The nonprofit sector plays a vital role in communities across the country, providing critical services and uplifting those in need. Yet many small nonprofits face a precarious existence due to systemic funding disparities that benefit larger organizations.
As founder of a small nonprofit and a grant writer over the past decade, I have witnessed these inequities firsthand. Larger nonprofits employ dedicated grant writing staff to put together polished proposals, build relationships with foundations, and navigate complex reporting requirements. Smaller groups, often run solely by passionate volunteers, lack the capacity and connections to compete.
Government and foundation funders also tend to prefer supporting nonprofits with an established track record and name recognition. This translates into a disproportionate concentration of funds among the largest nonprofits. Research shows groups with over $10 million in revenue receive over 90 percent of all donations. In comparison, those with budgets under $100,000 struggle to stay afloat on shoestring budgets, taking just 1.4% of all donations according to nationwide data from Indiana University.
This imbalance threatens to undermine the efficacy of the nonprofit sector. Small community-based groups frequently provide more targeted, grassroots services, reaching vulnerable populations larger bureaucratic charities overlook. As funding dries up for these groups, critical gaps are left unaddressed.
There are some measures funders can take, like simplifying applications for first-time applicants or setting aside dollars specifically for small nonprofits. Impacted groups can also consider sharing administrative resources or applying for collaborative funding, but this is not a solution if larger nonprofits don’t control the partnerships.
Unless we address policies and practices entrenching inequity, we risk losing pioneering small nonprofits that incubate innovative solutions. Funders must recognize and foster grassroots organizations as the backbone of community support systems. The viability of the entire nonprofit sector depends on it.
Individual donors also disproportionately fund larger, established nonprofits over small community-based groups. A study by Vanguard Charitable found 57% of people only donate to large, well-known charities. Over half believe smaller nonprofits are too risky or lack impact. However, research shows small nonprofits provide more targeted, grassroots services compared to larger bureaucratic organizations.
Small, community-based nonprofit organizations are the oft unseen pillars upholding vital support structures for society’s most vulnerable. Operating through shoestring budgets and iron resolve, impassioned volunteers and nonprofit staff provide targeted services to their neighborhoods, reaching populations larger charities overlook.
Yet these groups find themselves trapped in a paradox: their hyper-local approach is exactly what funders claim to want to support, but their size and lack of brand recognition precludes them from securing adequate funding. As Sarah Jones, Director of Houston’s Grassroots Crisis Center explains, “We constantly hear funders say they want to fund small orgs doing direct service. But the application and reporting process seems designed intentionally only for large nonprofits.”
The data bears this out: despite comprising over 70% of the nonprofit sector, groups with budgets under $100K receive only 1.4% of all donations, while the top 2% of nonprofits take in over 90% of funds. Government grants come with byzantine application and reporting rules that eat up scarce resources. And foundations prefer names they know, sustaining inequity through precedent.
The implications are stark: recent surveys indicate over 50% of small nonprofits operate at deficits, with leaders dipping into retirement savings to keep doors open and selling assets to make payroll. Many founder-led groups rely entirely on volunteer labor just to survive.
But communities cannot afford to lose these groups. Myriad studies show small nonprofits provide more responsive, tailored, grassroots services, filling gaps left by larger, bureaucratic charities. They act as societal beta testers, pioneering innovative programs larger groups later adopt and scale. And their survival strategies model sustainable practices like cooperative governance, non-hierarchical leadership, and community wealth sharing that build local capacity and resilience.
Some positive initiatives counter these tailwinds, like Nevada’s generosity tax credits for small nonprofit donations, or California Endowment’s simplification of grant processes for new applicants. But much more is needed to nurture this crucial subset of civil society.
Funders must earmark dollars specifically for grassroots groups, with simplified applications, capacious funding for indirect/admin costs, and multi-year operating grants to enable stability and growth. Legacy foundations should expand the circle of philanthropy by funding more newcomer-led nonprofits. And governments can incentivize small donor participation through mechanisms like social impact bonds.
Community-based nonprofits represent the heart and soul of the social sector. Correcting funding disparities will empower these groups to drive community progress across the country. The time to invest in our grassroots is now.