Operating Support Grants for Nonprofits

General operating support grants, also known as unrestricted grants, are working capital funds given to a nonprofit organization in support of its overall mission and to help with overhead expenses. Most donations are restricted to use for a specific purpose, such as a program that the nonprofit runs. Competition for general support grants is fierce. What organizations spend on overhead is a critical measure of how well that organization deals with finances and how well it supports its own cause. In general, donors want to see organizations spend as little money as possible on administrative needs and as much money as possible on programs. The percent of an organization’s budget used for overhead is part of how Charity Navigator and the Evangelical Council on Financial Accountability rate nonprofit organizations and influence potential donors. But the staff needs to get paid, the computers need to be maintained, and a whole host of non-program needs exist that can only be supported by grants without strings attached.

Nonprofits can use their discretion, subject to the specific terms of the funded grant proposal, when determining where and how to spend general operating support money. This type of funding generally assists with the cost of doing business and helps with everything from the office lease to the purchase of equipment and services. It can cover accounting systems, new software, training for staff, and even pay raises and benefits. Some organizations use unrestricted funds strategically, in much the same way as venture capital, and use the money to grow their staffs, hiring experts in their fields that may have been out of reach on a smaller budget. They may also use the money to improve their fundraising and marketing infrastructure to better their chances with high-net-worth donors and corporate sponsors.

Grants for general operating support liberates nonprofits from the enormous amount of time usually spent on raising funds and reporting back to funders. The grants free them to focus on running and improving their programs. These types of grants also give nonprofits flexibility to respond to emerging community needs. In human services, emergency management, and environmental nonprofits for example, needs can change on a dime. Rather than taking months to approach funders for new money, nonprofits with operational support can quickly divert money to where it's needed. Operational support also helps nonprofits build the infrastructure to keep their programs running for the long term. And perhaps most noted by nonprofits, operational supports allows the organizations to be innovative and get creative in their approach to solving problems.

The Center for Effective Philanthropy found that foundations view operational support positively, but still provide more program-based funding because of a number of restraints. Foundations, too, have their missions, and the best way to measure their impact on their desired outcomes is by funneling money with a specific, rather than general, purpose to nonprofit organizations. Another reason they tend to give more program money is due to board pressures and concerns about how independent a nonprofit can be if it gets so much of its operational expenses from one funder. Others say they provide less general support because they simply don't know the nonprofit well enough.

A grant that is unrestricted is a vote of confidence by the donor. It essentially says that the donor trusts that organization to do whatever it wants to do with that money. In today's competitive grantmaking landscape, getting operational support grants has become an art. Experts from The Bridgespan Group and Grantmakers for Effective Organizations recommend the following practices to get such grants: when meeting with funders start from infrastructural needs rather than project needs; educate your board of directors, your main fundraisers, on the logic of investing in overhead expenses; and inform foundations and donors how they can measure your organization's success in ways other than the programs you run. Moreover, a standard practice in approaching funders for program grants is to ask for an additional percentage just for overhead expenses.

According to studies by the Center on Philanthropy at Indiana University and the Urban Institute, foundations are more likely to support nonprofits' overhead costs than commonly believed, but nonprofits persist in their belief that having “lean operations” is the way to win grants. These reports say that nonprofits consistently underestimate their overhead expenses in grant proposals and IRS reporting, and subsequently to nonprofit rating systems like Charity Navigator. In those studies, close to 66 percent of nonprofits said they don’t have enough money for overhead and they don’t rely on grants to pay for core operating expenses. But 69 percent of foundations reportedly give general operating grants to nonprofits, though the individual amounts vary widely. According to Grantmakers for Effective Organizations, foundations have begun giving more operating support throughout the 1990s and 2000s, but the pace of the growth has been slowing. Among the foundations known to provide general operating support are the Sobrato Family Foundation, the Edna McConnell Clark Foundation, and the F.B. Heron Foundation.