need to sustain and grow.
  • Assumptions about sustainability. Some funders imagine that successful grantees will eventually reduce their reliance on grants and pay their own operating costs. For many nonprofits, this is not a possibility, and sustainability simply means having the capacity to raise adequate funds to do their work well.
  • Too many masters. Diverse funding sources are considered an ideal for nonprofits, but this may be a myth. Securing multiple funding sources can make for hundreds of applications and reports, a staff- and time-intensive endeavor. Some organizations even shift from their core missions to secure funding from multiple sources.
  • Onerous grantmaking practices. From grant applications that take days to complete to involved reporting requirements that differ for each donor, many funders inadvertently place enormous burdens on their grantees.
  • Knowledge gaps. Perhaps the biggest money problem facing nonprofits and their funders today—and a problem that underlies all the others—is a knowledge gap on both sides about the nature of money in the nonprofit sector.

Ideas for Funders

Here are steps to consider—and questions to ask—to help nonprofits to fulfill their missions as effectively and efficiently as possible.

Listen to grantees. Engage grantees in conversations about the financial challenges they face, and about how grantmaking practices do or do not help them succeed.

  • To what extent do your grantmaking strategies reflect the perspectives and needs of your grantees?
  • How do you engage with grantees outside the application and reporting process to better understand their financial and operational challenges?
  • What more can you do to get direct feedback from grantees about the kinds of support that will help them most?

How Well Do You Listen to Grantees?

Provide the types of support nonprofits need. Think through the full costs of services you fund, and consider more general operating support and multiyear support for grantees.

  • What portion of your grantmaking is unrestricted? Multiyear support? What is stopping you from providing more of those types of funds?
  • What is your average grant size for general operating support? Is it enough to make a real difference in grantees’ capacity to achieve their goals?
  • Do your program grants cover the full program costs? If you are partially funding a program, do you know the full costs?

Reduce the burden on grantees. Take steps to streamline application and reporting processes.

  • Are your application and reporting requirements proportionate to the size of your grants—that is, are there fewer hoops for smaller grants?
  • Have you tried to calculate the costs to grantees of working with you as a grantmaker and factor those costs into the grants you provide?
  • To what extent can you streamline grantmaking procedures while still getting the information you need from grantees?

Work with other funders to reduce red tape and pool resources. Consider working together to simplify the grantseeking process for nonprofits while delivering larger, higher impact grants.

  • Is there an opportunity to work with other funders to institute common grant application and reporting processes among your grantees?
  • Are you funding in issue areas or geographic communities where it makes sense to strategically pool resources with other funders?

Consider alternative financial tools. Explore different types of support that will meet grantees’ financial needs, including cash-flow loans and other program related investments.

  • To what extent would your grantees benefit from nongrant forms of support?
  • Is your organization equipped with the staff and capacity to manage loan programs, or interested in working through intermediaries to provide those funds to nonprofits?

Related resources

Project Streamline, an effort to prevent grantmakers and grantseekers from drowning in paperwork and being distracted from purpose

Leveraging Your Assets With Loans and Other Program Related Investments

Is Grantmaking Getting Smarter? a GEO study on the attitudes and practices of staffed U.S. foundations

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