Grants are one of the most common revenue sources for nonprofit organizations. Charities use grants to fund many types of projects and initiatives as part of an overall development strategy including individual, corporate and annual donations. Grant funding can be categorized by two different primary criteria: source and purpose.
1. Grant Source
Charitable grants can be categorized by the source of the grant funding. The three principal sources of grants are traditional foundations, family foundations and businesses. Traditional foundations are grant-making organizations that make awards according to detailed criteria and a standardized application process. Family foundations are generally more liberal in their grant-making criteria and often take the interests and relationships of the founding family into consideration when making awards. Businesses make grants through corporate foundations that often consider the goals of the supporting business when making grant awards.
2. Grant Purpose
Grant awards may be segmented by the purpose for which the grant is awarded. The most common grant purpose types are project support and operating support. Project support grants are awarded to help a nonprofit organization carry out a specific project’s activities. Such projects generally have mutually agreed upon outcomes and deadlines. Operating support grants are less common and are awarded to fund a nonprofit’s general overhead and administrative costs. Often, this type of grant is awarded to a new nonprofit or one that is expanding its programs and offerings.
3. In-Kind Grants
Some foundations offer in-kind grants to nonprofit organizations. Through these grants, the foundation offers a nonprofit goods and services to support its mission instead of a monetary gift. Common types of in-kind grants include back office services, where a foundation provides accounting, human resources, legal and other types of administrative support free of charge to small charitable organizations, and marketing grants, where a newspaper, television station or website designs and runs advertisements for a nonprofit at no cost to the organization.
4. Donor-Directed Grants
Donor-directed foundation grants are a cross between foundation grants and individual gifts. Foundations operating under this model hold funds donated by families and wealthy individuals, who then direct where some or all of that money should be granted. While the funds granted come from the donor-directed foundation, the gift is directed by an individual or group of individuals. For that reason, nonprofits normally cultivate these grants under individual giving.