Signs You Shouldn't Apply for That Grant: 12 Examples of Red Flags in a Funder

“Chasing money” is one of the primary pitfalls nonprofits and grantseekers fall into when jump-starting a grants program. 

Just because funds are available doesn’t mean they are necessarily worth pursuing. 

In the following article you will learn how to avoid grant-seeking hazards and how to spot critical funder red flags. With this information at your fingertips, you will be better positioned to make informed decisions and identify the very best grant opportunities that are worth your organization’s time and effort! 

Let’s dive in!

When it comes to pursuing grants, funder transparency is key. 

Transparency is a major concern throughout the nonprofit sector, and an essential component for building trust amongst an organization’s stakeholders. 

According to a study published by the Journal of Accounting, Auditing and Finance, nonprofits that actively increased institutional transparency saw an over 53% increase in charitable contributions. Moreover, more transparent organizations were also more likely to receive higher contribution amounts from donors in the future. 

Transparency should be valued by all parties involved with charitable contributions. Transparency is foundational to building trust, not just with donors but with any partner in your nonprofit’s work—which includes funders. 

If you come across a grant opportunity or funder that lacks transparency, you should probably move on. Always remember: the more information, the better! 

Take for example the United Way of Southeastern Michigan. Current opportunities like their 2024 Racial Equity Fund provide extensive information on eligibility, fund details, FAQ, list of application questions, and more. 

Another red flag nonprofits should be on the lookout for when applying for grants is overly restrictive requirements. 

All grant programs have rules, regulations, and/or requirements that a nonprofit organization must adhere to to receive an award. However, grants should not have requirements that are so restrictive it is a burden for most nonprofits who would seek to apply. 

While some grant opportunities, such as federal grants, are legally required to have specific restrictions and requirements, private grantmakers are typically less restrictive and have fewer requirements. 

While requirements can vary depending on the type of opportunity and funder, it is always important to note if a funder’s grant requirements are overly restrictive. 

Some things to look out for are: 

• The funder has set requirements that are not appropriate for the stated award amount—for example, a $5,000 general operating grant should not have requirements or compliance standards comparable to a $100,000 public grant;
• Your nonprofit is not yet in a position of readiness to meet extensive requirements for the type or size of grant offered; or
• The restrictions create an inequitable application process, impeding the ability of less established nonprofits or nonprofits led by communities and individuals at the margins of society from accessing funding. 

Remember, grants exist to support your organization and make your work less challenging. Overly restrictive requirements may create more work for you and your team, ultimately defeating the purpose of pursuing a grant in the first place.

Just because a grant sounds like a good fit right away doesn’t mean that your nonprofit organization is aligned well with the opportunity. 

It is always best practice to thoroughly analyze an opportunity and evaluate alignment before jumping into the application process. 

Misalignment between your organization’s mission and the purpose of the grant is one of the primary reasons nonprofits may lose out on grants they apply for. Moreover, pursuing grants that are misaligned can lead to mission drift and lead to significant operational problems for your organization over the long-term.  

Ensuring your nonprofit is pursuing opportunities that are well aligned can be challenging, but luckily Instrumentl has tools and resources to streamline the process. 

Instrumentl utilizes a powerful smart matching system that matches nonprofits with best fit funders based on their mission and funding needs. Finding the right funders has never been easier!

Unfavorable terms and conditions are another funder red flag. 

Funders who offer funding that is too restricted or require deeply burdensome or unreasonable reporting requirements is a sign that you may want to look for another opportunity. 

Typically, funders will list common terms and conditions in a grant agreement such as: 

• Evaluation criteria
• Payment conditions
• Prohibited activities

It is always good practice to thoroughly review a grant agreement to ensure that you can meet all the stated terms without significant issue and that none of the terms are exploitative. If you feel the terms and conditions of the grant agreement are unreasonable you are well within your rights to respectfully decline receipt of the grant or work with the funder to come to terms that are agreeable to both parties.

A grant that provides short-term funding (less than at least one year) or without a clear plan for sustainability beyond the grant period can be a potential red flag to be on the lookout for. 

Short-term funding is not necessarily a bad thing. However, outside of very specific uses, short-term funding is not likely to provide your organization with the support it needs to fund its operations for an extended period of time. 

Strategically, a nonprofit organization would do better to identify and pursue multi-year awards or to develop relationships with funders in the hopes of renewing a grant over a longer period of time.

Finding yourself in a situation where a funder is engaging in poor communication is a significant red flag. You never want to be unsure of where you stand or what a funder’s expectations are. 

A funder with sound communication practices will be forthright about:

• Who to communicate with: Many funders assign a program officer or program manager who acts as a point of communication for the grant program.
• How to communicate: Funders will provide an email or phone number that applicants and grantees can contact with questions or concerns. 
• When to communicate: Funders often tell grantees when to reach out. Some funders will not respond to questions outside of certain timeframes and grant cycles. 

