If your nonprofit is looking to start or expand its fundraising efforts, you’ve got options. While it can be easier for larger organizations to secure grants and corporate sponsorships, there are many other funding sources for nonprofits that are smaller or just starting out. Here’s a look at funding options for nonprofits of all sizes.
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).
11 Nonprofit Funding Sources
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. Here are 11 different nonprofit funding sources to consider.
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1. Membership Fees
Membership fees can 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.
2. Individual Donations
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
3. Grants
Grants for nonprofits 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.
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4. Earned Income
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.
5. Volunteers
Recruiting volunteers won’t generate revenue for your organization, but it can still have a meaningful impact on your budget. When volunteers actively participate in fundraising, marketing, and program delivery, it can save your organization significant sums of money, making it equivalent to a major revenue stream. Volunteers can also bring valuable expertise to your organization.
6. Legacy Giving
Also known as planned giving, legacy giving is when an individual leaves a sum of money to a nonprofit in their will. This type of funding is typically associated with large, well-known nonprofit organizations. However, once you have a healthy list of donors and achievements, you might consider pitching legacy giving to your members. It will likely take time to establish, but once this strategy is in motion, it could potentially provide a significant portion of your nonprofit’s funding.
7. Business Loans
While you might think of a loan as a nonprofit funding option, nonprofits can sometimes qualify for different small business loans. If you have a strong credit history and your nonprofit is generating revenue, it may be worth applying for a loan through your local bank or credit union. Just make sure that the bank or credit union lends to nonprofits.
You might also want to look into online business loans, Online (also known as alternative) lenders tend to have more relaxed requirements and are typically much faster to fund than banks. However, these loans often come with higher interest rates.
When applying for small business loans as a nonprofit, you will likely need to provide financial documentation that proves your organization has sufficient revenue to pay back the loan. Because nonprofits are limited in how they can raise money, you may need to secure your loan with assets your nonprofit owns.
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8. Sponsorships
Some corporations look for nonprofits to partner with and support. They may wish to fund specific initiatives, events, or fundraisers. For example, a business might offer matching donations as part of your fundraiser, or make in-kind donations in lieu of monetary donations.
While you may be reluctant to partner with a for-profit business, these days there are many socially responsible corporations. If you can find a business partner that is aligned with your nonprofit’s mission and values, this could be a valuable funding source. Corporate sponsorship can also provide free publicity to your nonprofit when the company announces and promotes your partnership, which can further boost awareness and revenue.
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9. Donation Crowdfunding
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.
10. Resource Donations
As with volunteers, resource donations won’t provide your nonprofit with an influx of cash, but it may help you save some. Resource donations are when a business donates products to your nonprofit. Whether it’s chairs and tables for a fundraising event, or food for a food bank, these donations can take many forms.
To orchestrate resource donations, you’ll want to communicate with businesses well before important dates and events. There may be extra paperwork involved, and not every business you contact will be able to help, but you may create long-term relationships with businesses that support your mission.
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11. Events
Fundraising through events, either online or in-person, is a tried-and-true way to raise money for a nonprofit. Whether you host a walk-a-thon, hike-a-thon, gala dinner, concert, or online auction, a charity event can engage current donors and also attract new ones. Live events can also help raise your organization’s visibility and brand, as well as help build up your mailing list.
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.
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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.
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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).
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.
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