Best Types Of Project Funding For Non-Profits & Community Funding

It can be difficult to understand how best to secure the right type of funding as a non-profits or community funding organisation. Whether you’re spearheading a social impact initiative, launching a start-up, or driving a community project, understanding the nuances of different types of project funding avenues can give you a massive edge. 

Key Takeaway For Funding Types for Non-For Profits & Community Funding.

Be Strategic To Get The Best Fit Funding For Your Project: Success in securing funding hinges on a strategic approach that includes thorough preparation, understanding the pro’s and con’s of different funding types. Fulfilling funders’ expectations, as well as building strong, trust-based relationships with them as you work together.

Empower your social project by learning to find the type of project funding that best meets your needs.

What are the 4 Non-Refundable types of Project Funding For Social Impact

There are 4 non-refundable types of funding for a project:

Contracts – A formal legal agreement between partners.

Grants – (usually) A one off investment for a specific initiative.

Donations – Voluntary contributions by well meaning supporters of the work.

Crowdfunding – pooling a large number of small contributions usually via online.

What is a Contract?

The first of the non-refundable types of project funding is a contract. At its core, a contract is a formal agreement to deliver specified goods or services within a set timeframe and budget. It’s a common funding mechanism in both the public and private sectors as well as non-profits and community funding schemes where organisations outsource projects to external parties. Charities have won 5% of uk government contracts worth £17billion over 4 years. There seems to be room for improvement here if charities can manage to compete more effectively.

This is common for longer-term arrangements and partnerships. Usually a contract is the result of a relationship that has been developed over a longer time period and shows a level of trust between the partners.

Contract Specifics:

• Involve specific deliverables (e.g., services, products).
• Payment is contingent upon successful completion of specified criteria.
• Common in government funded projects and organisational partnerships.

Contract Best Practices:

• Clarity: Clearly define roles, responsibilities, and expectations.
• Compliance: Adhere to contract terms.
• Reporting: Provide regular progress updates.

What are the Pros and Cons of a Contract?

Pros:

• Stability and Predictability: Contracts often provide a steady stream of revenue and clear deliverables, making financial planning easier.
• Organisational Growth: Delivering on contracts can bolster your reputation and lead to future opportunities.
• Stronger Relationships: Contracts can often enable the building of stronger relationships (both formal and informal) between the parties and a significant degree of trust.

Cons:

• Rigidity: Contracts often have strict terms and conditions, leaving little room for flexibility.
• Resource Intensity: Winning and fulfilling contracts can be resource-intensive, requiring significant time and expertise.
• Risks: If there is a large power imbalance between the parties or it has been poorly worded one or both parties can have significant costs if things don’t go to plan.

Tips to Win a Contract

1. Understand the Requirements: Tailor your proposal to match the client’s specific needs and demonstrate your unique value proposition.
2. Build Relationships: Networking and establishing a good rapport with potential clients at the earliest stage possible can give you an edge in the selection process.
3. Demonstrate Credibility: Showcase past successes and relevant experience to build trust.

What is a Grant?

The second of the non-refundable types of project funding is a grant. A grant is a financial award provided by an entity, typically a government department, corporation, foundation, or trust, to an individual, educational institution, business, or a non-profit. Unlike loans, grants do not need to be repaid, making them an attractive source of funding for projects aimed at public benefit, research, education, and innovation. You can find a grant at the UK at this government website. According to UK Research and Innovation grant applications have a success rate between 15-20%.

Types of Grants:

• Project Grants: Fund specific programs or projects.
• Operating Grants: Support an organisation’s day-to-day operations.
• Capacity-Building Grants: Strengthen organizational capacity.

Grant Writing Tips

• Research: Identify relevant grant opportunities.
• Alignment: Tailor proposals to match the funder’s priorities.
• Evidence Claims: Clearly articulate the evidence for why the planned outcomes will occur.

What are the Pros and Cons of a Grant?

Pros:

• Non-repayable: Grants provide financial support without the burden of repayment, allowing for more focus on project execution.
• Credibility and Recognition: Receiving a grant can enhance your project or organisation’s credibility, attracting further funding and partnerships.
• Support for Innovation: Grants often fund projects that may be too risky for private investors, supporting innovative and ground breaking work.

Cons:

• Complex Application Process: Grant applications can be lengthy and complex, requiring detailed proposals and often a competitive submission process.
• Specific Requirements and Restrictions: Grants usually come with strict guidelines on how the funds can be used, limiting flexibility in project implementation.
• Time-Consuming: The process from application to receiving funds can be lengthy, impacting project timelines.

