Why Grantmaking Needs a Makeover

Every conversation with my nonprofit colleagues about grants and foundations typically involves cursing and unimaginable complaining. The process hasn’t changed much over the years (which I am always quick to blame the foundations themselves), but maybe those of us applying for these grants need to provide some feedback and solutions, too.

After six years working in the fundraising space, here are a few stumbling blocks I’ve experienced when it comes to grants:

1. Your funder says, “We believe in funding new, innovative projects with specific, measurable outcomes that utilize community partnerships.” OK, but what about the funds we need for our current program that is successful, mission-oriented and time-tested? Yes, it’s been around for nearly 20 years, but it works really well. This idea of “newer is better” can create mission drift in organizations that are desperate to secure extra dollars. Let nonprofits do what they do best. Most of us already partner with others in our community out of necessity — we wouldn’t survive without each other. We can still show value and community impact without constantly creating new program models. 
2. Your funder says, “We don’t provide unrestricted dollars. Please make sure your request is for a specific project or program (and also, overhead costs are not eligible).” I get what you’re saying, but our utility bills alone are nearly $300,000. Is that sexy? No, but we’d like to be able to continue providing showers and electricity to the more than 2,600 homeless individuals we serve every year between both of our campuses. Sometimes the boring stuff is what needs your support, too.
3. “Tell us about your long-term financial sustainability plans.” Nonprofits typically have a group of core individual donors. Some are lucky enough to have lasting relationships with corporations and foundations that provide additional support. However, giving in the nonprofit sector can dramatically be affected by the economy (COVID-19, anyone?), social issues (like the social justice and racial equity movements we’ve seen this year) and political turmoil (on top of everything else, 2020 just had to be an election year). We can’t predict the future, but we can take practical steps to provide as much financial stability as possible, such as showing our top 10 donors over the last five years (seeing the same donors year over year paints a good picture of stability); showing which of those donors are expected to return the next year (ensures stability); showing the donor retention rate of different donor segments (i.e. if 70% of donors who gave $1,000 and up are retained year to year, that’s a good sign); showing number of donors over the years (hopefully this number is growing, which shows you have new people supporting your organization); providing a one to three year fundraising plan (creates measurable goals and objectives); showing where there are currently untapped donor markets (i.e. churches or corporations) and how you plan to grow those segments; or providing “days of cash on hand” over the past three to five years (again, showing stability trends).

While it’s important to think through these questions together, I don’t want to focus on the challenges without offering a few solutions for our community to consider. Here’s what I’ve come up with:

• Nonprofits need to come together and start speaking out loud. There are a few rare foundations out there that do include a question that says something like “Do you have any feedback on our grantmaking process or application template?” I always answer that question. But what about foundations that are not asking that question? What if we made a point to reach out to the foundations’ contact person or chair to see if they would have some time to talk about your experience with the grant process? That’d be a great opportunity to suggest some proposed changes they could make to benefit everyone. A transparent, two-way conversation between nonprofits and grantors could go a long way toward making the process smoother for everyone.
• Grant partners, please help us with the question about financial stability. Start considering making multi-year commitments to the nonprofits you support. If you are willing to trust us with one year of funding, why not consider three years of funding? Known funding sources help to provide us with an answer to the financial stability question, it helps us plan for unexpected expenses, and it assists in annual budgeting. Providing a multi-year grant helps us more than you know. We will still check in with you and provide reports as needed — we promise!
• Really take some time to think about some of the questions you ask:
  • “How diverse is your board? Please fill in the below chart with percentages showing the racial makeup of your board.” Racial diversity should be a priority for all of us. But why not broaden this question to look at other important inclusive categories as well? Let’s review an organization’s representation when it comes to a variety of backgrounds, including socioeconomic levels, sexual orientation, members of the military, disabilities, geographic location and more.
  • “What percentage of your expenses is for administrative and fundraising services?” This is not an effective way to measure a nonprofit’s financial stability or worth, and everyone classifies administrative and fundraising services differently. Some funders refuse to allow either category to be included in program expenses. I am the primary fundraiser at my nonprofit organization, and I don’t see myself fitting well into either the administrative or fundraising services category. Most funders will think, “Well, you don’t work with your clients directly.” But I do work directly for our clients. If we can’t raise the money to cover all program and overhead costs, we can’t serve them, and there would be no need for this grant request. I don’t know the full answer to how to solve this problem, but some open and honest dialogue between nonprofits and funders would be a good next step to solving it together.
  • “List other organizations you are applying to for this program or project. What will you do if your program or project is not funded through our foundation?” This question gets confusing. If I put down four other entities that we are applying to, will you throw my application out since I have other prospects? If I say, “We’re not applying anywhere else,” does that indicate laziness or lack of need? I think better issues to look at are: diversity of funding sources (individuals, corporate, faith, government, etc.), range of gift sizes (do you have small, mid- and high-level donors?) and annual fundraising trends (donor retention or increases in revenue/donors). 

I recently had an experience with a new foundation partner that made their first gift to us in 2019. They love to make unrestricted gifts — a nonprofit’s dream! However, they only have the confidence to do that because they spent months vetting us, our financials, our program, our leadership and our vision. There were a few times during this exhaustive due diligence period that I wanted to pull my hair out. However, their staff engaged with us, came for site visits and was always available by phone or email. Once we got through our initial courtship, we now go through a very simple annual renewal process. They make it easy to do annual site visits and check-in calls. They regularly ask for feedback on how their process could be improved. Overall, it’s been a breath of fresh air when it comes to the dance between nonprofits and grantors. We’re so grateful to them!

I’m hoping the more nonprofits and their grant partners talk about these issues — the more change we can make together to create better processes for all of us. So, who’s with me?