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What Are the Different Types of Funding for Non-Profit Organizations?

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  • Written By: K. K. Lowen
  • Edited By: Allegra J. Lingo
  • Last Modified Date: 29 September 2014
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Funding for non-profit organizations can come from many places. Grants and contracts often provide a large portion of an organization’s funds. Client fees and commercial ventures allow organizations to earn funding for programs as well.

Foundation and government grants often provide a significant portion of the funding for non-profit organizations. Agencies often prepare grant proposals when implementing a new program to request financial assistance from the government or a foundation. If awarded a grant, the organization will receive an amount of money to be spent for specific purposes based on the proposal and stipulated by the funding source. Grant renewals may be available when the initial funds have been spent.

Contracts, especially government contracts, are a common source of funding for non-profit organizations. If a nonprofit agency provides a service that could be useful to other organizations, such as transportation for the disabled, the agency may receive a contract from the government or another organization to provide the service. A contract generally stipulates a length of time and payment process. Popular types of contracts include cost reimbursement, performance, and managed care contracts, and the type used determines the calculation of payments.

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Contrary to popular belief, a non-profit organization can make a profit as long as it spends the funds providing a service for its clients. Charging client fees for services provided can be a major source of funding for a non-profit organization. It is not uncommon for client fees to cover partial or full expenses for a program. In some cases, the fees collected from a popular program could provide enough funds to cover the expense of other programs run by the organization as well.

In addition to client fees, commercial ventures sometimes provide funding for non-profit organizations. Some charities sell goods to earn money for their programs. For example, a retirement community may sell crafts created by residents. To avoid losing their tax exempt, nonprofit status, the commercial venture must relate directly to the organization’s mission and the business cannot become too large. Online store fronts are popular outlets for commercial ventures of nonprofit organizations because they cost little to implement or maintain.

Charitable reminder trusts and bequest programs also provide long-term funding for non-profit organizations. In charitable reminder trusts, donors provide stocks, bonds, or cash to an organization, receiving a tax exemption and guaranteed income for life. After the donor passes away, the organization receives the remainder of the trust. Similarly, bequest programs allow people to leave a portion of their assets to an organization. The donors essentially include the organization in their wills, and the organization receives the donation when the donor passes away.

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