Tips to Win a Grant

1. Thoroughly Research Opportunities: Look for grants that closely align with your project’s objectives and the funding entity’s goals.
2. Understand the Requirements: Carefully read the grant guidelines to ensure your project meets all eligibility criteria and address each point in your proposal.
3. Highlight Impact and Innovation: Clearly articulate how your project will make a significant impact, contribute to the field, and align with the funder’s mission.
4. Build a Strong Narrative: Develop a compelling narrative that tells the story of your project, its necessity, and potential outcomes. Use data and evidence to support your claims.
5. Seek Partnerships: Collaborating with other organisations can strengthen your proposal by demonstrating broader support and capacity for project execution.
6. Prepare a Detailed Budget: Provide a clear, justified budget that aligns with the project’s objectives and the grant’s financial guidelines.

What are Donations?

The third of the non-refundable types of project funding are donations. Donations are voluntary contributions made by individuals or organisations, often driven by altruistic motives. This funding type is particularly prevalent in the non-profits or community funding sector, where entities rely on the generosity of donors to support their missions. 76% of UK adults donated to charity in 2022 worth 0.8% of GDP. So it is common for people to donate, but these are often small amounts.

Types of Donations:

• Cash Donations: Direct financial contributions.
• In-Kind Donations: Goods, services, or expertise provided without monetary exchange.
• Major Gifts: Large donations from individual supporters.
• Corporate Donations: Contributions from businesses.

Donations Best Practices:

• Transparency: Clearly communicate how donations will be used.
• Gratitude: Express appreciation to donors.
• Impact Stories: Share success stories to demonstrate the difference donations make.

What are the Pros and Cons of Donations?

Pros:

• Flexibility: Donations often come with fewer restrictions than other funding types, allowing for greater project flexibility. Meaning that the beneficiary can adapt the use of funds to the needs of their cause. (within reason)
• Community Engagement: Soliciting donations can help build a community of supporters invested in your cause.

Cons:

• Unpredictability: Donation amounts can fluctuate, making it a less reliable funding source.
• Resource Intensive: Fundraising efforts can be time-consuming and require dedicated resources.

Tips to Win Donations

• 1. Tell a Compelling Story: Connect with potential donors on an emotional level by sharing impactful stories about your project’s benefits.
• 2. Transparency and Accountability: Clearly communicate how donations will be used and regularly report on progress and outcomes. Giving people a sense of progress will really help emotional engagement.
• 3. Leverage Social Proof: Use testimonials and success stories to build credibility and trust.
• 4. Engage Regularly: Maintain communication with your supporters through updates, events, and acknowledgments.
• 5. Engage Through Multiple Channels: Utilize social media, email campaigns, and events to reach a broader audience.

What is Crowdfunding?

The forth of the non-refundable types of project funding is crowdfunding. This involves gathering financial contributions from a large number of people, typically via online platforms. This innovative funding model has gained popularity, allowing non-profits and community funding projects to tap into a wider pool of potential supporters. JustGiving report raising £550million for 20,000 UK charities in 2022, showing that this type of project funding is an important source of funds.

What are the Pros and Cons of Crowdfunding?

Types of Crowdfunding

• Donation-Based Crowdfunding: Supporters contribute without expecting financial returns.
• Rewards-Based Crowdfunding: Contributors receive non-financial rewards (e.g., merchandise, exclusive access).

Pros:

• Wide Reach: Online platforms can attract a global audience, increasing the potential for support.
• Validation: A successful campaign can serve as proof of concept, demonstrating market demand.
• Innovation friendly: It can be an important source of funds for a new idea or way of doing things when other options may require a greater degree of evidence.

Cons:

• Market Saturation: The growing popularity of crowdfunding has led to increased competition and success is far from guaranteed. 
• All-or-Nothing: Some platforms require you to meet your funding goal to receive any funds, risking all efforts if the target is not met.
• Publicity Risk: A failed campaign can negatively impact public perception of your project.

Tips to Win Crowdfunding

1. Craft a Captivating Campaign: Use engaging visuals and narratives to stand out.
2. Set Realistic Goals: Align your funding targets with your network’s capacity to contribute.
3. Offer Incentives: Provide rewards that engage and motivate backers.
4. Leverage Social Proof: Encourage early backers to share your campaign within their networks.
5. Market Aggressively: Use social media, press releases, and personal networks to spread the word.

How do these N0n-Refundable Types of Project Funding Relate to One Another?

The table is designed to make it easy to visualise, understand and remember the non-refundable types of project funding. How they relate to one another.

