Nonprofit Sector

5 Ways Foundations Should Help Grantees in an Uncertain Economy

March 9, 2023

Many of our nonprofit clients and partners are looking to 2023 with trepidation. While COVID relief funding buoyed many organizations during the last couple of years, we’re feeling the impact of inflation, and watching dark clouds gather on the economy’s horizon.  

We’re also hearing from foundations who are watching their endowment investments carefully and taking steps to plan for a possible recession. They’re talking about reverting to payout minimums, and calculating what a downturn may mean for their assets. (One report estimated foundation assets were down 19% percent in 2022.)  

Most foundation leaders are careful stewards of foundation assets. The calling of a charitable foundation, however, is not to preserve assets but to use them where and when they are needed. Foundations must resist the urge to “hunker down” amid economic uncertainty.  

The Black Equity Collective sets a powerful example. It gave automatic 10% inflation-adjusted increases to existing grantees. This blanket increase will help the community organizations they support adjust for rising costs, and no one had to fill out any paperwork or take on additional work to receive this. This kind of thinking can save the jobs of nonprofit workers. The Black Equity Collective went a step further and implored their funders to model the same practice in their own grantmaking.   

Bold action from philanthropy in this crucial moment could make a tremendous difference to nonprofits, who, with appropriate support, can act with confidence to sustain their communities. Just as we saw COVID relief funds help head off the most dire predictions about nonprofit closures during the pandemic, foundations – who rely on nonprofits to meet their missions – can demonstrate their care and commitment at this moment of economic uncertainty.  

It is better – and a more efficient use of philanthropic dollars – to keep people housed, rather than to help unhoused people find permanent homes. It is better to address health through nutritious meals and preventative care than through emergency-room visits. So, as we see so many people starting to struggle amid inflation and other pressures, now is the moment to ramp up support that will mitigate the negative impact of an economic downturn.  

Increase payouts  

This is what nonprofits need most. Like everyone else, nonprofits are being hit with higher costs. Programs that they estimated would cost $50,000 to deliver might now cost $65,000.  

The Elmina B. Sewall Foundation provides a strong example. In December 2021, the Sewall Foundation board approved a 3-year grants budget for the foundation. With knowledge of their full grants budget for the next three years, the foundation staff could in turn significantly increase the proportion of multi-year grants they awarded. Recognizing the critical nature of the moment in recovering from the pandemic and transforming how the foundation works with grantees, the board also approved an amplified funding level of 8.5% for those three years.  

Funders can take actions in the same spirit, such as:  

  • Automatically release additional funds to current grantees  

  • Implement a multi-year grants budget and/or auto-renew grants, without requiring additional paperwork 

  • Go beyond payout minimums, even if it reduces endowments  

  • Consider the “going out of business plan,” and trust that future foundations will address future problems. Spending down assets as a strategy for maximizing community impact is a radical suggestion for many foundations, but there are many pressing needs that demand consideration of all solutions.  

Be flexible  

During a time of economic uncertainty, it is more important than ever that leaders can be responsive to the urgent community needs that come to their door. 

  • Release funding restrictions and allow nonprofits to determine how best to spend money. This means releasing restrictions around both the nature and timing of how the funding is used. If your general operating support has a “use by” deadline, it isn’t truly unrestricted.  

  • Release or simplify application and reporting requirements to give leaders more flexibility with staff time and focus. In the application, ask only for what you truly need in order to make a grant decision. And for reporting, consider making that a conversation with your grantee, rather than requesting a written report. 

  • Accept grant applications and reports written for other funders.  

  • Listen to nonprofits’ needs and be willing to change your funding strategy, perhaps replacing or repurposing some program funding with something like supporting cost-of-living wage increases for nonprofit workers. 

Reach out to grantees and community nonprofits now  

Many nonprofits worry about revealing signs of instability or uncertainty to funders. Foundation leaders can take the first step here by creating space for nonprofit leaders to share their financial stories and unfunded needs. If you have a trust-based relationship, this will be easier.  

  • Ask nonprofits leaders what they need, and offer whatever financial support and flexibility is possible.  

  • Speak to nonprofits early in the grant-request process, so they can understand if funding is likely – and not spend time on an application if they’re not a fit.  

  • Give grantees early notice on whether you are or are not planning to renew their grants, so they can plan for either scenario.  

  • To ease pressure on nonprofit leaders, proactively offer to accept provisional/rolling budgets, off-cycle requests for additional funding, revisions to agreements, etc.  

Advance equity 

Economic downturns disproportionately impact BIPOC communities. Foundations that aren’t already engaged in this work need to take action to counter systemic racism and avoid exacerbating inequities. Specifically,  

  • Seek out and fund community-centered BIPOC-led and -serving organizations. During a downturn, some foundations retrench, and move to support larger, more stable nonprofits. But this is often at the expense of smaller (more likely to be BIPOC-led) community-based organizations that especially need support.   

  • Understand how your investments and grantmaking contribute to or address racial inequity, and take action accordingly.  

Support nonprofit workers  

According to a 2019 report, nonprofits employ 1 in 10 workers in the private workforce, the third-largest workforce of any US industry, making them a critical part of our economy. This workforce is also how nonprofits make an impact for those they serve.  Attracting and retaining staff—the helpers and essential workers we rely on to keep our communities housed, healthy, safe, informed, engaged, and educated—is a top challenge for many nonprofits.  

  • Ask your grantees: Are they able to pay workers a true living wage with strong benefits? If not, what more can you as a funder do to make that possible?   

  • Consider nonprofits as essential to the economic engines of their communities and countries. Advocate for supportive policies, and back efforts to reform government funding for nonprofits – a crucial revenue source for many organizations.  

Economic uncertainty may provide cover for caution, but advancing social good demands bold action. 

Visit our Managing through Economic Uncertainty page for practical tips, tools, and advice for nonprofits and funders.