Why Small Nonprofits Struggle To Attract Foundation Funding

Small nonprofits make up a substantial portion of the charitable sector, with many operating on annual budgets below $50,000. Despite their numbers and their direct involvement in local communities, these organizations collectively receive only about 0.4% of foundation funding.

According to research highlighted by Candid, just 22% of very small nonprofits received at least one foundation grant between 2019 and 2023. By comparison, 72% of larger nonprofits secured foundation support during that period.

The disparity is sometimes attributed to weak grant-writing skills, limited fundraising experience or an inability to cultivate relationships with funders. However, the research indicates that many small organizations face structural barriers before they ever have an opportunity to demonstrate their effectiveness.

Grant Requirements Can Exclude Smaller Organizations

Foundations frequently establish eligibility requirements involving an organization’s age, budget, staffing, financial systems or administrative capacity. While these standards may help funders evaluate risk, they can automatically eliminate newer and smaller nonprofits from consideration.

Grassroots organizations are particularly likely to operate without dedicated development staff, sophisticated financial systems or extensive institutional histories. Their leaders may simultaneously oversee programs, raise money, recruit volunteers and respond to community needs.

Even when a small nonprofit receives an initial grant, it may be less likely than a larger organization to receive continued funding. That makes it more difficult to build the track record and infrastructure that funders often expect.

Limited Public Information Creates Another Obstacle

Nonprofits with annual gross receipts of $50,000 or less generally file the abbreviated IRS Form 990-N. The simplified filing reduces the administrative burden on small organizations, but it provides very little information about their missions, programs, expenses or the people they serve.

As a result, foundations and other prospective donors may struggle to identify these organizations or evaluate their work. Researchers also have less information available to measure their impact or document funding disparities.

Small nonprofits can voluntarily file the more detailed Form 990-EZ or Form 990, but completing those forms requires additional time and expertise. For organizations already operating with limited staff and resources, expanded reporting may not be a practical priority.

Some Leaders Encounter Additional Barriers

Funding challenges can be even greater for organizations led by people who have historically been excluded from philanthropic networks. Research conducted by Candid and ABFE found that Black nonprofit leaders reported unequal expectations, limited access to funder relationships and situations in which their knowledge was valued without their organizations receiving corresponding financial support.

These experiences suggest that improving access to funding will require changes on both sides of the grantmaking relationship. Small nonprofits can strengthen their visibility and fundraising practices, but foundations must also examine whether their requirements and networks unintentionally favor larger, established organizations.

How Small Nonprofits Can Improve Their Funding Prospects

Although individual organizations cannot eliminate systemic barriers on their own, they can take several practical steps to become more visible and develop stronger funding networks.

Strengthen the organization’s public profile. Maintaining a complete nonprofit profile, publishing current program information and clearly explaining the organization’s results can help funders understand its work. Candid reports that organizations earning its Gold Seal of Transparency receive substantially more contributions, on average, than nonprofits without the designation.

Become more visible locally. Community meetings, business associations, chambers of commerce and public events can introduce nonprofit leaders to potential donors, corporate partners and advocates. Local relationships may also lead to resources beyond traditional grants.

Ask existing supporters for introductions. Current donors and funding partners often know other individuals or institutions supporting similar causes. A direct request for an introduction can be more effective than submitting an unsolicited proposal.

Give board members specific assignments. Rather than asking directors to “help with fundraising,” leaders can provide a short list of prospects and ask who can make a personal introduction. Prepared talking points, sample emails and social media language can make participation easier.

Develop multiple sources of support. Individual donations, earned income, business partnerships, community fundraising and peer networks can reduce dependence on foundations. A diversified funding model can also give the organization more control over its priorities.

Small nonprofits should not interpret limited foundation support as proof that their work lacks value. In many cases, these organizations possess deep community knowledge and trusted relationships that larger institutions cannot easily reproduce. The challenge is ensuring that funders recognize that expertise—and are willing to reconsider the practices that keep promising grassroots organizations outside the door.