The Basics of How US-Based Foundations Operate

Organizations around the world donate funds to support services for vulnerable populations, preserve natural resources, reduce armed conflict, and protect human rights, among other worthy causes. In the United States, private foundations are the main source of support for U.S.-based nonprofits.

Focused on the United States

While many U.S.-based foundations support projects in other countries, the majority award grants only to U.S.-based organizations. This means that to tap into most US-based grant funding, organizations based in Africa must partner with U.S.-based organizations and serve as one of their implementing partners.

The 5 Percent Rule

To retain their foundation status, US foundations are required to donate a minimum of 5 percent of their net investment assets from the prior year. 

The amount of money represented by the 5-percent distribution requirement can vary depending on the state of the economy. During periods of economic turmoil, such as the 2008 economic collapse, foundations may place a hold on program funding or reduce grant amounts if their investment income turns out to be lower than originally forecast.

Grantee Obligations

When an organization receives a grant, the foundation typically sends the grantee (i.e., the grant recipient) an agreement to sign. The agreement spells out the conditions for the award, including how and when the funds will be sent to the grantee and performance conditions, such as annual reporting.

In addition to backing out of grant awards due to economic changes, foundations can also withdraw from a grant commitment if they feel the grantee is not fulfilling its obligations. It is much more common for a foundation to pull out of a grant commitment because of an action (or inaction) by the grantee than from a change in market conditions affecting a foundation’s investment income.

What can cause a foundation to back out of a grant commitment? It could be evidence of financial fraud. It could be that the foundation sees signs of incompetence in how a project is being managed and decides it would be better to terminate the grant early than waste funds on a project that will not meet its goals. 

It’s unusual, but sometimes a foundation may ask a grantee to repay grant money, either the full grant amount or the unspent portion, if it determines the grantee has not upheld the terms of the grant agreement.

Role of Program Officers

While small family foundations often lack paid staff, larger, more established foundations generally have paid staff to oversee their grantmaking at both the administrative and programmatic levels. 

On the programmatic side, the foundation staff members are typically called program officers. These program officers oversee the grantmaking within a specific programmatic area, from shaping the program’s priorities to reviewing and awarding grants and monitoring grantee performance. If you have a question about how to complete a grant application or if you’re unclear about your organization’s eligibility to apply, the person you’ll end up speaking to is typically the program officer who administers the program in question.

Program officers are not universally accessible, and not all foundations want their program officers to meet with and coach potential applicants on how to apply for a grant. However, some foundations encourage applicants to contact program officers to discuss whether a grant mechanism is a good fit for them or even just to hold a “meet and greet” to introduce the program officer to their organization. 

The websites of larger foundations frequently list the names of their program officers. Smaller foundations often refrain from doing so. Regardless of a foundation's size, it can be unclear whether it is possible to meet with its program officers. If the foundation provides an email address, and you’re in doubt, you can email them to clarify their policies (note that program officers generally prefer to be contacted by email rather than by phone).

Determining If Your Organization Could Be a Good Candidate for Foundation Funding

Not every organization can secure grant funding.

For some organizations, grants may not be a viable option because of the type of work they do. For example, if your organization exists to educate people about a particular spiritual practice or faith, you may not find many grant sources. Or, for organizations just getting started and lacking a performance record, the timing for seeking grant funding may not be right.

Before applying for grant money, you need to be able to show potential funders evidence of successful projects, which for most organizations can take years.

Additionally, location matters. Some parts of the world receive more funding than others. Countries with more stable forms of government are more attractive to grantmakers, while the reverse is also true: Countries considered unsafe due to political turmoil are less attractive to grantmakers, and nonprofits within these countries will have fewer grant opportunities.

Lastly, there’s the issue of reputation. If your organization has a reputation for doing good work and having sound financial practices, it is more likely to get a grant.

Purpose + Experience + Location = The Big Three for Grantseekers

Not sure where your organization stands in terms of its potential to be a viable grantseeker? Consider these three questions

1. What: Has your organization been around for at least three years?

2. How: Do you have established programs and an organized, documented method for administering, managing, and evaluating those programs?

3. Where: Are you located in a region of the world that is generally considered safe and relatively free from corruption? "Safe" means that if representatives from a grantmaker wanted to visit your organization and see its work firsthand, would it be practical and safe for them to do so? Measuring corruption levels in a country can be difficult. One way to evaluate corruption is to think about it this way: If a grantmaker awarded your organization a grant, could they have a high degree of confidence that your organization would be able to use the money for its intended purpose?

If you answered “yes” to all three questions, grant funding may be an option for you. If you answered “no” to one of the first two questions (what and how), these difficulties are not insurmountable. By simply waiting until you have a few years of documented successes and by organizing your administrative processes, you could be in a good position to eventually receive a grant.

If you answered “no” to the “where” question that is related to the stability of your government and the safety of your country—things that you cannot overcome through your own actions—it becomes more complicated. Even if your organization does good work, has good administrative oversight, and is fiscally responsible, there may be few grantmakers willing to support projects in your country.  

If you answered “no” to all three questions, the odds of receiving grant funding will be lower.

Steps You Can Take to Increase Your Chances of Receiving Foundation Funding

Some steps you can take to improve the odds of receiving a foundation grant include:

Do Your Research: In many ways, it is much harder to identify prospects for foundation funding than to identify government-sponsored opportunities. This is particularly true for the U.S. government, where almost all funding opportunities that are not contracts (i.e., grants or cooperative agreements) are posted on grants.gov.  To uncover foundation funding, you may need to review multiple sources: several grant databases, Google search results, philanthropy news, and the websites of similar organizations.

No one is going to be able to give you a list of foundations that are perfect for your organization, or a list of foundations that will definitely fund your organization. Such lists do not exist. You have to do the hard work of researching—using different techniques and tools—to find funders that are a good fit for your organization.

Make Your Organization Known: As more foundations move to an invitation-only model (i.e., no open calls for proposals), it is important to take steps to make your organization's work known. A website is a must. You don’t need a fancy one. A simple landing page that describes your mission and programs and lists contact information may be adequate.

There are several free and inexpensive ways to have a website. You can find several suggested options listed on our site Peak Proposals Basecamp.

In addition to a website, choose at least one social media platform, such as Facebook, and commit to posting regularly. Even if you are not a big fan of social media, like it or not, social media is how many people learn about organizations and social causes.

Having a website and some presence on social media will help you connect with your local community, those who need your services, and potential financial supporters. Almost all potential donors of every type—from foundations to individual donors—will Google your organization before they decide to fund you. When someone Googles your organization, make sure they find information that educates, informs, and instills confidence in your organization and its operations.

Connect with Others: Nonprofit organizations can be competitors, collaborators, partners, or threats. Thriving nonprofits are good at creating connections and maintaining networks. They realize that if they want to do something big in their community—whether "community" is defined as local, regional, national, or international—they will need to recruit complementary experience and expertise. If you intend to diversify your funding stream, and especially if you want to pursue larger grants, partnerships are necessary.