While organizations without 501c3 status can’t apply for grants, there are still ways to legally accept donations, fund their business, and serve the community. Donors may not be able to write off their tax contributions, but a compelling cause can attract support. In this article, we’ll share six ways nonprofits without 501c3 status can raise funds.
Navigating the world of fundraising without 501(c)(3) status can feel daunting. While lacking the official tax-exempt designation might limit some opportunities — like grant applications — it opens the door to creative and diverse fundraising methods that still support your mission. In this blog post, we uncover six ways nonprofits can legally accept donations without 501(c)(3) status.
Whether you’re a grassroots initiative, a startup nonprofit, or an informal community group, these approaches will help you gather the resources you need to drive your mission forward.
Fundraising is a crucial aspect for any nonprofit, but organizations can face unique challenges when it comes to accepting donations without 501(c)(3) status. But it doesn’t mean your mission has to stall. Thankfully, many creative and effective ways exist to legally accept donations without tax-exempt status.
Crowdfunding is the easiest way to collect donations online. You don’t have to be registered as a 501(c)(3).
To host a fundraiser, you should be direct with where donations are going. For example, if your organization helps dogs get healthy, you could specify that funds will be going toward low-calorie dog food and leashes for walking.
When planning a crowdfunding campaign, consider different platforms (such as Fundly or Donorbox, to name a few). The aesthetic and ability to tailor the platform to reflect your organization varies for each option. Compare costs, fees, and which platform aligns best with your purpose.
Once you’ve chosen your platform, add personality to your page. Whether you create a video or write a compelling fundraising story, ensure your crowdfunding page is relevant to your organization. Designing a crowdfunding page that boosts donations, comes down to how well you address a few W’s: what you’re doing, what this fundraiser is addressing, why people should care about your cause, and why they should support YOUR organization over somebody else’s.
Pro tip: Donations to organizations that are not registered as 501(c)(3)s are not tax-deductible. However, you can create fun different perks for potential donors. For example, $25 will earn a shout-out on social media.
Bonus Resource: Watch this video on 6 pro tips to up your Crowdfunding Game!
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If you feel uncomfortable accepting donations without 501(c)(3) status, consider a physical donation drive. This is perfect for organizations servicing the community in more tangible ways, such as food banks, or shelters.
First, think of what you need. If you’re an organization working to eliminate childhood hunger, you can ask for cans of food and other non-perishables. People are happy to purge their closets and cabinets – especially for a good cause.
Pro Tip: Offer small prizes to increase the amount of donations. For example, each person who donates receives a raffle ticket for a $10 coffee shop gift card. It doesn’t have to be a big reward (though partnering with others can be a win-win, such as with local artists), but an enticing reward will increase donations.
A great alternative to 501(c)(3) registration for a new nonprofit organization would be opening a local chapter of an existing organization.
Is there a specific nonprofit whose mission you align with and whose brand you relate to? Organizations like the Girl Scouts or Habitat for Humanity, are well established, have great missions, and have an established brand that donors already know and support. It takes the pressure off of you—no necessity to organize a community or company—and you can be a part of a team.
If the nonprofit you’re looking at doesn’t have an affiliate program on its site, you should still reach out! It may not be listed, or you may spur an idea for the future.
First: what is fiscal sponsorship? As Donorbox explains, a fiscal sponsor is:
“A tax-exempt organization that agrees to receive funds on behalf of another nonprofit or project, one that doesn’t have a tax-exempt status yet.”
Fiscal sponsorships’ two most common models are comprehensive grants and pre-approved grants, and both are solid choices for nonprofit organizations looking to legally accept donations without 501(c)(3) status.
Comprehensive grants turn the sponsored organization into a “project.” So, the sponsor is responsible for receiving and managing all funds, and the grantee effectively signs over much of their control to the sponsor. Therefore, the sponsor can choose what the funds from the “project” go toward.
Pre-approved grants, on the other hand, give the grantee a bit more control over their funds and which aspects of their organization that the grantee would like to fund. However, the sponsor ultimately has full control of the funds, there’s simply more freedom in project implementation.
Comprehensive grants are great for organizations just starting up, simply looking to support a greater cause, as well as for those dipping their toes in the water of running a nonprofit.
Pre-approved grants work well for organizations that are great for those currently applying to become a 501(c)(3), especially for very small teams (or even teams of 1!).
It is crucial to have all discussions in writing – and not just emails. Draft a contract outlining every detail, such as pricing, trades, available resourcing, and ending the agreement. This can save you the headache of future legal trouble. If you have the resources, consider talking with the attorney about the benefits and constraints of each, then have them look over the contract before sending it out and signing.
A donor-advised fund or DAF is a charitable giving vehicle administered by a charitable sponsor. It is created to manage donations on behalf of organizations, families, or individuals. A charitable sponsor is a 501(c)(3) organization and holds legal control over the donor-advised fund. They include public charities, community foundations, and charitable funds that are associated with an investment firm.
Donors contribute to a fund held by a charitable sponsor and receive an immediate tax benefit. Over some time, donors recommend grants from the fund to their favorite charities. The charitable sponsor awards grants to nonprofits recommended by
donors.
These donor-advised funds are usually invested in mutual funds or other investment vehicles. That allows the value of the funds to grow over time, thereby increasing the donor’s ultimate philanthropic impact.
Grants or gifts from donor-advised funds should be credited to the charitable sponsor and the donor.
Social entrepreneurship is an approach by companies, or entrepreneurs, in which they develop, fund, and implement solutions to social, cultural, or environmental issues.
It means doing business for a social cause and partnerships like these could simplify the process of accepting donations without 501(c)(3) status. Social entrepreneurs combine business and social issues in a way that improves the lives of people connected to the cause.
Are there any social entrepreneurs whose goals align with yours? Consider approaching them for funding for your projects.
Nonprofit fundraising without 501(c)(3) status does not mean your organization can’t legally accept donations from supporters. Using creative fundraising tools like crowdfunding campaigns, and donation drives are great solutions for boosting your organizational income without tax-exempt status.
Consider alternatives to 501(c)(3) registration like opening a local chapter of an established nonprofit, grants, or partnering with social entrepreneurs.
Whatever direction you take, Donorbox is here to help. Our suite of robust fundraising tools makes it easier than ever to host fundraising campaigns and accept donations online.
Raviraj heads the sales and marketing team at Donorbox. His growth-hacking abilities have helped Donorbox boost fundraising efforts for thousands of nonprofit organizations.
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