The federal government is a major source of funding for nonprofit organizations, awarding grant money for a wide range of programs. By law, the federal government can't use grant money to buy property or fund activities that benefit it directly. Instead, nonprofit grants fund programs and organizations that work for the public good or fulfill a social need.
Nonprofit grants aren't loans or entitlements. Nonprofit organizations must apply for grant money and compete with other groups seeking the same funds. Nonprofits that receive federal grants have no obligation to pay the money back, but they may need to provide evidence of how the money is put to use. Federal grant budgets change from year to year, and nonprofits must apply for each grant, as there are no automatic or recurring grants.
Federal grants go toward funding many different types of nonprofit groups. Besides administrative nonprofits such as state and local governments, grants fund nonprofit organizations with 501(c)(3) status. School districts and private universities may also receive nonprofit grant funding. Native American governments and organizations, public housing authorities and certain small businesses are also eligible to receive nonprofit grants.
Nonprofit grants provide an important source of funding for various organizations. The grants that go to local governments help municipalities provide basic services and avoid cutting government jobs, thereby reducing unemployment. Education grants promote the fields and disciplines that the federal government deems most necessary to sustained economic growth and social stability. Finally, nonprofit grants free nonprofit organizations from the need to seek loans from private sources and pay interest or invest heavily in fundraising efforts.
Nonprofit grants are in short supply, especially when the federal budget is strained and lawmakers cut grant funding. This means that competition for nonprofit grants is fierce. Nonprofit organizations may spend a great deal of time and money applying for grants, employing full-time grant writers and researchers to increase the chances of acquiring federal funds. Nonprofit grants are also unpredictable, as there's no guarantee that a given source of funding will be available in the future.
Rather than rely solely on nonprofit grants, organizations must often diversify their revenue sources. This may include setting up an endowment of regular contributors, seeking corporate sponsorship or making an aggressive fundraising push to members of the local community. For local governments, raising taxes is one way to get money that federal grants would otherwise supply.