If you are looking to start a nonprofit or planning to expand an existing one, you’ve got options for financial help. While larger organizations may have an easier time securing grants and corporate sponsorships, there are many other funding sources for smaller nonprofits or ones that are just starting out. Here’s a look at how to get funding for a nonprofit of any size.
Key Points
• Membership fees generate consistent financial support.
• Individual contributions typically represent the largest income stream.
• Grants originate from government, corporate, and foundation sources.
• Mission-aligned sales produce earned income.
• Volunteer efforts reduce expenses and provide specialized skills.
Why Do Nonprofits Need Funding?
While having a tax-exempt status can certainly help an organization save money, nonprofits still have a variety of costs they need to cover. Not-for-profit organizations typically need reliable revenue streams to fund their missions, develop education programs, and cover their day-to-day expenses (including rent, utilities, salaries, and supplies).
At the same time, nonprofits need to be careful about how they “earn” money. In order to maintain a 501(C)(3) status, any earned income needs to be directly related to the organization’s mission. Many nonprofits meet their budgets through a combination of external funding (e.g., donations and fundraising initiatives) and self-generated funds (e.g, sales of merchandise, fees charged for services, and membership fees).
Types of Nonprofit Funding Sources
There is a wide array of financial sources for a nonprofit, ranging from government grants and private foundations to membership fees and donation crowdfunding.
There’s no one-size-fits-all approach to nonprofit funding sources. Some methods might work for you that wouldn’t be a good fit for others, or something that hasn’t worked in the past could be a good option for your organization at this point in its growth.
Recommended: Guide to Crowdfunding for Small Business
Building a Robust Funding Strategy
Most nonprofits turn to funding from grants. They are often available from the government at the local, state, and federal levels, as well as from business associations, corporations, and foundations. While grants are essentially free money, they sometimes come with specific conditions as to how exactly you can use the money. Also, competition for these awards can be stiff.
When searching for grants, you can check Grants.gov, which is the largest database of federal grant opportunities. You may also want to look locally, as many grants targeted for nonprofits are offered at the state and local level.
You can find grants targeting entrepreneurs:
• Small business grants for minorities
• Grants for women-owned businesses
• Grants and loans for Hispanic-owned businesses
• Small business grants and loans for veterans
Grants, however, can’t do it all. A smart funding strategy can guide you, laying out a roadmap for you to follow at every stage of the fundraising process.
Crafting a Mission Statement
Your mission statement serves as a clear representation to those outside of the organization of your vision. It’s an essential tool for promoting and positioning your nonprofit organization in the minds of others. Be sure to communicate the “whys” to your nonprofit and include action items for what can be accomplished. When it comes to the writing tone, use conversational language.
Grant Writing and Application Techniques
Even a startup nonprofit can qualify for a grant. To hope to succeed in receiving a grant, however, small business owners must submit a proposal that aligns with the mission of the funders or government agencies that have the funding. Proposals require clear, concise writing, a strong executive summary, and a well developed project description.
The most important thing you can do when writing a grant proposal is tailor your grant specifically for the grant package in front of you. Follow its instructions carefully and in order. This includes any instructions on format, style, and timeframe.
While it’s key to clearly define success scenarios, don’t forget that you are essentially writing a compelling story that will outline the impact of your business on people’s lives.
Donor Cultivation and Relationship Management
Individual donations are often one of largest sources of funding for nonprofits, so it can be smart to make individual donors a key focus of your fundraising efforts.
If you don’t have one already, you’ll want to create an online donation page that enables recurring donations.
Some ways to increase the support you get from individuals include:
Promoting your cause on social media
• Leveraging text-to-give campaigns
• Asking for donations at community events
• Mailing out fundraising materials
• Hosting charity events
• Organizing peer-to-peer (P2P) fundraisers
Alternative Funding Sources
There are many different types of crowdfunding, but the one most used by nonprofits is donation-based crowdfunding, which works by asking large amounts of people to donate small amounts of money. You can launch a crowdfunding campaign to raise money for a specific program within your organization or as a general donation to the cause. Crowdfunding can also dovetail with your social media campaigns and simplify online giving for your donors.
While donation crowdfunding can be a low-cost and effective way to reach potential supporters all over the world, keep in mind that crowdfunding platforms typically charge fees and it can take a fair amount of time and effort to create a compelling and successful crowdfunding campaign.
