How the government grant process unintentionally shuts out small nonprofits.

Last week I wrote a grant application for a small nonprofit that serves people experiencing homelessness in Los Angeles. The experience reminded me of the many obstacles smaller nonprofits face when seeking government funding.

There has been a recognition of late that the old government contracting process may leave out many small, and often BIPOC-led, community service agencies. Nonprofit advocacy groups such as the Center for Nonprofit Management, No Going Back LA, and the California Nonprofit Contracting Coalition  have identified and sought to dismantle some of the old processes that have hindered equitable practice in government contracting and kept BIPOC-led, community-trusted, and smaller nonprofits from receiving vital funds to serve the community.

Such calls for change have included:

Increasing the percentage of advanced payment.

Many government contracts operate on a reimbursement basis, meaning a nonprofit must pay for the cost of operating a program prior to asking for reimbursement from the contracting agency.  In clear terms, the nonprofit must ALREADY have the funds to pay for the program before it asks for the funds to pay for the program. Nonprofit advocates are urging that the amount of advance payment is increased so that funds can be immediately and directly used in program execution.

Lowering reporting requirements (especially for smaller grant amounts). 

Excessive reporting is a hinderance to many nonprofits. For example, a $50,000 government grant was awarded to an organization with whom I recently worked. While it was the smallest grant the group received that year, it had the largest reporting requirement. As a result, this agency not only allotted significant program staff time to tracking and reporting, but also had to develop an entirely new system to capture the mandated data. Allocating more grant resources to actual program implementation has been at the heart of this policy change request.

Paying nonprofits in a timely manner.

According to a 2022 survey by the Nonprofit Finance Fund, half of nonprofit respondents reported that receiving reimbursement takes more than 60 days. This poses a significant challenge for small nonprofits who may have limited reserves to cover operating costs while awaiting payment.

Breaking down these barriers is paramount to the health and sustainability of our nonprofit landscape, but they are not the only obstacles that prohibit small nonprofits from applying for, or receiving, government grants.

While writing last week’s grant, a few more came to my mind.

1.      Small nonprofits don’t know where to start.

In order to apply for government grants, you must know where to find them.  Grants are typically announced on channels that are not on the radar of newer nonprofits. The burden falls on the nonprofit to find out where the money exists and what they qualify for. This means that the nonprofits who are “in the know” will apply and the nonprofits who are not, well too bad for them. The process favors larger, well-entrenched nonprofits. It results in a repeated pool of applicants. And while it may identify applicants who do credible work, it limits applicant diversity.

2.      Grants require the applicant to be in operation for multiple years before applying.

 

This requirement creates an immediate disqualification of young and often small nonprofits.  Some groups may have been doing community work for years but only just received their 501c(3) designation. But they are caught in a paradox aptly summarized by an adapted Jack Buck quote - “You can’t get a grant without experience, and you can’t get experience until you have the grant.” This circular dilemma excludes most new, usually small in size, nonprofits from qualifying for government funding.

 

3.      Voting for your favorite nonprofit to receive funds may be just a popularity contest. 

 

I understand the intent of grant voting. Grantors want to empower the community to decide where the funds are placed. In theory, this is a spectacular idea. In practice, I can’t help feeling like we are voting for our prom kings and queens. Those who win may not have the most executable program but rather have a better marketing campaign. In this new approach, grant seekers need a grant writer and a marketing expert to win a grant. Many small nonprofits lack the personnel with the expertise in both areas.

If we really want to support small nonprofits and add diversity in the government grant process, we should be looking at the reasons small nonprofits fail to apply or fail to qualify and ask ourselves – “Can we change this?”

Supporting our small nonprofits matters because they are usually filling a community gap that hasn’t been met by any other services.

If we fail to fund our small nonprofits, we fail to fund the communities we say we care about.