How Foundations Can Help Grantees Respond to COVID-19

Claire Knowlton recently participated in a conversation with a group of foundation leaders to discuss what nonprofit leaders need right now to weather the COVID-19 crisis on top of other crises that communities already face, especially Black, Indigenous, immigrant, and communities of color. The following are reflections and recommendations for what foundations can do differently to anchor their grantees and strengthen the social safety net that nonprofits provide.

Nonprofit infrastructure is going to be critical to not only surviving the COVID-19 crisis, but coming out stronger on the other side, especially for Black, Indigenous, immigrant, and communities of color. What's unfortunate is that many nonprofits were financially weak before COVID hit.

Our sector has been operating within a broken funding system for decades, where dollars flow to nonprofits with the requirement of being spent down in the short-term, leaving very little opportunity for organizations to realize a surplus. Having a surplus ‒ where unrestricted revenue is greater than expenses at the end of the year ‒ is how nonprofits create a safety net. Yet our funding system makes it extremely difficult to achieve that reality. According to NFF’s 2018 State of the Nonprofit Sector Survey, 50 percent of respondents had three months or less of cash on hand.

We focus on months of cash on hand because that metric has significant implications for how nonprofits are able respond to a disruption, like the one caused by COVID. Here’s an example:

Our consulting team has been talking to two mental health providers – one with a healthy amount of cash on hand and one without. The nonprofit with cash on hand still experienced immediate revenue losses, yet their leadership was able to focus on setting up remote work environments to keep providing services. This involved purchasing hardware and software for counselors and transitioning clients to zoom counseling sessions, including coordinating with partners to ensure clients had the tech and internet connectivity to participate.
The mental health provider with limited cash on hand prior to COVID had to make cuts to the team when they experienced revenue losses, leaving leadership in the difficult position of figuring out how to legally and logistically lay people off without having enough cash to cover accrued vacation time.
So the difference between having cash on hand and not having cash on hand has translated to one organization being able to step up and support their community with mental health services when they need it most, and the other having to pull back on their mission.

Nonprofit financial resources mirror the racial wealth gaps that we see in broader society, so organizations led by and serving communities of color entered this crisis with even less. According to CalNonprofit’s 2019 Causes Count report, Nonprofits in communities of color have just over half of the resources that nonprofits have elsewhere.

Revenue dynamics offer another telltale sign of how a nonprofit is faring, especially after COVID. In a recent survey by La Piana, 90 percent of nonprofit respondents reported a drop in revenue during the month of April. These losses stem from both physical distancing requirements ‒ canceled galas or canceled in-person services that the organization would normally be paid for ‒ and from the general uncertainty and economic downturn (i.e., people who have lost their jobs aren't making donations, and those who are relatively well off aren't making donations because they aren't sure for how long they'll be okay).

Government revenue hasn't fallen as much yet, with only about a quarter of nonprofits across surveys saying they've lost government revenue. But we need to watch this number because it will likely rise sharply as we enter the next contracting period and local and state budgets are slashed. Also, nonprofit leaders should be preparing for payment delays. In the last recession, we saw reimbursement delays from government lasting anywhere from six to nine months. If massive delays happen again, and organizations have already used up their cash reserves to survive revenue loss and unexpected expenses related to COVID, we could see a huge erosion of nonprofit infrastructure ‒ especially in communities of color where access to private wealth is so limited.

One of the biggest challenges facing nonprofits is how to make decisions in the face of so much uncertainty. Every revenue stream is at risk, the trajectory of the economy is uncertain, the path of the virus is uncertain, and knowing how long they can sustain any particular way of working is uncertain. Every nonprofit is different and is facing a unique context, but if I were to offer a universal recommendation for foundations, it is be a source of certainty in an uncertain world for your grantees. Here’s how:

Give money without restrictions or conditions
Pay on time or early
Commit multiple years of funding that your grantees can count on and plan around (e.g., three years, four year, five years, etc.)
Make larger gifts than you normally would ‒ large enough to prevent the closure of critical partners and to allow them to rebuild and reimagine their work
Give to leaders of color working in communities of color, especially Black leaders and communities
Talk to other foundations and get them to do the same

People at nonprofits are tired. Many were addressing crisis after crisis before COVID and are reaching a breaking point. I've never heard so many leaders, especially leaders of color, very directly saying “I don't know how long I can do this.” Foundations can help anchor grantees by changing the way money is given so that nonprofits can be there – stronger than ever – for their communities.

Concerned about the economy? Visit our Managing through Economic Uncertainty page for practical tips, tools, and advice for nonprofits and funders.