Grants are awarded by a variety of sources including private and family foundations, corporate foundations and government (i.e., federal, state, local). The largest grantor is the federal government, which gives the vast majority of its grants to state governments and the major cities in the country. Large, well-established non-profits can and do receive grant funding directly from the federal government. However, small and mid-size non-profits are more likely to receive government funding from the states or cities. Non-governmental grants awarded by private and corporate foundations are a very important source of grant funding for all non-profits.
Private Foundations have a revered place in American philanthropy. Recognizable families in American industry have created private foundations bearing their names. During the nineteenth century, it was industrial giants such as Carnegie, Rockefeller, Alfred Sloan, and Ford. In the late twentieth century, it was names associated with new technology: Gates, Dell, Hewlett, Packard, Verizon and Genentech.
During the last 150 years, banking families and the companies they created have started major private foundations with names such as Mellon, JP Morgan Chase, Wells Fargo, and Bank of America. More recently, pharmaceutical firms have emerged as major grantors and include household names such as GlaxoSmithKline, Pfizer, Abbott, Lilly, Johnson & Johnson, Bristol-Myers-Squibb, Merck and Novartis.
The Carnegie, Rockefeller, Ford and Mellon Foundations are no longer associated with the families of the great barons of industry that created them and are no longer managed by the families. Foundations created in the latter part of the last century such as the Gates Foundation are managed by family members and their priorities reflect the interests of the family.
The largest foundation in the country is the Bill & Melinda Gates Foundation, headquartered in Washington State, with global interests awarding grants totaling more than $3 billion. No other US foundation is even close in size as determined by its total assets. The next largest, in terms of grants awarded, are pharmaceutical companies that provide patient access programs: GlaxoSmithKline, Abbott and Pfizer.
How likely is it that a small non-profit will receive grant funding from these grantor giants? A very small opportunity exists although never completely impossible if the organization has an extraordinarily interesting program or project. Big foundations, as well as the federal government, are drawn to big projects usually operated by organizations that have been in existence for many years and serve a large population. The strategy for small and mid-size non-profits is to collaborate with a large non-profit if the goal is to receive a grant from either the federal government or a major foundation.
Private Family Foundation
Most family foundations are small compared to the Gates Foundation. There are thousands of them in the country. A wealthy charitable couple or individual, who are not necessarily multimillionaires, start their own family foundation usually on the advice of a lawyer. An estate lawyer will probably recommend that any private family foundation start out with an asset base of $2 – $3 million. There are tax benefits for creating a private family foundation. It can minimize a wealthy family’s estate tax liability. It avoids capital gains tax on the sale of appreciated propriety or stock assets by contributing them to the foundation. Family members are usually involved and may serve as the Executive Director and/or members of the Board of Directors. It is a grand ego booster assuring that the family’s name continues into perpetuity.
Private Family Foundations receive tax benefits and therefore must meet certain financial requirements such as distributing at least 5% of its assets each year to public charities. That means a typical private family foundation with assets of $2 million is distributing approximately $100,000 in grants. For small non-profits (less than $1 million operating budget) these private family foundations are a valuable source of grant funding. But unlike the government, disbursements and information about selected organizations is not needed to be known to the public (transparent). There is no requirement that private family foundations share their decision-making or rationale for their choices.
Where do non-profits find out about private family foundations and who runs them? There are two ways to research private family foundations.
First, look around your community and identify the wealthier members. These may not necessarily be the richest people. Look for the newly highly successful entrepreneurs who more likely to fund a private family foundation because they value the tax benefits and ego boosting prestige that comes with the creation of this legal entity. Read the local newspapers and magazines (paper or online editions) and see what names appear at local fundraisers or are mentioned as being donors. Most non-profits in promoting their own events will list business and corporate donors. Check out those names and companies as potential grant donors. Also check with area estate lawyers. No lawyer is going to reveal any confidential information, but they may let you know who has started a private family foundation.