Membership fees can also create a reliable, recurring source of revenue for your nonprofit. The structure can vary depending on your organization’s mission and target audience, but many nonprofits offer some sort of incentive to encourage potential members to join, such as online name recognition, a free subscription to your organization’s magazine or newsletter, or discounted tickets to events.
Membership also creates a sense of community and ownership among your supporters, which might encourage them to promote your nonprofit on your behalf.
Unlike other forms of fundraising, earned income comes from the sale of products or services. Nonprofits can generate revenue by selling merchandise (such as t-shirts), offering instructional classes, selling tickets to events, creating and selling publications, or renting out their spaces for events. Just keep in mind that earned income must be related to the mission of the organization or it can be taxed as unrelated business income.
If you’re thinking about selling products or services to raise money for your nonprofit, it can be a good idea to consult a tax specialist who routinely works with nonprofits for guidance.
Legal and Compliance Considerations
Fundraising is governed by a mix of state and federal regulations. These laws are designed to protect donors, the general public, and charities themselves from fraud and from misleading practices.
When you secure 501(c)(3) status from the Internal Revenue Service, your nonprofit becomes a recognized fundraising organization at the federal level. However, charitable solicitations themselves are regulated at the state level. This means that you must register to fundraise in the state jurisdictions where your nonprofit actively solicits its donations.
Compliance with these rules and regulations helps maintain public trust in the nonprofit sector. Violations can lead to loss of credibility and trust among potential donors. Non-compliance can lead to legal consequences, including fines and, in serious cases, the shutdown of fraudulent charities.
Which Funding Sources Are the Right Fit for Your Nonprofit?
The right fundraising model for your nonprofit will depend on its size and mission. Here are some steps that can help you home in the best sources of funding for your cause.
1.; Analyze your current approach to funding. Do your current nonprofit funding sources deliver a good return on investment? Are they all aligned with your mission, vision, and values? Is there room to add other funding sources? Are there some you may want to move away from?
2.; Explore your options. You may want to look at the funding approaches of other similar nonprofits. Are they doing something that could work for you? Also consider having a brainstorming session with your team, inviting them to get creative and think outside the box.
3.; Make a short list of feasible options. Once you have a list of possible new funding streams, you’ll want to narrow it down to options that are sustainable and replicable. Once you have a short list, you can evaluate how much each nonprofit funding source will cost, and how much money your organization could feasibly garner from each one.
4.; Select funding model(s) to implement. Based on the information you’ve gathered in the above steps, you’ll next want to decide on one or two funding models to implement and develop a plan to put these models into action.
Recommended: 7 Differences Between Business Grants and Loans
The Takeaway
Nonprofit funding can come from a variety of sources, and many organizations rely on multiple revenue streams to pay their bills and keep their programs funded. For example, one nonprofit might be funded 40% through grants, 40% through events, and 20% through a membership program. Another might be 70% funded through donations, 20% through grants, and 10% through events.
If you’re seeking financing for your business, SoFi is here to support you. On SoFi’s marketplace, you can shop and compare financing options for your business in minutes.
If you’re seeking financing for your business, SoFi is here to support you. On SoFi’s marketplace, you can shop and compare financing options for your business in minutes.
FAQ
What is the biggest source of funding for reporting nonprofits?
For many nonprofits, the majority of their funding comes from individual donations.
What are the 4 types of nonprofits?
A nonprofit organization can structure itself in one of four ways: an unincorporated association, a trust, a corporation, or a limited liability company (LLC).
H3: How do you start a nonprofit without any money?
To start a nonprofit with no money, you’ll need to write a business plan, build a board of directors, find an online fundraising tool that’s free to start, gather donations (from friends, family, and board members), find an attorney willing donate their services to help you register your nonprofit, and plan free and low-cost of fundraising events.
If I am the founder of a nonprofit, can I pay myself?
It is legal for nonprofit founders and officers to receive a salary for their work for the nonprofit. As a founder, you can pay yourself a salary, but it has to be in line with the work you’re doing and the amount of hours you’re putting in.
Are nonprofits taxed?
Nonprofit status may make an organization eligible for certain benefits, such as state sales, property, and income tax exemptions; however, this corporate status does not automatically grant exemption from federal income tax.
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