Different types of grants and funding options for nonprofits 

For-profit ventures can have a tough time securing funding, despite being able to promise investors a return.

As a nonprofit leader or development manager, you understand how important it is to look beyond the commercial capital markets.

Grant funding for nonprofits is one of the primary alternatives and is often vital for helping your projects move forward.

This article explores the types of grants available, categorized by purpose and origin, comparing state-funded support with non-government grants as well as the application process. 

A good understanding of grant sources can help your organization successfully find and apply for the right funding.

Key takeaways

• Grants are categorized based on their intended use.
• Grants originate from government or private sources.
• The application process includes researching funding options, writing a compelling proposal, ensuring a polished presentation, following the funder’s guidelines, and staying in touch with the prospective funder.
• Use adequate data and research to support your grant application.
• To improve chances of grant renewal, show consistent performance and thorough reporting, deliver timely reports, and continuously engage with the funder.

Here’s what we’ll cover

What are the different types of grant funding for nonprofits?

Nonprofit organizations operate under various models, each with unique financing needs and capabilities.

For example, a charitable organization can resort to individual donations and fundraising events, whereas foundations are more suited to endowments and large donations.

Advocacy groups can turn to advocacy grants and membership fees, and community organizations do better with local government grants and community fundraising.

While environmental projects often attract corporate sponsorships.

All this is to say that there are many different kinds of grants, and a good understanding of the options can help your organization identify the most suitable funding opportunities.

Let’s compare some basic grant types in terms of their intended purpose and the source of the funding.

Grants for projects by purpose

Program grants

Directed at specific initiatives, these are for nonprofits that are implementing new projects or expanding existing ones.

 Capital grants

These fund major expenses like renovations to your assets and buildings, or equipment purchases—anything that is essential for your organization’s infrastructure development.

Capacity-building grants

Some programs are designed to help strengthen your organization’s ability to operate effectively, funding activities like leadership training or technology upgrades. 

Operating grants

These cover general operating expenses, such as staff salaries, rent, software and utility bills.

This is one case in which supporting entities may provide flexible funds with fewer restrictions to ensure your nonprofit’s sustainability. 

Research grants

This covers funding for investigations and studies to advance knowledge and understanding in the field in which you operate.

When applying, you can specify that you seek support for data collection, analysis, experimentation, or dissemination of research findings, among other tasks.

These grants are mainly applicable to nonprofits that rely heavily on scientific discoveries or social innovation.

Some well-known examples would be organizations like the National Geographic Society (exploration and research), and the Chan Zuckerberg Initiative (scientific research and social change).

Grants for projects by source type

Grants can originate from government or private sources, but under several different categories depending on the donor entity’s mission or values. 

On average, nonprofits receive 30-40% of their funding from government sources and 60-70% from private sources, according to studies by the National Council of Nonprofits.

Main types of government grants

Typically, there are a wider range of government grants than private sector grants.

This reflects the diversity of agencies, their hierarchies and their geographical coverage. 

Here is a list of types of government grants:

1. Project grants

These are grants allocated through competitive processes to projects serving areas like research, community development, or public services.

These cover general areas of societal development like health, education, and environment.

2. Formula grants

Nonprofits addressing the needs of a specific population or community may do better with formula grants.

These are based on predetermined factors like population size or unemployment levels and are awarded directly to organizations that match the need.

For example, an organization providing after-school programs in a low-income area may be approached by an agency monitoring the number of children living below the poverty line.

3. Block grants

Even if your nonprofit doesn’t meet the strict criteria of formula grants, you might find support through block grants.

These empower state and local governments to put federal resources towards community needs in their area.

The local authorities are free to choose nonprofits as they see fit, and popular categories include affordable housing, public health, or community development.

4. Categorical grants

Targeted for highly specific purposes or categories of projects, with strict guidelines and restrictions on how the funds can be used.

For example, imagine your nonprofit’s goal is to improve access to prenatal care in underserved communities.

To qualify for a grant within this category, you would have to prove that waiting lists are excessive compared to neighboring areas with similar demographics.

You would also need to outline a measurable plan, such as hiring additional staff, increasing clinic hours, or offering mobile services.

5. Earmark grants

Does your nonprofit have a strong project that aligns with a specific legislator’s priorities?

You may qualify for an earmark grant, also known as Congressionally Directed Spending.

For example, if you’re focused on environmental conservation and your house representative is a strong advocate for clean energy, you are well-positioned for this type of funding.

While earmark grants often bypass the standard competitive process, they do require strong relationships with legislators and a compelling case for the project.

Proposals are subject to strict transparency guidelines such as public disclosure of the intended recipients, and detailed explanations of how the project aligns with public interest and legislative goals.

6. Discretionary grants

Typically awarded by federal and state government agencies, these address regional or statewide issues.

For example, they are ideal if your nonprofit specializes in tackling localized challenges like treating addiction or improving water quality in a specific watershed.

These grants are assigned through a competitive process, where applicants are evaluated on merit and alignment with funding priorities.

The discretional category can include project grants and categorical grants.

Non-government grants

Private grants come from foundations, corporations, and individuals.

These grants have much greater flexibility in their allocation decisions compared to government funding. 

The application processes for private grants are less stringent as these grantmakers often decide in advance what kinds of causes are the best fit for their organizational values and missions. 

Among corporations in particular, philanthropic decisions may be determined by business cycles, often tied to quarterly budgets and deadlines. 

Because of this, nonprofits receive non-government funding much faster.

Here are the main types of non-government funding sources:

1. Foundation grants

Awarded by charitable organizations, these grants are as diverse as the causes that arise across all societies.