If you find that a funder is restrictive about how and when to communicate with them or if you reach out and do not receive a prompt and informative response, it may be a sign that this is not the right opportunity for you.

During the grant identification stage, if you find that a funder has a negative reputation that is a clear red flag and a sign you should not apply for their grants. 

Developing networks of trusted resources and sector experts is a helpful way to find funding and identify any potential problems or issues with funders. 

There are also many resources available online that can help nonprofits identify trustworthy funders. These resources analyze:

• Funders’ 990s as well as other fiscal reporting
• Funder’s processes and actions to industry best standards and practices
• Leadership and management
• The organization’s impact, among other key data and information

Common sites that are used throughout the industry to rate 501(c)3 charitable organizations and funders include: 

• Charity Navigator
• ProPublica
• ‍Great Nonprofits
• Charity Watch
• Givewell

Understanding the impact a funder has made as a result of their strategic giving is an essential component nonprofits must consider prior to applying for a grant. 

If it is evident that the funder has no demonstrated impact (proof that their giving practice has achieved positive results) then it is likely that this is a funder red flag. 

Foundations, like the charitable nonprofit organizations they fund, will often release annual reports that catalog their successes over the past year. 

Take for example the Bill and Melinda Gates Foundation which provides a comprehensive overview of how their giving has led to favorable results for the communities they aim to serve. 

Funders may not publish annual reports but you can still uncover information about their past giving through their Form 990s with the IRS. While Form 990s require a little more time and digging, reviewing these documents is a surefire way to uncover information about what type of organizations a funder gives to and how much they give. 

For a simpler way to evaluate a funder’s giving history, check out Instrumentl’s 990 snapshots that break down these complicated forms into easily digestible graphs and charts. 

Unrealistic or overly arduous reporting requirements can be a definite red flag for a grant opportunity. 

Typically, grant reports include elements such as:

• Financial report and/or final actual budget
• Quantitative project results including actual outcomes and outputs 
• Qualitative project results including a narrative and/or participant story 
• Lessons learned
• Plan for the project’s sustainability, among other aspects. 

If you find that a funder’s reporting requirements stray outside the framework of what is commonly requested during grant reporting processes or if outside your organization’s capacity to undertake, it can be a sure sign that you should aim to identify a new opportunity.

While deadlines are a normal aspect of the grants process, tight or short notice deadlines set by funders are atypical and should be viewed as a potential funder red flag. 

A normal, equitable grant application process will notify applicants of an open grant opportunity at least several weeks ahead of time.. 

You should not feel that you are partnering with an organization that will not honor your nonprofit’s time and work. Normalizing short notice deadlines will only set a precedent that your organization’s time and competing responsibilities are not valuable. 

Pro Tip: Even reasonable deadlines can be challenging to navigate. Nonprofits can manage multiple deadlines within Instrumentl’s grant calendar. This allows users to take a high level view of their projects including upcoming tasks and key deadlines and better plan for how to tackle urgent assignments week to week. 

When it comes to applying for a grant opportunity with a new funder, it is important to take any ethical concerns or potential ethical funder red flags into account. 

Oftentimes, it can be uncovered in the identification process that funders have partnerships or secure their funds through means that are at odds with your nonprofit's mission. 

For example, Chick-fil-A manages a robust corporate grants program, but should these funds be accepted by charitable organizations who promote LGBTQ+ rights?

These are questions that should be asked about any funder, foundation, or organization that a nonprofit chooses to accept funding from. Remember, being strategic about who to partner with and what kind of money to accept will only help you strengthen your fundraising efforts in the long term.

As mentioned previously, ensuring that a funder respects your nonprofit’s time and resources is imperative. Developing onerous applications with unnecessary or redundant attachments, documents, or forms to complete can be a sign that this is a grant opportunity you may need to pass on. 

Many grant applications can be lengthy or complex. Notably, government grant programs are governed by stringent rules and regulations as a method of appropriately protecting tax dollars. Most government grants give larger amounts over lengthier periods of time, making the excessive bureaucracy more understandable and reasonable. 

However, a smaller, short-term private grant should not be governed by similar rules or have requirements at the same level of a larger federal grant. 

Be sure that the funder respects your time and capacity to complete an application and make the choice to pass on excessively bureaucratic applications and processes.

It is important to move forward with confidence as you choose which grant opportunities to pursue and which to pass on. 

If something looks like a funder red flag or sounds like a funder red flag—trust your gut! It is better to pass on an opportunity that is not right for you than to waste your time on a grant application that is not well-aligned or will create more problems for your organization down the line. 

When it comes to identifying the best grant opportunities for your nonprofit organization, you aren’t on your own—Instrumentl is there to help. Instrumentl offers comprehensive resources and assets you can leverage to streamline your fundraising efforts and hone your grant writing practices and processes for improved success. 

Learn how Instrumentl can help you grow your nonprofit today!