Types of financial support
Grants are non-repayable funds (or products) distributed by one party to a recipient. Although the money does not have to be repaid, recipients are usually required to commit to specific outputs or outcomes, including reporting on how the money is spent and how the project is progressing.
Bequests are planned gifts of personal property through the provisions of wills or testamentary trusts. A bequest can be specific, for example, an amount of money, property, or a percentage, or residual, of a deceased’s estate. It can also be conditional. Alternatively, a testamentary trust can be created. Non-profit organisations can also be named as the beneficiaries of insurance policies or retirement funds.
Loans can be applied for by NPOs, secured against assets, and then repaid with interest. When lending money to an NPO, it is important, as with all borrowers, to ensure that the NPO has a solid track record of income and operations that reasonably position it to be able to repay its debt. This is a high-risk and short-term means of supporting an NPO, and must be entered into with careful consideration about its viability for both parties.
Equity capital is financing provided by external investors through the purchase of the shares of a company. This option is not available for charities and similar organisations, but only for registered companies. The finance is non-repayable (it is distinct from debt-financing) but external investors are granted a share in any rewards gained. This form of support is popular for social enterprises
Restricted and unrestricted support
Funders can restrict contributions to a particular purpose or project or give unrestricted funds for use at the NPO’s discretion. The latter can include organisational operating expenses, such as staff salaries and overheads. The difference is in funding a project or an organisation.
If the funding is intended for an organisation, once a thorough due diligence has been conducted and it is clear that the organisation is well managed, unrestricted support is preferable. This enables NPOs to ensure that they have the operational capacity to manage the funding efficiently and to deliver their intended results. It also enables the NPO to better leverage other, restricted funding. Unrestricted funding indicates trust – both in the NPO and in the funder’s own due diligence process – and forms the basis of a healthy ongoing partnership. [End box]
Types of non-financial support
Donations of goods or products are a popular form of support. When donating goods, it is important to establish whether the NPO can make use of and/ or a ord to maintain or repair them if they are not in good working condition. Alternatively, companies and individuals can o er discounted rates on products to NPOs.
Donations of services/pro bono work is professional work – such as bookkeeping or legal work – undertaken without payment, or at a reduced fee.
Supporting an NPO to transition into a social enterprise helps to ensure the organisation’s sustainability. A social enterprise seeks to address social issues using a sustainable business model, with pro ts always or mainly reinvested into the enterprise.
Bartering is the exchange of goods or services without the transfer of any money, for example, providing a garden-orientated NPO with accounting services in exchange for the produce it provides.
Volunteering time or expertise to an NPO can be a rewarding and educational experience for both volunteers and bene ciaries. A strong alignment between volunteers’ passions and NPOs’ needs increases the impact and sustainability of volunteerism projects. It is important, however, that volunteers are able meet the time and skill requirements of the NPOs that they intend to support.
Training and mentorships can help NPO employees or bene ciaries to develop new skills and con dence.