Fiscal Sponsorships: An Alternative Pathway to Funding

In the initial phase of development, community action projects are usually most concerned with securing funding. Fiscal sponsorships are a unique legal relationship that allows new organizations to function under the umbrella of an existing nonprofit. If you’re unfamiliar with what this type of sponsorship is and how it can benefit your work in the long run, you may be hesitant to pursue one. This simple breakdown will explain the basics of a fiscal sponsorship and its benefits so you can decide whether it might be right for you.

Definition

A fiscal sponsorship is an alternative to forming a nonprofit, in which an organization with current nonprofit status (usually a charity) enters into an agreement with another organization that allows them to collect tax-deductible donations. Put more simply, an existing nonprofit “sponsors” a new organization, allowing them to receive funding more easily. In return, the sponsors commonly receive a portion of the donation.

Benefits of a fiscal sponsorship

Common reasons that organizers choose to pursue fiscal sponsorships include:

• Obtaining tax-exempt status without having to wait for federal approval
• Saving time on paperwork and processing
• Clearing a pathway for a simple donation process
• Drawing positive attention to the community project

This is a particularly notable benefit for early-stage organizations that are looking to secure funding quickly to get started on their projects. It can also be a good route for testing a new idea, as a sponsorship allows for the quick setup and termination of a project. At the same time, some organizations choose to remain in a sponsorship arrangement, as it fits their existing financial structure.

That said, fiscal sponsorships are not right for everyone. Community project organizers may not want to deal with sponsor oversight or the fees (typically between 5% - 10% of funding) associated with this kind of relationship. Likewise, they might also prefer to avoid complicating their organizational structure. Take this into consideration before you proceed. If you want more independence or cannot spare the initial cost of this arrangement, it may not be right for you.

Some examples of notable fiscal sponsors are:

• Community Partners
• Community Initiatives
• Baltimore Civic Fund

These sponsors all have many notable success stories. Community Partners helped Ontario HEAL Zone convert a mostly empty community center into a space for local dance, exercise, and nutrition classes. They provided the organization with the connections and resources that helped them move from the idea to the action stage. Similarly, the Baltimore Civic Fund assisted Safe City Baltimore and simplified its donation process. These examples illustrate the essential plus of a sponsorship, namely a wider base of support for upstart projects.

Process

Locating potential fiscal sponsors is relatively straightforward; numerous databases are available. The more challenging part is applying for a sponsorship and, if you receive interest, determining if the sponsor is right for you and your project. Most major sponsors have links to their digital or print applications on their website. These applications tend to require much of the information you will need to provide in standard funding applications: a proposal narrative, a budget breakdown, and personal details.

If you make it past the application stage, it's important to meet with your potential sponsor to determine whether you can work together.

Important considerations include:

• Project timeline
• Sponsor’s charge
• Allocation of project control
• Sponsor’s relationship to organization staff, volunteers, etc.

From a wider perspective, you want to understand what your relationship with your sponsor will be before you agree to it, and you also want to be clear about your expectations. This avoids potential miscommunication down the road and allows you to enter into a situation that bolsters your project.

A fiscal sponsor may not be right for everyone, but given its fast-track benefits, it may be worth checking out. Fiscal sponsorships offer a solid on-ramp for projects to get up and running in a short period of time with the oversight of a more seasoned organization. If any of this sounds applicable, start looking into potential sponsors soon.

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Are you seeking funding for your community project and are currently ineligible for funding due to not having a 501(C)(3) status? Click here to learn more about other forms of funding that you should seek for your community effort.