The 5% Rule and why 2020 is THE Year to Apply for Grant Funding

Despite the economy in turmoil and nonprofits being stretched for resources, there is ONE thing every nonprofit professional should do in 2020: get started or increase their efforts to find and obtain grant funding.

I’ll share with you three reasons why now is the most important time to pursue grant funding from private foundations, corporate foundations, and federal or state grants.

Nothing is “business as usual” right now in the world, but there are some things that haven’t changed including the fact that:

• Nonprofits still need to retain their dedicated employees;
• Income may be dwindling for your organization right now; and,
• The people and communities you serve need you more than ever.

While grant funding is not a sustainable revenue stream on its own, it is a significant source of revenue to complement your other revenue streams (fundraising events, individual donors, etc.). Maybe you have already written and received several grants over the years or perhaps you are entirely new to grant seeking…either way, now is an opportune time for these three reasons:

#1 The 5% Rule for Foundations

There are over 87,000 grant-making foundations in the United States, so there is no lack of opportunity to leverage the immense power of grant funding. And while the nonprofit sector is experiencing great pressure, the requirements and rules for foundation grant-making have not changed and can benefit you.

All private foundations in the U.S. must abide by the IRS 5% Minimum Distribution Rule which has great implications for your grant seeking work. Section 4942 of the Internal Revenue Code requires private foundations to distribute 5% of the fair market value of their assets each year. This means a private foundation must distribute 5% of the 2019 average fair value of its assets by the end of 2020 to charitable causes (a small percentage of which can be used for foundation costs). Often, they will distribute more than the required 5% in a given year.

This year is especially critical. Why? The stock market performed extremely well in 2019, meaning that foundation assets were at an all-time high that year. For example, a foundation with average assets of 10 million in 2019, must distribute $500,000 in charitable distributions in 2020 or be faced with excise tax (technically, they need to spend 5% each year over a 3-year average, which allows foundations to spend 4% one year and 6% another…but let’s use the 5% figure). You can research a foundation’s prior year assets by searching for their IRS 990 tax return to discover approximately how much they need to distribute in charitable assets. IRS 990’s are public information and can be found by a simple internet search or using databases such as candid.org or others.

How does this impact your grant writing plans for 2020? It underscores the urgency to get started in grant writing or continue your trajectory of obtaining grant funding throughout 2020. With stocks plummeting right now, foundation assets are decreasing as is the amount they will be required to give to charitable causes in the 2021 calendar year. So, communicate with any funders that have supported your nonprofit in the past and let them know how they can help serve a critical role during this difficult time. And be sure to research and find new funders to approach to broaden your reach.

#2 Foundations are Adapting

Right now, many foundations are giving specifically to emergency causes or operating funds which could help your nonprofit. And many are even offering multi-year grant commitments or adapting in other ways that benefit nonprofits. For example, a recent trend is foundations extending their deadlines for grant applications (giving you more time to prepare) and extending the requirements to provide final reports on grants you have already received.

In addition, some are issuing funding now, that was promised for later in the year or in future years, so as to provide immediate relief for nonprofits. The only way to know if this is the case with a particular foundation is to research them (via their web sites, databases, or IRS tax return information) and contact them directly by phone and email.

#3 Emergency Funding is Available

Almost all grants are competitive in nature, and emergency funding is no exception. By now, you may have received lots of information about emergency funding and time is of the essence. Apply as early as possible in case funding is depleted and be sure the make your best case for support as you may be competing with other nonprofits and businesses for the same funds.

The Small Business Administration lists numerous opportunities as do private databases. For example, Instrumentl is providing a nation-wide list of funders providing emergency grant funding opportunities throughout the U.S. Right now, you DO NOT need a paid subscription to access this list that will be updated regularly: https://www.instrumentl.com/covid-19-grants.

THIS is the year to sharpen your grant writing skills, research the funders that are the best fit for your work and get those grant applications out the door!

Want an exact step-by-step process on how to write winning grant proposals? Check out our NEW online course, All About Grant Writing now! allaboutgrantwriting.com.

©2020, Grants4Good LLC®

Margit Brazda Poirier, GPC, M.S., Owner and Founder of Grants4Good LLC® (grants4good.com), created the company in 2009 to help nonprofits find and get grants. She is one of only 350 certified Grant Professionals and 1 of only 20 Approved Trainers in the U.S. and Canada in this profession.

Margit and her team have written and received millions in grants from federal, state, foundation, and corporate sources – and she has the unique perspective of understanding both grant seeking and grant making, given her experience leading a prominent New York foundation.

In addition to grant development, Margit is in high demand for public speaking engagements, national webinars, and customized training for boards and staff. Margit is a nationally published author and frequent speaker on all aspects of grant development. Her passion is teaching others about the power of grants so that they may achieve their nonprofit’s mission and work.