Top Down and ‘Bottom Up’ Funding

Of the non-refundable types of project funding contracts and grants are normally top down (although some contracts have equal partners this is rarely the case for funding projects). This means that there is often a power relationship to be navigated by the non-profits or community funding organisations. The investor or commissioner of the the funds usually has a need they have identified to be met. This means that the applicant has to demonstrate they have the capability to deliver the goals. In reality this means the applicant often needs experience and a track record of delivering on addressing a particular problem relevant to their needs.

Crowdfunding and donations on the other hand are the no-refundable types of project funding that to tend to be ‘bottom up’ from the public. This means that marketing communication and reputation come to the fore. The emphasis is on creating and communicating a good story aligning to the core goals of the non-profits or community funding organisation. This is often best done when the public are seen as collaborators and partners of the people running the project. Authenticity is paramount and will help to build a reputation over time.

One Time vs Ongoing Funding

The table also shows how the non-refundable types of project funding relate to each other in terms of duration. A donation and a grant are the non-refundable types of project funding will often be one time funding (although they can be repeated) an non-profits or community funding organisation should not depend on this alone. Although, this gives the funded party a fair amount of flexibility in how and when to use those funds.

Contracts and crowdfunding are the non-refundable types of project funding that are often longer term investments. (Although with a fixed end). The focus will be on the non-profits or community funding organisation delivering the end product of the project and reporting back progress. Therefore the emphasis will move towards delivering the end result to maintain reputation and future access to these funds.

Other Types of Project Funding:

1. Sponsorships:

• Definition: Sponsorships involve collaborative partnerships between the businesses and individuals, on one side and non-profits or community funding organisation on the other. In exchange for financial support, sponsors gain visibility, branding opportunities, and other benefits.
• Purpose: Non-profits or community funding organisations often seek sponsorships for specific events (e.g., charity galas, conferences, fun runs), ongoing programs, or targeted initiatives. These could be tied directly on indirectly with the purpose of a project.
• Key Points:
  • Sponsors may provide funding, but they can also contribute expertise, resources, or promotional efforts and can lead to deeper partnerships.
  • These partnerships can enhance an organisation’s reputation and reach new groups and individuals that can support the non-profits or community funding organisations in their work.
  • Unlike grants, sponsorships often have a more direct relationship between the sponsor and the non-profits or community funding organisation.

2. Endowments

• Definition: Endowments are type of project funding based on long-term investments where the original principal amount remains untouched. Only the investment income (dividends, interest) is used to support the non-profits or community funding activities.
• Purpose: Endowments provide stable, sustainable funding over time, ensuring an organisation’s financial health.
• Key Points:
  • Donors contribute to the endowment, whilst the non-profits or community funding organisation manages the invested funds.
  • Income generated from the endowment supports ongoing operations, programs, or specific initiatives.
  • Well-managed endowments can withstand economic fluctuations.

3. In-Kind Contributions:

• Definition: In-kind contributions are a type of project funding that go beyond monetary donations. They include goods, services, or expertise provided by individuals, businesses, or other entities. As non-profits or community funding projects aim to reach new people and connect there are often multiple opportunities for people to contribute to the exciting change effort through in-kind contributions.
• Purpose: In-kind contributions supplement financial resources and address specific needs that might be directly related to the non-profits or community funding organisations.
• Key Points:
  • Examples include donated office supplies, pro-bono legal services, or volunteer hours.
  • In-kind support can reduce operational costs and enhance program delivery.
  • Non-profits or community funding organisations often acknowledge these contributions publicly or through donor recognition.

4. Social Impact Investing

• Definition: Impact investors seek both financial returns and positive social or environmental impact. They invest in non-profits or community funding projects aligned with their values.
• Purpose: Impact investing bridges the gap between profit and purpose.
• Key Points:
  • Social enterprises, which blend business and social goals, often attract impact investment.
  • Investors evaluate not only financial performance but also measurable social outcomes.
  • Impact investing can catalyse innovative solutions to pressing societal challenges.

How to Choose a Funding Type for Non-Profits and Community Funding

Choosing the right type of project funding for non-profits and community funding schemes is a critical decision that impacts an organisation’s sustainability and ability to achieve its mission. The main cost though is often spending time chasing funding that is not a good fit or has strings attached. You need to consider the wider strategic environment and which organisations are doing well and which are struggling. Here are practical steps to guide your decision-making process:

