Project fundraising without a non-profit designation
When developing a community project, often it is necessary to secure contributions. Securing these funds can be difficult without a non-profit designation, it can be accomplished through a partnership with a local community foundation.
Fundraising can be a daunting task in itself; full of high stakes solicitations, tight deadlines, and the looming fear of not reaching your targeted goals. This task becomes much more formidable if you are trying to raise funds without a non-profit designation.
The non-profit designation allows donors to receive tax write-off benefits while providing them with the peace of mind that their contributions are being utilized in an appropriate manner.
While it is not very difficult to obtain non-profit designation, it does take time and is not always in the best long-term interests of a group, particularly when that group has formed for a single short-term purpose such as raising capital funds to construct a trail or park, for example. Additionally, it might not be appropriate or feasible to raise funds under one of the group member’s non-profit organizations.
One of the most effective options for groups without a non-profit designation to raise funds is to contract with a local community foundation. With this type of arrangement, the group conducts its fundraising activities while the foundation acts as the fiduciary. This contract tends to be fairly simple and straightforward with contracts about two to three pages long, signed by the foundation staff and designees of the partnering group. Typical provisions in such contracts include an administrative fee collected by the foundation as a percentage of funds deposited, usually about two to four percent. Additionally, any funds not utilized for their stated purpose would go back to the foundation after a time for their use as designated in the contract (foundations usually will not return the funds to funders and funders usually do not want the funds back as it could create tax accounting challenges).
This contract allows for the group to engage potential donors with full confidence that their contributions will be managed and utilized in an appropriate manner. Additionally, it provides the umbrella of the foundation’s non-profit status for tax purposes. Contributions are given directly to the foundation and processed by foundation staff.
It is very important to remember that if you enter into this type of contract with a community foundation, you must disclose to any potential funder the conditions of the contract so that they can make a fully informed decision prior to funding your project.
For additional resources, Michigan State University Extension has educators that may be able to provide assistance.