Unlike government grants, which tend to focus on issues with broad public appeal or voter impact, foundation grants can target a wide range of niche or specialized causes.

For example, the Rockefeller Foundation played a key role in eradicating hookworm in the Southern US.

This flexibility allows foundations to support innovative, experimental, or less mainstream initiatives.

2. Corporate grants

Enterprises have always seen value in community outreach, but with the rise of the internet and more widespread social commentary, Corporate Social Responsibility (CSR) has come to be an important part of brand positioning.

Corporations can act relatively fast and have the option of providing sponsorship to external campaigns.

They may be open to requests for backing from individuals planning a challenge or will view large-scale initiatives like telethons as good opportunities for brand exposure.

Many clothing companies, for instance, have initiatives to donate percentages of their sales to environmental groups.

3. Community and family foundations

Often a byproduct of wealth created through business activities, these foundations allow individuals to channel their personal wealth to humanitarian causes.

They often take on innovative or large-scale challenges that drive meaningful change.

For example, the Bill & Melinda Gates Foundation has invested billions in health, environmental and social causes globally, such as reducing polio through vaccination campaigns, surveillance, and research. 

4. Crowdfunding

Thanks to online platforms like Kickstarter, GoFundMe or Indiegogo, anyone can launch a campaign to raise funds from family, friends and the wider community.

And of course, there’s no reason why nonprofits shouldn’t also tap into this resource.

With the right strategy and a strong social media presence, these campaigns have the potential to go viral, attracting widespread support and raising significant sums.

According to Giving USA, in 2022, individual donations–including crowdfunding and community foundations–accounted for roughly 70% of private sector charitable funding in the US, followed by foundation grants at up to 20%, and corporate funding at up to 10%.

One of the best things about private funding is that there is no formal limit to the number of sources you can approach. 

By researching their history of supporting causes and cultivating donor relationships, you can significantly expand your funding opportunities.

How to apply for grants: The basic steps

We’ve seen that government grants are often subject to restrictions and specific application procedures, and that evaluating the private-sector options could be equally time-consuming.

In both cases it’s worth your while to follow a well-thought-out application strategy.

Here are some essential guidelines:

Research the funding options available

How do you find grants?

A simple online search is a great start, but check carefully to identify fundraising sources that align with your financial capabilities, mission and needs.

Check eligibility

The entity offering the grant will specify criteria that you need to meet to prove your eligibility as an applicant.

Be sure to allow time to confirm that you qualify.

Write a compelling proposal

Your pitch for a grant must include a needs assessment, clear goals, detailed objectives, and a well-structured budget.

Polished presentation

Ensure your application is well-formatted and visually appealing.

Use consistent spacing and headings to organize information so that evaluators can quickly and correctly assess the offer.

Be sure to follow any specific formatting guidelines required by the funder.

Prove your experience

Use historical data about your organization’s track record to demonstrate past successes.

Relevant metrics would be the number of beneficiaries served or years over which a positive outcome has persisted.

You could also include testimonials and citations of previous projects to illustrate your mission’s impact.

Learn the application procedure

Carefully follow the funder’s guidelines, ensuring all required documents are included.

Investigate how long it will take you obtain these supporting materials, particularly if they include government accreditation.

Follow up

Even before the application timeline concludes, use any opportunity to stay in touch with the prospective funder.

This reinforces your commitment to the project, keeps you up to date with possible changes to the procedure, and helps both sides iron out any details that may have been overlooked.

Best practices for securing different kinds of grants

Beyond selecting prospective donors and following their application guidelines, consider these best practices:

Adequate data and research to support your case

Identify and list the government agencies that host data relevant to your cause (e.g. census data, public health statistics, or education metrics).

Refer to previous programs you have conducted, showing how much they achieved or why they need additional support.

Contact scientists and experts on the issue—and even other nonprofits from the same sector—to see if they are willing to share data.

Ensure compliance

If your projects involve construction, you might want to check local zoning laws or building codes.

If you’re looking to provide services to children and other vulnerable populations, be sure to adhere to health department or child protection regulations.

Overlooking these requirements could delay the project or jeopardize funding—or worse, could result in legal penalties and bad press for your organization.

Long-term relationships with potential funders

Even when not actively bidding, it’s always good practice to stay relevant in the field you aim to support.

Do this by seeking opportunities to network with funders and related associations, attending events, and participating in online groups where they are active.

Evaluate the grantmaker’s competency

Before applying, research the grantmaker’s track record in funding similar projects or causes.

Look for indicators of efficient grantmaking processes, such as clear guidelines, timely fund disbursement, and effective communication with grantees.

How easy is grant funding renewal?

Grant renewal processes vary, but one common aspect is the importance of being able to show consistent performance and thorough reporting.

Funders will check that you have effectively used your initial grant and achieved the promised outcomes.

Consistency in meeting goals and maintaining good relationships with funders is crucial.

Challenges in renewal often include changes in the funder’s expectations and your effectiveness in providing detailed evidence of the project’s impact.

To improve chances of renewal, maintain comprehensive records that track changes, deliver timely reports, and continuously engage with the funder.

While renewal can be challenging, use of a grants management system significantly enhances the likelihood of ongoing support, because it represents a track record of success and good stewardship of funds.

Stay in control once you know where to get grant money

Understanding the different types of grants, from government-funded initiatives to private sponsorships, is the first step to making your fundraising efforts more strategic.

Once you know which organizations to target it’s also easier to craft compelling proposals and build strong relationships with prospective funders.

Choose the best tools for stress-free grant applications, management, grant tracking and billing.

Explore further our nonprofit accounting and management solutions to see how we automate and streamline the grant process with greater efficiency.