6 Charitable Solicitation Facts to Know Before Applying for a Grant
For many nonprofits, foundation grants represent a significant part of their annual income. The Internet, of course, has made finding grant opportunities easier and has streamlined the grants application process to a degree. As organizations seek grant funds outside their locality or state, however, certain charitable solicitation requirements come into play.
1. Most states include grants as a form of charitable solicitation. It might seem odd, but grants and grant writing are considered forms of charitable solicitation in most states, just like direct mail or phone solicitation. What does that mean? If applying for foundation grants is a significant part of your nonprofit’s fundraising activity, it has to comply with regulations in the forty-one states that require charitable solicitation registration.
2. Charitable solicitation registration is expected when you apply for a grant. Foundations almost always insist that grant applicants be exempt from federal income tax, which usually means they’ve been approved by the IRS as a tax-exempt, charitable organization under Section 501(c)(3) of the Internal Revenue Code and are able to provide a determination letter to that effect. It is becoming increasingly common that applicants also be able to show proof they are registered with the state charity official in states where they plan to solicit grants or donations. These documents are evidence that your nonprofit is legitimate, and they contribute to the overall transparency of the sector.
At a minimum, you should make sure your nonprofit is registered in its state of incorporation, especially if you plan to apply for locally-based grants. This also means that if you plan to apply for a grant from an out-of-state foundation, you might have to register in that state.
3. A funder’s location determines the state of registration. Because many grants can be applied for online, it is sometimes difficult to assess in which states you should register. Generally, nonprofits should comply with the applicable registration requirements of the state where the funder is located. (Note: this is a separate topic from online fundraising, which can trigger a requirement for nationwide registration.)
4. Registration costs may be wasted if the grant is not awarded. The unfortunate fact is that organizations must register with the appropriate state charity official(s) regardless of whether they get the grant or not. Let’s say a Pennsylvania nonprofit is applying for a grant from a foundation in neighboring New York and completes the charitable registration requirements for New York State. If it wins the grant, no worries: the organization is already registered and compliant with state laws. If it doesn’t win grant, the organization has already paid the registration costs and can apply for other grants awarded by foundations in the state. But it can’t recoup its registration costs. Organizations should consider these scenarios when deciding whether to apply for a grant from an out-of-state foundation.
5. Nonprofits are required to register regardless of the amount of the grant. The grant award attached to a given grant can vary tremendously based on the applicant, the nature of its project or program, and the funds available. But when it comes to charitable solicitation registration, the amount requested typically won’t impact the requirement to file. Note, however, that in many states nonprofits are exempt from registering if their annual revenue falls under a certain amount.
6. Staying “grant-pliant.” As a rule of thumb, nonprofits must comply with charitable solicitation requirements before they start to solicit donations or apply for grants. In terms of getting a start on your grant writing, you have a few options. If you want to be proactive and be 100 percent compliant, register your organization or file for an exemption in every state in which you plan to approach a funder for a grant. Because many nonprofits don’t have the resources to do that, smaller organizations might consider limiting their grant proposals and fundraising efforts to states in which they have registered.
Chances are, your grant team knows how to craft a compelling proposal. Without the proper registrations in place, however, your ultimate success may be constrained. Before you apply for a grant, check with the funder to determine what its requirements are. Proof of charitable solicitation registration often is one of them, and in those cases you’ll have to decide whether the grant is worth the time and expense of registering.