Nonprofit organizations, especially new ones, rely heavily on grants to raise money. There are several reasons for this. First, it is relatively simple and inexpensive to write a grant; the alternative is to spend money on advertising through the mass media, or on printing and postage in order to send out direct mail pieces to potential donors. Additionally, a grant proposal that is well-written can add to the credibility of the grant-seeking agency.

There is a downside to relying on grants for funds; not only does it sometimes take a long time to prepare a grant proposal, it can take as long as half a year from the time the proposal is submitted to the time it is accepted.

Those who write grants are usually seeking to raise funds to cover several areas of financial need.

Operating Money

Operating funds (also known as general support or unrestricted income) are used to pay for the costs involved with operating the grant seeker's entire organization. Money for this may come from a foundation grant, a corporate grant, a direct mail campaign, or interest from an endowment. Earned income may also be used to pay for operating funds. Some organizations may hold special events (pledge drives, annual fund drives) to raise money to pay for operating costs.

Special Project Money

The money for special projects is limited to beginning a new program, making an existing program bigger, or starting a new project that will last for a certain period of time. Money to pay for such projects may come from a corporation, a foundation, from government agencies, and from individuals.

Capacity Building Funds

Capacity building projects allow grant-seeking organizations to increase their staff or to improve their ability to raise funds in order to better pay for new and continuing programs.

Capital Funds

Capital Funds (also known as equipment funds) are used to pay for construction of a new building or the remodeling or renovation of an existing building. Such money might also be used to purchase land or equipment. Funds might be raised by a major gift campaign, or from grants provided by foundations, corporations, or government agencies.

Endowments

An endowment is a long-term gift to an organization. The principal is invested, and the interest is used to fund either the organization's operating fund or some specific need. Some endowments are received as part of a will or a trust, or through an endowment campaign.