The big challenges of getting funding for small nonprofits
Funding for small nonprofits is scarce by design, but not because of a skills gap. Learn why smaller grassroots organizations are locked out of foundation grants and five ways you can break through.
A majority of U.S. nonprofits are very small organizations that run on less than $50,000 a year. They’re doing essential grassroots work in every community, yet they only get about 0.4% of foundation funding.
Why are these nonprofits so underfunded? In a recent LinkedIn Live conversation, we dove into Candid’s data on funding for small nonprofits, the barriers they face, and what you can do about it.
Small nonprofits aren’t invisible just because they lack capacity
Of very small nonprofits, only 22% got even one foundation grant between 2019 and 2023, compared with 72% of other nonprofits.
It’s easy to assume these organizations need to get better at grant writing, build stronger relationships, or learn to work the system.
That’s the wrong conclusion.
“It’s not just a matter of capacity,” said Grace Sato, director of research at Candid. “They’re excluded from foundation grants from the get-go. They’re just not on the radar of foundations.”
Many foundations require nonprofits to be a certain number of years old or to have specific financial infrastructure in place. Very small nonprofits tend to be younger organizations that lack infrastructure, Grace noted. And when they do get through the door, they’re far less likely to get funded again. That’s not a skills gap. That’s a locked door.
The data gap makes it worse
Very small nonprofits with gross receipts under $50,000 file the very short IRS Form 990-N. It’s designed to reduce administrative burden, but it also omits basic information like mission statements, who they serve, and how much they spend on programs.
That makes it harder for funders to find them, for researchers to study them, and for the sector to see the lack of investment.
“They represent such a large part of the sector, and yet, research about the nonprofit sector often excludes them,” said Grace. “That’s why we called them ‘the invisible majority.’”
They could choose to file the longer Forms 990 and 990-EZ, but that isn’t a priority when there are people in desperate need of services. “These are the nonprofits that are out there doing the work,” said Ivonne Simms, educational programming manager. “They’re not just leading. They’re out there doing the programming. They’re raising the money. They’re out there in the community. They don’t really have time.”
The systemic barriers to funding for small nonprofits are real
Candid’s research with ABFE on Black-led nonprofits found the problem goes deeper for some organizations. Black nonprofit leaders described being held to double standards: being excluded from funder networks, having their expertise used for trainings without compensation, or getting funding but being treated as marketing props instead of partners.
“They’re kind of like, ‘[W]e need to figure out different ways to do things because we’ve not been invited. It’s clear that this has not been built for us. And so maybe we just need to find other ways,’” said Ivonne.
But changing the system and increasing funding for small nonprofits will require foundations to step up. “The onus is not just on nonprofits,” said Aleda Gagarin, vice president of influence. “Funders should be doing a lot more…taking a chance on small nonprofits with big impact in their communities.”
Your power is real, even if it doesn’t feel that way
Despite the power dynamic, small nonprofits have more leverage than the funding numbers suggest. Foundations cannot exist without the work nonprofits do, and they’re legally required to pay out at least 5% of their endowment every year.
Ivonne has seen what happens when nonprofit leaders take this in. “Once they feel very confident and they’re owning the work that they do and they realize how much power they have, that kind of changes the dynamic.”
That means showing up as the expert you are: asking questions, setting the tone for a relationship early, and being willing to call a funder in—respectfully—when you’re being overlooked.
“If they’re just missing the fact that they’re not including groups like yours at the table, you’re giving them the opportunity to change behaviors,” said Aleda.
How can I get my small nonprofit funded?
Here are five things nonprofits of any size can do today.
- Claim your Candid profile. Nonprofits with a Gold Seal of Transparency receive 62% more in contributions on average than those without one. It also makes you discoverable to foundations and donor-advised funds. And nonprofits with less than $1 million in expenses can access Candid’s fundraising tools for free.
- Get visible in your community. Join local gatherings, speak at events, show up where funders and businesses are. One leader joined her Chamber of Commerce and found herself surrounded by small businesses eager to help.
- Leverage the networks you have. Your current funders know other funders. Ask them directly to introduce you to foundations supporting similar work.
- Put your board to work—and be specific. Don’t ask your board to “help with fundraising.” Send a targeted list of prospects and ask: Can you make an introduction? Give them draft social posts. Make it easy to say yes.
- Build your own funding path. Peer networks, community relationships, and alternative funding sources are their own form of power building. Leaders who create systems outside the current system are doing something real.
About the authors
