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Pros and Cons of Government Grants for Nonprofits

One of the biggest challenges that all nonprofits face is getting adequate funding for their organization. Stats show that about 79 percent of nonprofits fail to launch because they don’t have the required money. In such cases, getting a government grant may be a big boon.

What is a Government Grant?

Government grants are non-repayable funds awarded by the government to nonprofits, students, and artists who are working for a good cause. Even though many nonprofits hope to get government grants, it is easier said than done as the eligibility requirements are very strict and the competition is fierce.

Pros of Government Grants

There are several advantages of government grants if a nonprofit is able to score one.

  • Non-Repayable: The biggest benefit of government grants is that they are not expected to be repaid — consider them as a donation from the government. Many government agencies are willing to award certain organizations if they believe they are doing work worth encouraging, even if the company is just getting off the ground.
  • Availability: The best part about government grants is that they are widely available for organizations in all industry, be it healthcare, education, commerce, or any other sector. The United States Department of Agriculture awards grants to businesses that use sustainable, clean energy systems. You can find a list of grants available at grants.gov and SBIR.gov and other government websites.
  • Credibility: A nonprofit that receives a government grant is seen as credible in the eyes of others. This means it will be able to attract more funding and donations in the future. Some agencies, government and otherwise, may also consider your organization an expert in the field and may give you a platform. They may introduce your company to potential partners and other resources. Your chances to get more government funding also increase.
  • Limitless Grants: A nonprofit can apply to as many government grants as it wants since the government puts no limit on this. This means if you are good enough, you may be able to win multiple grants for your nonprofit.

Cons of Government Grants

In spite of all the advantages, getting approved for a government grant is very difficult.

  • Drafting Proposal: This is the most taxing task of a nonprofit’s grant application. If you do not have a convincing proposal, your project means nothing, as government grants are subjected to extremely strict criteria. Federal grant applications can take as much as 200 hours and several months to draft and most nonprofits need to hire a professional proposal writer, which can cost them a further several thousand dollars in expense. It takes even longer for your organization to find out if the proposal has been approved or rejected.
  • Competition: The rate of successfully getting a proposal approved is very low as the competition is fierce. According to the stats, only 200 grants proposals will be accepted out of a pool of 2,700 proposals.
  • Strings Attached: Your grant will only be approved if the government thinks your company’s mission aligns with the government’s beliefs. A nonprofit which has won a grant needs to stick to the rules and spend the money only on those projects that have been deemed important enough by the government, and not on the nonprofit as a whole. To ensure compliance, the government will track the usage of its funds.
  • Complex Reporting: Government grants require complex reporting and data tracking since the money comes from taxpayers and the federal agencies need to make sure it is put to good use. This involves a lot of paperwork and a lot of human labor.
  • Short Term: Government grants are unsustainable, short-term options and cannot be relied on for long periods of time. Even though you may get a big boost of funding from a single grant, it may not be possible to get another grant from the same agency.

A government grant can be extremely helpful, especially for nonprofits that are just starting off. However, you need to bear in mind that this type of funding is only a “soft” option and a nonprofit will need to rely on more sustainable sources of income if it wants to keep its doors open.