Right on the Money: Changing the Way You Think About Flexible Funding Could Reap Rewards

Image of money falling from the sky.

Every nonprofit leader dreams of having flexible funding: Money that’s not tied to a particular grant project or the organization’s day-to-day operations. Money that could be used to make the organization better than ever.

If you had such a windfall, would you know what to do with it?

The folks at Nonprofit Finance Fund, which makes loans to nonprofits, think you should ponder that question. And they’ve coined a term for flexible funding that works double duty by making a change in the way an organization does business and by ensuring that the change sticks.

“Change capital” is money you use to change how you do what you do, says the fund’s Craig Reigel. Even better: Change capital, as Reigel and his colleagues define it, pays for itself.

“If people have a vision of how an organization can operate that is different from what they’re doing today, and if they can see a model that will be sustainable,” he says, “they can benefit from change capital.”

Reigel says organizations have used change capital to:

  • Hire a fundraiser for a year. In a year, fundraisers should be able to cultivate donors, start to raise money in the community, and basically pay their own salaries.
  • Develop or refine a program and research its effectiveness. Proving effectiveness can help you in applying for additional funding to implement the program.
  • Merge two organizations. During mergers, staff time and legal fees can add up, but by merging resources, two separate organizations may operate more efficiently, so it’s a more sustainable business model in the end.
  • Launch a new technology. There may be start-up costs associated with buying or learning a new technology, but using it may help an organization become more competent or cost-effective.

If organizations can identify these types of changing needs and show how their organization is poised to address them, they’ll be ahead of the curve when approaching potential funders, says Danielle Yates, who manages marketing and communications at Grantmakers for Effective Organizations, a coalition of funding organizations.

“Some organizations are afraid to identify changes for funders because they’re afraid they’ll lose their funding,” Yates says, “but they shouldn’t see those changes as failures.” Instead, frame changes in your organization’s environment as opportunities for making bold moves.

When talking to a potential funder about change capital, Reigel and Yates say, do the following:

  • Be intentional about the funding. Be clear about what money will pay for existing services you already offer and what will pay to expand and grow the program.
  • Be clear about what kind of change funders can expect to see. Set realistic expectations about goals and how you will measure them. Overpromising can damage a relationship with a funder.
  • Ask if existing restricted funding could be more flexible if a funder doesn’t have more money to give.
  • Have a thorough understanding of how much money you’ll need after the initial investment. Draft a detailed plan for how your organization will be able to sustain the changes you make.

More on change capital

All flexible funding is not created equal: GOS, capacity building grants and change capital

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