January 1, 2003

Money Matters: The Structure, Operations and Challenges of Nonprofit Funding

The funds supporting the work of the nonprofit sector constitute their own distinctive funding market. This paper uses data to establish a fundamental fact base regarding key aspects of the nonprofit funding market and to test a number of core assumptions about its workings.

This paper is based on analysis of various sources of data pertaining to the financial status of nonprofit organizations in the United States and to the activities of institutions and individuals who provide funds to those organizations. The paper begins with a general overview of the flow of funds within the nonprofit sector in the U.S., including primary fund sources, intermediary players, and the final 501(c)(3) recipients of funds. It then presents a typology of nonprofit organizations based on functional activities rather than program areas. Indicators of financial capacity for nonprofit organizations are established and then used to assess the relative financial health of the sector’s functional segments. The role that scale plays in determining nonprofits’ access to and use of funds is addressed. The paper then looks briefly at the use of bonds and debt. It concludes by assessing and questioning how well the nonprofit funding market functions.

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