Different Types of Funding

There are different funding sources available to nonprofits. Nonprofits need to evaluate the costs against the benefits for each potential source. Before a nonprofit solicits donations, they need to register with the New Mexico Department of Justice, Charitable Organizations Registrar. In addition, if an organization has an online donation page or solicits donations outside of New Mexico, they need to be aware of the laws of other states:

• Charitable Registration Requirements: A Fundraising Compliance Guide, Labyrinth

• Ethical Fundraising, National Council of Nonprofits

1. Donations

• Donations can be restricted or unrestricted.

  • An unrestricted donation allows the organization to determine how use the funds

  • A restricted donation is usually restricted for a specific purpose or a specific time period

  • Donations can be in the form of cash, stocks, endowments, cryptocurrency, or an asset (car, land or other valuables)

    • Demystifying Crypto-Currency Donations: A Guide for Nonprofit Leaders, Financial Commons

    • A Charity’s Guide to Vehicle Donation, IRS

• Not all donations or gifts are beneficial. It’s important for an organization to have a gift acceptance policy.

  • Gift Acceptance Policies, National Council of Nonprofits

  • Sample gift acceptance policy, Nonprofit Risk Management Center
    

2. Fundraising Events

Fundraising events can raise awareness about an organization’s mission, expand the number of supporters, and bring in revenue.

Organizing a successful fundraising event takes time, effort, and often a substantial investment. Consider all costs: venue, decorations, food, liquor license and alcohol, entertainment, printing (invitations, programs, donation forms, etc.), mailing and postage, staff and volunteer time. Calculate or estimate all costs and estimate potential earning to determine if a fundraising event will be beneficial. Include sponsorships in income and unrelated business income tax in costs, if applicable.

If the fundraising event involves raffles, auctions, or games of chance, then additional state and federal rules apply. Funds raised through gaming are not considered tax deductible. The organization needs to check if they are required to pay Unrelated Business Income Tax (UBIT).

• Tax Exempt Organizations and Gaming, IRS

• Tax Exempt Organizations and Raffle Prizes, IRS

• Exempt organizations gaming and unrelated business taxable income, IRS

• NM Gaming Control Board, State of New Mexico

• Special Gambling Rules for Nonprofits, Stephen Fishman, J.D., USC Gould School of Law, NOLO

3. Grants

Foundation grants and government grants are the the two main types of grants. Community, private or corporate foundation grants can provide funding for services, infrastructure, or general operating. Government grants are typically service contracts. Note: financial institutions are required by law to donate a percentage of their profits back to the community. Financial institutions can fulfill this requirement by providing financial literacy training, volunteering, or making financial contributions. Check with the community liaison person to explore the possibilities for your organization.

With the uncertainty of federal grants*, competition for foundation grants has increased. Prudent nonprofits apply a cost/benefit analysis to grant opportunities.

• How much information is requested in the application?

• Can a previous grant application be repurposed?

• How much time and effort will it take to complete the application form compared to amount of the grant award?

• If the funder requests an audit, do they provide funding for an audit in the award?

• Are deliverables expected? If so, is there sufficient funding and time to complete the deliverables?

• What is the percentage of general operating expenses allowed in the grant request (current average is 10%-15%)?

Where to find grant opportunities:

• Highlighted Grants, listed of grants applicable to New Mexico, The Grant Plant

• Newsletter signup, trainings, and grant alerts, The Grant Plant

Expectations:

• What does the funder expect in exchange for the funds: services; prominent display of their logo, public acknowledgement; interim updates or reports; a final written report.

Considerations:

• What is the reputation of the funding entity? Are they using the grant to your organization to clean up their image?

Reciprocal Relationship

A grant is more than a transaction, it’s a partnership between a foundation and an organization in service of community. Foster the relationship with the funder—share positive outcomes resulting from the grant award and any challenges that might arise. When appropriate, invite funders to the organization’s public events.

*New Office of Management and Budget guidelines are being considered for federal grants. Contact Nick Derda, the Grants Coordinator for the NM Congressional Delegation, to sign up for federal grant updates or with any federal grant questions.

4. Sponsorships

Many foundations, financial institutions, and corporations have a separate pot of funds for sponsorships. These are often considered marketing funds. Before asking for a sponsorship, consider what your organization will offer in exchange. How big is your audience? What promotion or advertising will your organization be doing?

5. Social Enterprise

Some nonprofits seek to generate revenue through a business venture. A thrift store associated with a nonprofit is a social enterprise. The profits of the business go to support the mission of the organization. Unless the business is a program of the nonprofit, the organization must report and pay Unrelated Business Income Tax. Organizations need to be careful that the profits from the social enterprise do not exceed the revenues of the nonprofit as that could jeopardize tax exempt status.