20 Oct Did You Know: The Key Differences Between Grants and Donations by Roxanne Jensen, Ed.S., GPC

Too often, there is confusion between grants and donations in nonprofit organizations. When it comes to nonprofit funding, these two terms are often used interchangeably. Additional confusion can be found when major individual donors begin making donations in amounts similar to what an organization can expect to receive as a grant from a foundation. Nonprofit professionals know that both funding streams mean revenue for their organization but may only have a vague understanding of the distinct characteristics and requirements of each. Understanding the key differences between the two helps nonprofit professionals make informed decisions on funding strategies.

Grants: Structured, Specific, and Relationship-Driven

I began my work with nonprofit fundraising working primarily on grants. Grants are generally awarded by foundations, corporations, state, or government agencies. They come with detailed guidelines that share the funder’s priorities and are generally written to be project-specific. Ask yourself: Can multiple nonprofits potentially access this funding via a formal request for proposal (RFP) process or invitation to apply? That makes it a grant. During this formal application process, the organization must demonstrate how the funding will support its program. This process will likely include outlining a detailed budget, timeline, and measurable outcomes.

Once awarded, the organization will be accountable for the plan that was submitted. Funders expect the organization to exactly follow the terms of the grant and submit regular reports that track how the money was used and qualify what results were achieved. Any failure to follow the requirements could result in having to repay the grant funds or being ineligible for future grants from the same funder.

In addition, grants may have restrictions, such as only being allowed for certain programs or costs (restricted funding). This means that even though you have received the funding, you may be unable to use it freely across any area of your nonprofit’s operations. You can only use it for certain expenses.

However, before you despair, grants are not just about following published guidelines and ensuring accountability. They are also about relationships. Many funders want to build long-term collaborative connections with their nonprofit community partners. Developing a working relationship with grant officers or program staff allows nonprofits to seek guidance, clarify expectations, and even receive application feedback. This can prove invaluable to developing a better understanding of the funder’s priorities and increasing chances of securing future funding.

Donations: Flexible and Relationship-Based

On the other hand, donations are generally made by individuals or businesses and tend to be more flexible than grants. Donations are frequently given to the organization overall, meaning that the nonprofit can use the funds where they are most needed. This flexibility is especially desirable for nonprofit organizations, allowing funds to be used for salaries, administrative overhead, or other expenses that may not be covered by restricted grants.

Since there is no formal donation application process, there is an even greater need to develop strong relationships with donors. Fundraising campaigns, community outreach, and clear communication about the nonprofit’s mission are critical components to encouraging donations. Nonprofits must focus on building trust with individual donors and creating a shared sense of investment in the organization’s impact. It is also essential to maintain transparency and express gratitude. By demonstrating the positive outcomes of donors’ contributions, it can inspire them to give again and build long-term loyalty.

What You Should Know:

Here are some key takeaways when thinking about grants vs. donations:

• Grants involve a formal application process: Applying for grants requires time, detail, and often competition with other nonprofits. Building relationships with funders can improve your chances of funding.
• Grants are specific: Grants come with clear terms about how funds are to be spent, with formal reporting requirements.
• Donations rely on connection: Donations generally come from individuals who believe in your mission and want to support your cause, with no strings attached.
• Donations are flexible: This funding can be used more freely, but building trust with donors through gratitude and transparency is important.

Ultimately, both grants and donations play important roles in nonprofit fundraising, but they require different approaches. By balancing the structured time, timelines, and requirements of grants with the relationship-building efforts needed for donations can help nonprofits secure reliable funding for their organization.

You can find other blog posts in this series here. AGS also offers several on-demand webinars on a variety of topics to support the full grant cycle, including grant budgeting, compliance, and grant management. Check out our website to learn more and sign up for our training newsletter.

If you are interested in grant services, training, or federal review services, or are interested in our career opportunities,  Julie Assel, CGMS, GPC, President/CEO will be happy to talk with you about this opportunity and provide you with a quote for grant services.

AGS blogs, funding alerts, and trainings are aligned with the Grant Professional Certification Institute’s Competencies and Skills.

Competency #4: Knowledge of how to craft, construct, and submit an effective grant application

• Skill 4.7: Identify various types of grants and their restrictions.

Competency #5: Knowledge of post-award grant management practices sufficient to inform effective grant design and development

• Skill 5.2: Identify strategies for fiscal management and compliance with funders’ requirements.
• Skill 5.4: Identify methods of establishing transitions to post-award implementation that fulfill project applications.

Competency #8: Knowledge of methods and strategies that cultivate and maintain relationships between fund-seeking and recipient organizations and funders

• Skill 8.3: Demonstrate knowledge of strategies for increasing an organization’s access to unrestricted funding sources.