With so many funding options available for nonprofits, you may be asking yourself: What’s the difference between grants and donors? Which one is the best fit for my mission-driven organization? Well, we have some good news!
In this article, we will share with you some similarities and differences between grants and donors, explain how your nonprofit can benefit from both, and provide resources to support your research for them.
Read on to learn how to maximize your organization’s sustainability by leveraging these two funding opportunities.
How Do Nonprofits Typically Receive Funding?
Before we dive into comparing grants and donations, let’s explore how nonprofits typically receive funding. Nonprofit funding may be referenced by several different names including revenue, income, and funds to name a few. We will use these terms interchangeably throughout this article.
To accomplish their organizational goals and objectives, nonprofits generally pursue several different revenue streams to help fulfill their mission. Securing a diverse funding portfolio is essential to a nonprofit’s funding strategy because it helps them ensure financial sustainability.
The following is a list of seven common funding sources found in the nonprofit sector:
- Fee for Service
- Donations (In-Kind and Individual)
- Board Dues
- Corporate Sponsorships
Funding opportunities are generally accessible from three sources: individuals, corporations, and government agencies.
An individual donor may give because of personal beliefs and values (i.e., a love for animals may empower someone to donate to the SPCA or their local animal shelter).
A corporation may give back to the community where their customers and employees live and work through an organization whose mission aligns with theirs (i.e., giving to a local nonprofit to help alleviate food insecurity).
A government agency–city, county, water and school districts–may be interested in funding regional programs (i.e., supporting affordable housing, community development, and after school projects).
What are Grants for Nonprofits vs. Donors to Nonprofits?
Here’s the deal: both grants and donations are “gifts.”
Ultimately, the drive behind both funding opportunities is to support the mission and sustainability of a nonprofit organization. However, how the funds are allocated is the key difference.
Grants are for the most part restricted funds allocated for a specific initiative, program, and/or project given to an organization often referred to as “the grantee.” Unlike a loan or line of credit, grants typically do not have to be repaid.
Funders, often referred to as “the grantor,” may include public and private organizations, philanthropic and community foundations, government agencies, and individuals.
The funder of a grant will set the terms, conditions, and purpose for the funding. The grant award must be used for the predetermined project only. To be awarded a grant, there is typically a comprehensive application process, often referred to as an RFP, where you may be required to write and submit a proposal describing the project you are seeking funding for.
For example, a stateside health agency (i.e. California Department of Public Health, CDPH) may request applications from community based organizations, health clinics, etc. to apply for funding to educate their communities about receiving the vaccine.
Oftentimes, grantmakers receive more applications than they have funds available for, so winning a grant can be a competitive process. It’s possible to create a stellar proposal and then still not receive any funding.
If a nonprofit is awarded grant funds, a contract is executed and signed by both parties. Periodic and final reports may be required to highlight the success of the proposed project and its impact in the community.
On the other hand, a donor may opt to gift your organization with a donation that does not have to be paid back or applied for. Donors are primarily individuals with a vested interest in your nonprofit’s mission but can also be an entity.
The funding received from a donor is primarily unrestricted and can be used for whatever purposes the officers and trustees choose—unless the donation is a donor-directed gift and the donor specifies to whom the gift should be given.
If you're looking to start building your own nonprofit donation request form, get started quickly by using our Nonprofit Donation Request Form Template. The template is made in Canva, an an easy-to-use creative design tool. You can jump right in, change colors, add your logo, and adjust the copy so it fits your brand.Why start from scratch when you can use one of our templates?
Key Differences Between Grants and Donors
So, what are the key differences between grants and donors? Let’s take a closer look:
Quick Tip: When developing the program’s budget, a nonprofit organization may want to consider using donations with unrestricted funds for unallowable expenses from an existing grant.
Choosing the Right Funding Strategy for Your Nonprofit
Just like us humans, no two nonprofits are alike. Thus, the fundraising strategy your nonprofit chooses will differ as well.
As mentioned earlier in this article, the vast majority of fund developers recommend having a diverse funding mix. The reality is only you and/or your organization can make that determination.
Selecting the strategy that best fits the vision of your nonprofit is contingent upon a number of factors. Organizational capacity is a key factor to consider as some fundraising efforts require much effort.
For example, grants often require a substantial time investment. You have to find good fit funders and then read, complete, and submit the application along with the required documentation. Even after all that work, there is still a chance your proposal could be rejected.
Another factor to consider is need.
The bigger the need, the more personnel, resources, and funding your organization will require. You will want to consider how many people your organization serves annually and how much per person it costs to serve them.
Lastly, but should be a top priority, is sustainability:
1. How will you sustain your organization?
- It’s important to have a plan in place to sustain your nonprofit’s services even after initial funding opportunities have run out. For example, if you received a grant to start an afterschool program for a low-income community, do you have plans in place to keep that program running after the initial grant money has been used in full?
2. Where do you see your nonprofit in 5, 10, and even 15 years?
- Having a long-term vision for your organization can help you anticipate and plan for necessary costs in the future. For example, if your nonprofit plans to outgrow its current facilities, do you have a long-term strategy for raising capital for a new building or renting a larger space?
3. Have you developed a budget projection for the next 3–5 years?
- You may be financially solvent now, but what about over the next few years? Part of running a successful nonprofit requires thinking ahead and planning for changing needs. Hiring new staff, expanding programs, and developing new initiatives all incur costs and you don’t want to find yourself in a position where you don’t have enough funding.
Taking your organizational capacity, needs, and sustainability plans into account should help you determine which funding strategies will be best for your nonprofit to pursue.
If you decide to seek grants but are unsure which ones to apply for, you may find Instrumentl valuable. Instrumentl brings grant prospecting, tracking, and management to one place.
With Instrumentl, development staff are more effective and efficient at finding the right grants for their nonprofits, saving three hours a week on average and increasing grant application output 78% within a year of using the platform.
The image below is a sample of Instrumentl’s grant research tool that matches your organization's projects/programs with the funders who want to sponsor them.
In this example above, we’ve set up a search for Air Quality related grants, and the Matches tab is outputting for us 110 unique opportunities that are both open and accepting grant applications.
This means that we’d be able to immediately shortlist these opportunities and begin working on them! Instrumentl is a bit like having a personal grant assistant to help you in finding the best good fit funders for your nonprofit and its initiatives.
Wrapping Things Up: Grants vs. Donors: What's the Difference?
By now you should be able to identify similarities and differences between grants and donors, be more knowledgeable about how your nonprofit can benefit from both, and have resources to support your research and fund development plan.
Make sure to diversify your funding mix to maximize your impact and sustainability!
Spearheading the fund development of a mission-driven organization is no small feat! However, the reward is getting to experience the impact your nonprofit has on the communities where you live, eat, and play.
And in the case where you’re looking to level up your grant tooling, be sure to try out Instrumentl’s 14-day free trial here.