Donor Advised Funds and Other New Routes to Funding
If you’re relying only on a traditional methodology to get grants the chances are you might be missing out on funds for your nonprofit.
Grant making is not untouched by influences that continuously transform philanthropy. Grant decision makers are becoming younger and more diverse as one generation of philanthropists passes the torch to the next. Social media has powered sweeping social movements that challenge funders to listen, learn, and reprioritize. Changes in tax law and government policies put pressure on traditional grant makers to fill an anticipated funding gap.
Maximizing funds for your nonprofit organization requires being nimble to adapt to new ways of communicating with funders and aligning to their priorities. It also requires being attentive and responsive to new sources of funding opportunity.
Below we highlight three emerging sources of grants that are likely to grow more prominent in the evolving grant funding landscape.
1. Donor Advised Funds
Donor Advised Funds (DAFs) are on the rise. Grants made to charities from donor-advised funds were up by 27% in 2020 as compared to 2019. According to the National Philanthropic Trust, this is the largest increase in DAF grant making in the past decade. This growth has been driven in part by Congressional tax reform, since the increase in the standard deduction has the effect of incentivizing charitable giving via DAFs. Instead of giving directly to a nonprofit through an individual donation or a grant through a family foundation, DAF donors contribute directly to the community foundation or financial institution that houses their Donor Advised Fund. Annual disbursements from the fund aren’t required (as they are with a traditional foundation), so funds can sit until the donor is otherwise motivated. This means that the nonprofit organizations that stand to benefit are those that show the most enthusiasm, savvy, and success at influencing DAF donors to give. For more tips on attracting DAF donations, check out our article, Three Tips for Getting Donations from Donor-Advised Funds.
2. Social Impact Investments
Social impact investing combines the societal benefits of philanthropy with the financial gains of traditional investing: an investor backs a project by providing capital in the form of low-interest loans, lines of credit, or equity, and ultimately expects to see social and financial returns. Sometimes this backing comes to nonprofits from grant making foundations in the form of Program Related Investments (PRIs). The foundation benefits by getting back its investment, typically at lower-than-market rate returns. The nonprofit benefits from the immediate influx of capital, which can make it easier to attract and secure additional investment, such as unlocking a line of credit from a bank that was previously out of reach. Historically most PRIs have been provided to support community development and affordable housing projects, but foundations have increasingly branched out to other areas. The Marin Community Foundation, for example, provides loans to support projects as varied as human services, education, and environmental protection through its CommunityFirst Loan Fund.
That said, PRIs are not a suitable or likely revenue source for every or even most nonprofits. The process of seeking and obtaining a PRI is more complex than the process of getting a grant. Furthermore, PRIs still represent a small portion of the funds given from foundations to organizations, and are usually only made by foundations to existing grantees. As an example, The George Gund Foundation has made 26 PRIs in the last 34 years (since 1984) and explains that they PRIs “to nonprofits with a strong record of performance using Foundation grants.” Nonprofits interested in exploring PRIs as a funding source should begin by talking with the program officers of their most active and long-time grant funders.
3. Giving Circles
A grassroots movement in philanthropy has spurred groups of friends, co-workers, and neighbors to pool their charitable donations and give collectively. “Giving circles” are active in all 50 states across the U.S. and have given $1.29 billion in grants to nonprofits since the ’80s. They’ve become more popular and influential in the last decade (tripling since 2007) as social media has made it easier for individuals to connect. Every giving circle uses different criteria and process, but they tend to follow the same pattern: people contribute their own funds, gather to learn about different nonprofits and projects, and decide together how to grant the money. Grants can range from just a few thousand dollars to more than $100,000. Competing successfully for these grants begins with learning about the giving circles that are active in your community; 84% of giving circles have a local giving focus, as opposed to a statewide or national focus, according to a 2017 survey by Collective Giving Research Group. To find giving circles, check with your local community foundation and visit the Catalist website for a list of community giving circles in states across the U.S. Also, check out our interview with giving circle expert Jenny Neyer Berg, Chair of Catalist, an international network of giving circles.