What is Fiscal Sponsorship?

Since most foundation funding is awarded to nonprofits rather than to individuals, affiliating yourself with an organization or obtaining a fiscal sponsor can increase your likelihood of receiving funding. Sponsors are third-party groups that collaborate with you to meet funders' requirements. You provide the idea and the manpower; the sponsor provides the track record and credibility.

Why is fiscal sponsorship necessary? The Internal Revenue Service decides which charitable contributions are tax-deductible. In order to insure that the donor will be able to take a charitable deduction for their gifts on their federal income taxes, most donors prefer to give to organizations that have been granted tax-exempt status under IRS Code Section 501(c)3. You can apply for these restricted grants if you can find a non-profit organization that is willing to serve as a "fiscal sponsor" (sometimes referred to as a fiscal agent or non-profit umbrella) for your project. Most such affiliations with fiscal sponsors are rather formal, based on a written contract that spells out who will do what, and some sponsors will extract a fee for this service.

How can you tell when you need a sponsor? Here are some specific cases where sponsorship of an individual grant applicant is indicated:

• If your idea for a grant requires access to facilities and services that you cannot provide.
  
  
• Should your idea be controversial or involve some element of risk, funders might shy away from it unless you find a reputable sponsor to endorse the idea and lend you credibility.
  
  
• If the idea you have in mind will have substantial projected impact on your community, then you probably need a well regarded community agency as your sponsor.

In each of these examples, the determination of whether or not affiliation with a sponsor would be beneficial rests on the nature of the grant idea combined with the requirements of the funder. The choices concerning what kind you need and how structured or loose the relationship should be are up to you. The following types of organizations may serve as sponsors for individual grant seekers. Many have done so in the past: universities, local art associations, arts organizations, colleges, museums, research institutions, professional societies, historical societies, nonprofit performing groups, scientific societies, social /recreational clubs, community foundations, veterans' groups, religious groups, churches

This list is not comprehensive. You are most likely already affiliated with several groups that might serve as sponsors for your grant project. In the instance in which this is not the case, the list is provided as a starting point to help get you started in determining what type of organization to approach. Of course, the most important criterion for an effective sponsor is that this organization enhance, not detract from, the development and funding potential of your grant idea.

The selection of the right sponsor is crucial. Funders carefully examine institutional factors before they award you a grant. They will question whether the local setting and conditions are appropriate, whether available facilities like laboratories, storage, and support services are adequate, and especially whether your grant project seems to have strong community support. Since one advantage of organizational sponsorship is that it provides you with credibility, it is important that you select a sponsor with a good reputation and a rapport with its own funders. The only way to ascertain this is to make discreet inquiries among staff or board members as well as others. It is, therefore, important that you choose a sponsor whose top management is sympathetic with the implementation of your ideas. Ideally, the leadership of the sponsoring organization should view your grant project as a beneficial extension of the organization's own services.

What are the advantages for the sponsor?

The advantages to the organization sponsoring you will vary depending upon the nature of your grant idea and the type of sponsor. The best way to begin the process of selling your idea is to list what advantages you can foresee for potential sponsors. Such as: enhanced public image, wider name recognition, attraction of new funders to the sponsoring organization, and honors and prestige if the endeavor meets with success.

What is the process?

One of the major obstacles to an individual applicant's receiving funding is not knowing how to go about finding a sponsor to apply for their grant. Speak with your colleagues, and, especially, with the experts. You may be surprised that an individual will take the time to speak with you or answer your letter with some valuable insights. Call or write associations in your field to determine who's doing what, who has been funded, and who has a good reputation. Once you've established your identity as an individual with similar interests, you may find the leaders and staff of such associations more than willing to chat with you.

Ideally, you get the sponsor to act in a limited capacity as a fiscal agent or an in name-only sponsor. Under this type of sponsoring arrangement, the organization performs a channeling function. It assumes expenditure responsibility for the grant money, removing the burden somewhat from the funder. As a grant seeker this kind of limited sponsoring arrangement guarantees you some degree of independence.

First, you and the sponsor need to sign a letter of agreement about the terms of the sponsorship. Since the donors will be making their checks out to the fiscal sponsor, you need to be certain that you have a written promise from the sponsor that they will give you the funds that are donated for your project. You also need to fully understand any fees or commissions that the sponsor plans to charge. The individual grant seeker can and should create a sponsoring arrangement that benefits him and his grant idea, while not losing sight of the motivation of the funder.        

The sponsor will want a promise from you that you will not do anything that will jeopardize their 501(c)3 status. This means that your project must be "organized and operated for charitable purposes" (i.e. not a for-profit venture). You are allowed to earn a fair salary for your work on the project, but investors are not allowed to make a profit from the project.

Once the sponsorship agreement is in place, the donors can make their checks out to the fiscal sponsor. The sponsor deposits the checks and issues thank-you letters to the donors for their tax records. As the project moves forward, the sponsor reimburses the artists for expenses, maintains the books, and prepares any needed tax forms. Usually the sponsor deducts a small percentage (5-10%) of the total donations as a service charge for handling the sponsorship. Sometimes there are additional fees to set up the sponsorship.

A couple of things to be aware of, by being associated with a fiscal sponsor, the project can also be added as a rider to their insurance coverage (liability), bulk rate permit, resale permit, and sales tax exemption in some cases.

It is important to remember that the sponsoring organization becomes legally and financially responsible for your project when they agree to sponsor you. Most sponsors will ask you to file progress reports, and it is extremely important to have clear and open communication. It is usually more convenient to select a sponsoring organization that is geographically close to you.

What is the role of Individual Donors?

Grants from organizations are not the only way to fund a project. Individuals can be major contributors as well.  You can solicit individuals if your fiscal sponsor will agree. (To avoid situations where you and the sponsor are soliciting the same person, your sponsor may place restrictions on your individual solicitations.) People who already know your work are the people who are most likely to give money to you and people are more likely to donate if they can get a tax deduction due to your having a fiscal sponsor.

Click here for a list of organizations that offer fiscal sponsorship.