1. Plan, Don’t Firefight:
   • Thoughtful planning and research is essential. Avoid reactive fundraising.
   • Take time to strategically assess your organisation’s needs, goals, and existing funding sources.
   • Consider your long-term vision and how different funding models align with it.
2. Assess and Evaluate:
   • Start by understanding where you currently stand. Evaluate your existing types of project funding:
     • Are they aligned with your mission, vision, and values?
     • Do they deliver a good return on investment (ROI)?
     • Is there room for improvement or diversification?
     • What organisations do you have relationships?
     • What are other organisations trying to achieve?
   • Data analysis and relationships are your ally here. Whilst looking at relevant metrics to inform your assessment. Don’t just sit behind your keyboard. Go out there network shake hands and ask lots of questions.
3. Explore Creatively:
   • Brainstorm with your team. Think outside the box.
   • Investigate what similar organisations are doing. Are there innovative approaches that could work for you?
   • Consider alternative funding sources beyond the usual suspects. Explore partnerships, collaborations, and unique fundraising events.
4. Analyse Pragmatically:
   • Quantify your fundraising potential from each source. Be realistic about what you can achieve.
   • Consider factors like donor capacity, market trends, and economic conditions.
   • Some funding models may be more sustainable than others in the long run
5. Be Aware of Your Delivery Options:
   • Ask questions of your team, and community: are there options of upscaling or downscaling your project to meet your funders objectives?
   • Could you pivot your project to repurpose an intervention e.g. to target a different community such as the elderly at home.
   • Are there other organisations you could partner up with e.g. by sharing a space that could benefit both organisations?
   • What types of project funding would best match your project type?
6. Select and Begin:
   • Based on your assessment, choose the types of project funding sources that best align with your organisation’s mission, capacity, and community context.
   • Remember that diversification is valuable, but having a dominant revenue source (as seen in many successful non-profits) can provide stability.
   • Start implementing your chosen mix of types of project funding with intention and adapt as needed.

How to Win Funding

I’ve created a complete guide to funding and community funding project applications Here. This will help you choose between the different types of funding, as well as creating successful bids. I also offer personalised support for writing funds to give you the maximum chance of success as typically only approx. 20-25% of funding proposals are granted. If you would like to access those services visit me here where you can book a free 30 minute call

Frequently Asked Questions:

What are the risks involved in Financing?

The key risks include credit risk, market risk, operational risk, environmental risk and regulatory risk. As well as reputational risk that can limit future funding options. Understanding and mitigating these risks throughout the project is crucial.

Who Typically Funds a Project?

Typically, non-profit and community funding projects are funded by government agencies, foundations, corporations, individual donors, and through crowdfunding platforms who share the social impact goals of the applicant, but lack the capability to deliver the project themselves.

How do You Fund a Big Project?

The bigger the project the bigger the risk of failure. Therefore, counter that by looking for the most secure funding types from the most secure funders. Consider partnerships to de-risk yourself.

What are the Stages of Project Financing?

Project financing unfolds through these concise stages:

1. Conceptualisation: Identify project idea, objectives, and perform a preliminary feasibility study.
2. Detailed Analysis: Conduct in depth feasibility studies, financial modelling, and develop a comprehensive project plan.
3. Financing Structure: Determine the funding mix, identify potential fund sources, and negotiate terms with financiers.
4. Securing Commitments: Obtain formal commitments from financial partners and finalise contracts.
5. Financial Close and Drawdown: Achieve financial closure, sign legal documents, and access initial funding.
6. Implementation: Execute the project as planned, with funds released in stages, monitor financial performance.
7. Operation and Repayment: Begin operations, generate revenue (if applicable), and start loan repayments.
8. Refinancing or Exit: Usually, time bound: Consider refinancing for long-term projects or facilitate exit strategies for investors.

How does environmental, social, and governance (ESG) criteria impact project financing?

ESG criteria are increasingly important to investors. Projects that perform well on ESG metrics can often attract financing more easily and at potentially lower costs.

What role do government incentives play in project financing?

Government incentives, such as tax breaks, grants, or subsidies, can significantly improve a project’s financial viability and attractiveness to investors. It is important to be aware of these, especially when dealing with the private sector.

Can public-private partnerships (PPPs) be a viable project financing option?

PPPs can be a highly effective financing option for infrastructure and public service projects, combining the strengths of both the public and private sectors. Be aware that the government has specific rules and criteria around these and they may be subject to change and updating.

Conclusion

There are 4 main non-refundable types of project funding available: contacts, grants, donations and crowd funding we also explore alternative funding options. Securing funding is a multifaceted challenge that requires strategic thinking, adaptability, and perseverance. By understanding the nuances of different funding types non-profits or community funding organisations can better navigate the funding landscape to support their impactful projects. Remember, the key to success lies not just in selecting which of the main types of project funding to use, but in executing a tailored approach that resonates with potential funders. Embrace these strategies, and you’ll be well on your way to turning your visionary into social impact.