How to Approach Different Kinds of Foundations as a Nonprofit Grant Seeker - dummies

How to Approach Different Kinds of Foundations as a Nonprofit Grant Seeker

By Stan Hutton, Frances Phillips

Foundations are formed and governed in different ways. These differences may affect the way your nonprofit organization addresses them as a grant seeker. There are four basic kinds of foundations.

Independent foundations large and small

Most foundations in the United States are classified as independent, or private, foundations. Some of the country’s largest foundations, such as the Bill and Melinda Gates Foundation, the Ford Foundation, and the Lilly Endowment, Inc., are independent foundations, but many small- and medium-sized grantmaking foundations also fall into this category.

When conducting your research, note whether the foundations employ paid staff members who can answer your questions: If they do, they’re more likely (but not guaranteed) to consider grant proposals from organizations previously unknown to them.

Although they vary widely, the key characteristics that independent foundations share include the following:

  • They’re established with funds donated by individuals, families, or a small group of people.

  • Their purposes and modes of grantmaking are set by their boards of trustees, who may be family members or their appointed representatives.

  • Many of these foundations award grants primarily in the communities where they were formed, but they also may award grants in multiple locations.

  • They must file a 990-PF with the Internal Revenue Service each year.

Company-sponsored foundations and corporate giving

Corporations and businesses may support nonprofits by creating company-sponsored foundations, or they may award money directly from their company budgets. Some do both!

Whether the business manages its giving through a foundation or directly from company coffers, the staff members who coordinate grantmaking also may play other roles within the corporation — such as public affairs director or human resources manager. You may notice that many give away goods and services or provide technical assistance, and many of them support educational causes.

Common characteristics of company-sponsored foundations include the following:

  • They’re established with funds that come from a business or corporation.

  • Some of them maintain assets that they invest, and then they award grants from the money they earn on those investments. Many of them add to their grantmaking budgets when their business is having a profitable year. For this reason, their grantmaking budgets can fluctuate dramatically.

  • Often they’re governed by a board made up of company executives.

  • Most of them award grants in the communities where their employees live and work, and they see their grant giving as part of their role as good citizens.

  • Sometimes a company’s grants support organizations where its employees volunteer or contribute or that its employees recommend.

  • Some companies are cautious about supporting controversial causes that could alienate their employees or stockholders.

  • They must file a 990-PF with the IRS each year.

Corporations’ and businesses’ direct-giving programs share characteristics with company-sponsored foundations, but they have a slightly different profile. Consider some of the following characteristics:

  • All funds available for grants come directly from company budgets and depend on the business’s available resources. In lean years, the business may not support charitable causes.

  • Like company-sponsored foundations, businesses with direct-giving programs tend to award grants in the communities where their employees live and work.

  • Many corporate-giving programs want to receive public recognition for their gifts. They justify their charitable giving to their owners or stockholders as “cause-related marketing” and “good public relations.”

  • Gathering information about grants awarded through these programs may be more difficult because the businesses don’t need to specify their support of charities in their financial statements.

Because companies often want their gifts to be visible, you may want to consider the company’s policies and practices regarding such issues as domestic-partner benefits, staff diversity, energy consumption, or greenhouse gas emissions. The “Search Companies” section of the Foundation Directory Online provides links to an array of these corporate social-responsibility measures.

Many corporate-giving programs match contributions that their employees make to nonprofit organizations. When seeking information about your individual donors, ask whether they work for a company that will match their gift.

Community foundations

The first community foundation, the Cleveland Foundation, was created in 1914. Today, more than 730 such foundations exist nationwide. Community foundations have a different, advantageous tax status from other kinds of foundations. The IRS classifies them as public charities. Other characteristics that they share include:

  • They’re started with funds contributed by many sources, such as local trusts and individuals living in the communities they represent. Those communities may be as large as a state, or they may be a county or city.

  • Community foundations focus their grantmaking on the geographic areas in which they were established.

  • They’re governed by boards of directors made up of people who represent the communities they serve.

  • To keep their desirable public charity tax status, they must raise money as well as give it away. For that reason, even a very small community foundation has paid staff members.

  • Donors to community foundations may contribute to general grantmaking programs or may create donor-advised funds within their community foundations and play a role in recommending how to award grants derived from their contributions. The number of donor-advised funds in the United States is growing rapidly.

When reviewing a grants list for a community foundation, if you see a grant that doesn’t seem to fit within the foundation’s published guidelines, realize that it may have been awarded by a donor from an advised fund.

The grantmaking public charity category is broader than the community foundation category, but community foundations are the most common type. Some public charities focus on addressing specific topics or population groups rather than defined geographic areas. They, too, must raise money as well as give it away.

Operating foundations: Locked doors for grant seekers

Operating foundations don’t award grants. They’re formed to provide an ongoing source of support for a specific nonprofit institution — often a hospital or museum. When you come across an operating foundation, skip right over it!