Remember that a private family foundation is obligated by federal IRS law to distribute at least 5% of its assets each year so unless they are donating all their funds to only one organization, there is opportunity. Also, most foundations are funded exclusively or in part with publicly traded stocks and bonds. So when the “Market” is doing well, the assets in all these private family foundations is swelling offering greater opportunities.
Consider marketing to private family foundations the way a non-profit organization approaches any wealthy donor. The key is to identify the family member that controls or manages decision-making by the private family foundation. Personal connections and familiarity are the keys to successfully being awarded a grant from a private family foundation. They do not operate with the same rules and formalities that govern other types of foundations (with the exception of the largest family foundation in the country the Gates Foundation, which operates like a large business).
The second and perhaps most important source of information on all foundations is The Foundation Center, headquartered in New York City on Fifth Avenue, with offices around the country. This is the premier source of information on foundations around the world. The Foundation Center researches and compiles information on almost all foundations ranging from the smallest to the largest. Its information is available in two formats: first,3 hard copy directories and second, online subscription services. Nothing is free but most large public libraries, college & university libraries and state libraries usually purchase the hard copy directories and/or subscribe to the online services. The Foundation Center’s online subscription services offer a variety of plans, which vary based on the amount of foundation information being provided. The most expensive plan provides information on all the foundations in its collection while the least expensive provides information on only the larger foundations. The online services are updated regularly while the hard copy directories are published annually. Unless the organization is going to constantly apply for foundation grants, it is not economically advantageous to subscribe to the online service or purchase an annual directory. A monthly trip to the library is probably better use of money and time.
The number of American foundations is more than 100,000 with assets approaching $600 billion. The greatest number are small foundations with assets under $1 million but more than 2,500 foundations have assets in excess of $25 million.
All these foundations are headquartered across the country in every state. Most small and mid-size foundations have a preference for funding projects and programs in their own neighborhoods. The smaller foundations are less likely to fund projects that are nation-wide although large foundations will fund smaller projects that have national significance and can be replicated in other parts of the country.
In today’s world of online shopping and banking, there is also a similar trend towards online grant submissions. Many foundations now operate their own web sites. The application process is explained on the web site as well as the submission process often using templates with drop-down menus. It’s usually simple, which makes it highly competitive since even more applicants can submit. Sometimes the online submission is the first step and the foundation will review its many applications. Then it chooses a few for a more elaborate submission, which is then mailed or emailed to the foundation.
If the foundation has its own web site there are usually online guidelines. These include deadline dates, which must be followed, and areas of interest. Foundations are managed and directed by an Executive Director and/or a Board of Directors. In each case, these individuals will develop priorities that they wish to fund. Priorities do not last indefinitely and change over time sometimes as a result of changes in the Executive Director or the Board of Directors.
With online grant submissions, there are often templates that make it easy to write the grant. Compose the grant section from your own computer. Then it’s a matter of cutting and pasting the section into the allocated space on the application. Usually, the template provides instructions including the maximum number of words, which must be absolutely followed. Otherwise, the template will not accept the submitted section. Often a submitted budget can be one developed on spreadsheet software such as “Microsoft Excel” from your own computer and then uploaded onto the application.
All foundations, even the smallest, have activities or things that they will not fund. Examples of restrictions include construction, operating expenses (i.e., utilities, rent, supplies), fundraising activities, lobbying, etc. If the foundation has a web site, these restrictions may be explained.
Most publicly traded corporations in the country operate foundations. Companies that no longer exist still have functioning foundations that bear their names such as Gimbels and B. Altman’s, now defunct New York City department stores. Corporations that are not publicly traded may have charitable giving units rather than a separate legal entity called a foundation. They still award grants.
In all cases, these corporate foundations are more about themselves than they are about just making contributions to non-profits. The corporation seeks opportunities that make the corporation look good and improve their public image. As a result, corporate foundations tend to stay away from anything controversial. They seek projects and programs that have more of a “feel-good” attitude, more uplifting and positive.
