Free Guide to Understanding Nonprofit Grants

What Are Nonprofit Grants and Where Do They Come From?

Nonprofit grants are funds that organizations distribute to other groups, individuals, or causes to support specific projects or missions. Unlike loans, grants do not require repayment. The money comes from various sources including foundations, corporations, government agencies, and individual donors who want to support charitable work.

Foundations are among the largest grant providers. These organizations hold endowments—large pools of money—and distribute portions of their earnings each year as grants. According to the National Philanthropic Trust, foundations in the United States distributed over $80 billion in grants in 2022. Some foundations focus on health research, others on education, environmental conservation, or community development.

Government agencies also award nonprofit grants, though these typically come with specific requirements and restrictions. Federal agencies like the Department of Education, National Institutes of Health, and Environmental Protection Agency offer grant programs. State and local governments provide grants for regional priorities. For example, a city might offer grants for youth programs, while a state might fund rural healthcare initiatives.

Corporations donate grant money as part of corporate social responsibility programs. A technology company might fund STEM education, while a pharmaceutical company might support health research. Corporate grants often align with the company's business interests or values.

Individual donors also create grant programs. Wealthy individuals sometimes establish donor-advised funds or private foundations to distribute money to causes they care about. Family foundations, created by multiple generations of a family, represent another significant funding source.

Practical Takeaway: Understanding where grants originate helps organizations think strategically about potential funding sources. A nonprofit focused on environmental protection might research both environmental foundations and corporations in the green energy sector. This knowledge shapes how organizations develop their funding strategy.

Types of Nonprofit Grants and Their Purposes

Nonprofit grants come in several distinct types, each serving different purposes and funding different activities. Learning about these categories helps organizations understand what funding might support their specific work.

Project grants fund specific, time-limited initiatives. An animal shelter might receive a project grant to build a new medical facility. A literacy program might get funding for a six-month tutoring expansion. Project grants typically have clear start and end dates, defined budgets, and measurable outcomes that grantmakers want to track.

Operating grants (or general operating support grants) provide funding for an organization's day-to-day expenses. These funds might cover staff salaries, office rent, utilities, and administrative costs. Operating grants give nonprofits flexibility to use money where they need it most. However, these grants are often harder to secure because funders frequently prefer supporting specific programs rather than general operations.

Capacity-building grants help organizations strengthen their infrastructure and systems. Money might go toward staff training, technology upgrades, strategic planning, or developing new evaluation systems. A nonprofit might use a capacity-building grant to implement accounting software or to send staff to leadership training. These grants recognize that strong organizations deliver better services.

Research grants fund investigations into specific topics or problems. Universities, medical centers, and research organizations commonly pursue these grants. The National Institutes of Health alone distributed approximately $41 billion in research grants in fiscal year 2022 to study diseases, treatments, and public health issues.

Program expansion grants fund growth. A food bank with capacity to serve more people might receive funding to open a new location. A college preparation nonprofit might get a grant to expand to additional high schools. These grants recognize successful programs worth scaling up.

Scholarship and fellowship grants provide money for individual students or early-career professionals. A community foundation might offer scholarships for low-income students pursuing nursing degrees. Professional associations might award fellowships to emerging leaders in their field.

Practical Takeaway: Organizations should understand their own funding needs before seeking grants. A nonprofit needing to expand a proven program should look for program expansion grants. One building systems should pursue capacity-building funding. This alignment between organizational need and grant type increases success rates.

How Grant Funding Decisions Get Made

Grant funding decisions involve multiple stages and many people. Understanding this process helps explain why some organizations receive funding and others do not. The process is rarely based on chance and typically follows structured criteria.

Grantmakers begin by setting priorities and program guidelines. Foundation leaders, corporate grant committees, or government officials decide what causes or issues they want to support. The Gates Foundation might prioritize global health and development. A local community foundation might focus on education and youth services in its county. These priorities guide which applications receive serious consideration.

Organizations then submit detailed written requests describing their work, needs, and plans. Grantmakers review thousands of submissions annually. According to Foundation Center data, major foundations typically receive far more applications than they can fund, with acceptance rates sometimes below 5 percent. Applications must clearly explain what the organization does, why the grant matters, how much money is needed, and how the organization will measure results.

Foundation staff screen applications for basic alignment with their priorities. An application for farm equipment likely will not advance at a grantmaker focused on arts and culture. Staff also check that the applying organization meets basic requirements—for instance, that it holds 501(c)(3) nonprofit status if that is required.

A panel of reviewers then evaluates promising applications against specific criteria. Reviewers might include foundation board members, professional staff, community members, or subject matter experts. They assess organizational track record, the quality of the proposed work, budget realism, and evaluation plans. Some grantmakers use scoring rubrics that assign points to different criteria.

Site visits sometimes occur. Foundation representatives may visit a nonprofit's facility, meet staff, and see programs in action. This helps grantmakers verify that an organization can do what it claims and that the environment matches what was described in the application.

Final decisions come from foundation leadership. A board or senior committee makes the ultimate determination about which organizations receive funding and how much each receives. Grantmakers then notify all applicants of decisions, typically providing feedback to rejected applicants and detailed awards to successful ones.

Practical Takeaway: Organizations writing grant requests should learn exactly what each grantmaker prioritizes and how they make decisions. Many foundations publish their review criteria and decision processes online. Tailoring applications to these specific priorities and criteria substantially improves chances of success.

Key Information About Grant Requirements and Restrictions

Grants come with conditions. Grantmakers attach requirements to their funding to ensure money accomplishes intended purposes and to maintain accountability. Organizations must understand these requirements before accepting grant funds.

Reporting requirements are nearly universal. Grantmakers want to know how organizations used funds and what results occurred. Most grants require written reports at specific intervals—perhaps quarterly or annually. Reports typically include financial accounting, program updates, and outcome data. Some grantmakers require annual site visits to verify spending and progress.

Budget restrictions often exist. A grantmaker might fund program costs but not administrative salaries. Another might cover equipment but not travel. Some grants allow organizations to use portions for overhead costs, while others do not. Grant agreements spell out exactly what expenses are permitted. Organizations that spend grant money in prohibited ways may need to repay funds.

Timeline restrictions apply. Grants have defined periods during which money must be spent. A grant might specify that funds must be used within one year. If an organization does not spend money by the deadline, unspent portions typically revert to the grantmaker. Some grantmakers offer no-cost extensions if circumstances change, but this is not guaranteed.

Program specifications may be detailed. A grantmaker might require that a youth program serve a minimum number of participants or achieve specific attendance rates. Grants for research might require that all findings be published. Restrictions exist to ensure grantmakers' money creates the impact they intended.

Matching fund requirements appear in some grants. The grantmaker might provide 50 percent of project costs if the organization provides the other 50 percent from other sources. Matching requirements mean organizations must secure additional funding before receiving grant money. Federal grants particularly often include matching requirements.

Restrictions on lobbying and political activity apply to many grants. An organization receiving a grant might be prohibited from using any of its funds—not just grant money—for political campaigns or extensive lobbying. These restrictions come from tax law and grantmaker policies.

Compliance audits can occur. Grantmakers may hire auditors to verify that organizations spent money appropriately and followed all requirements. Organizations must maintain detailed financial records and documentation to support audit compliance.

Practical Takeaway: Organizations should read grant agreements thoroughly before accepting