Be Aware of Grant Benefits and Costs
Grants can be an attractive funding source, especially for nonprofits who need resources for mission-critical programs and services. Grants can come from foundations, corporations, and others to support causes that they care about. Government agencies provide grants in support of the public good, such as community projects. Unlike loans, grants do not need to be repaid. But that money is not entirely free. You need to be aware of the responsibilities that come with receiving and expending grant funds.
Grantors want to invest in organizations and programs that demonstrate stewardship and achieve results. Grant recipients need to have reliable, cost-effective controls and processes so they can clearly and reliably report how grant requirements were met and funds were used. Failure to meet grant requirements, even unintentionally, can result in having to repay grant funds and denial of future grant funding requests.
How to Make Grant Funding Work for your Organization
Addressing these five important questions before applying for grant funding will simplify the process, reduce overall costs, and ensure compliance with the grant agreement.
1. Does the grant’s purpose fit within your operations and services?
Be sure to understand any restrictions placed on the use of grant funds. Determine whether those restrictions fall within your mission or objectives. Grants for activities that are not part of your core operations create additional costs and detract from existing programs and services. Nonprofits could risk their designation from the IRS by engaging in activities that are not part of their mission.
2. Do you have the capacity to deliver the grant’s program or service?
Grants often cost more to manage than you think by adding to your workload and taking resources from your other operations. Identify the people and tasks necessary to manage the grant and deliver the grant-defined objectives. Determine whether necessary people and equipment are available or need to be found, at some cost. Assess whether existing activities will be interrupted or reduced.
3. Can you produce the necessary financial and operational reports?
Grant recipients must be able to produce clear and reliable financial and operational reports. Reporting requirements vary; however, most grantors require an accounting of grant receipts and disbursements, as well as a description of how the grant funds were used and what accomplishments were achieved. If those reports cannot be readily produced using your existing systems and processes, you may want to reconsider whether grants are an appropriate option.
4. Do your grant proposals include administrative and reporting costs?
Many grants allow recipients to budget for administrative costs as part of their proposal, expressed as a percentage of the grant amount. Administrative cost percentages must be reasonable and customary, and cannot be exceeded even if actual administrative costs are greater than anticipated.
5. Do your processes comply with applicable federal and state regulations?
Federal, state, and pass-through awards come with strict requirements that may not be part of your organization’s day-to-day procedures. Requirements include how labor costs are substantiated and how procurement decisions are made and documented. Being aware of and complying with applicable grant regulations is essential for deciding whether government grants are for you.
The Bottom Line
Knowing what is involved with grant funding before you apply will save you time, energy, and money. If your organization feels good about its answers to the five questions, grants could be a great option for expanding your programs or funding your next special project.