The guidelines reflect the corporation’s area of interests. There are always restrictions regarding what the corporate foundation will and will not fund. Typically, they do not fund construction or operating expenses, fundraising or lobbying activities. Corporate foundations tend to focus on youth and economic development projects. Also they focus on projects that correspond with what the corporation manufactures or sells. For example, pharmaceutical companies’ foundations tend to focus on health issues.
Every major retailer has its own corporation foundation. They can be easily researched by doing an internet search. Some retailer foundations have their own web sites but are usually accessed through the main corporate web site. These corporate retailer foundations use simple, online drop down menus as the vehicles for submitting the grant applications. They have easy to follow directions but are highly competitive. The amounts awarded tend to be in the $5,000 – $25,000 range and are usually for only one year. There can be time restrictions about reapplying for a grant by a non-profit. If the organization is rejected by a corporate foundation, they may have to wait at least 12 or 24 months before reapplying.
A community bank or credit union foundation is the best grant funding source for a small to mid-size non-profit. They are reliable, often distributing funding quarterly. They focus on the local community and their application processes tend to be simple. Community bank and credit union foundations, with their modest grant awards (often $5,000 or less), look to make a big impact with limited funding. A smaller non-profit can be greatly assisted with a modest grant award.
Start by seeking grant funding from the bank or credit union where the non-profit does business. Just like being in business, a non-profit should expect some reciprocity. In fact, a non-profit should expect reciprocity from all its vendors from the plumber to the insurance broker.
There are two great research sources for information on corporate foundations. First is the internet. Using an internet search engine such as Google, search and see which retailers and other businesses are in your community. Then go online and look for these corporate foundation web sites. In the case of a bank or credit union foundation, the Executive Director or Board Chair should directly speak to the bank manager beginning with the financial institution where the non-profit banks.
Second, The Foundation Center in New York City (www.foundationcenter.org) is the other important source of information. Again, a local large public library is the place to start for obtaining information from The Foundation Center.
IRS Form 990
Most tax exempt organizations, including non-profits and foundations, have to file the IRS tax form 990. Family foundations file IRS tax form 990-PF. The IRS Form 990 provides a wealth of information.
The following information that is reported on IRS 990 is important:
- Name & address of the foundation
- Name of Executive Director and Board of Directors
- List of all organizations that received grants
- Address of all organizations receiving grant funding
- Amount received by each grantee
- Usually brief description of each grantee or title of project/program awarded funding
Why is the above information important? First, if the non-profit intends to submit an application, the relevant contact name and address is available. Second, by listing the Board of Directors, a non-profit can discover if someone in the non-profit organization knows these people. Always remember it’s not what you know but who you know.
More importantly, it demonstrates the real interests of the foundation’s decision makers regardless of what may be stated elsewhere. Are the programs/projects or non-profits that received grants seem to meet the foundation’s guidelines as written on the foundation’s web site or found in The Foundation Center information? They don’t always, because a foundation board member or Executive Director may have a personal relationship with the grantee organization and the mission of the grantee organization may not match the foundation’s area of interests. Someone in the foundation’s decision making hierarchy likes a particular organization, its mission, staff or board members and that organization receives funding.
Review the grant amounts that are listed. That is significant because a non-profit can quickly observe the minimum and maximum grant awards. If you then proceed to submit a grant application to this foundation, keep in mind the amounts – don’t go higher but also don’t go too much lower.
What is the geographic distribution of the grant awards? This is important because usually small and mid-size foundations make awards to organizations that are physically close to the foundation’s headquarters. But a non-profit’s location is not always within close proximity because a board member or the Executive Director of the foundation may have a specific interest in an organization outside of the geographic area of the foundation.
What to remember
Every non-profit that has been in existence for at least one year should be considering applying for foundation grants. If the non-profit can find an intern that likes to spend their days with eyes affixed to a computer screen, let them search the internet for foundation information.