It can be difficult to understand exactly what a fiscal sponsor does and how such a sponsor can benefit you or your organization. The concept of a fiscal sponsor is relatively simple, but there are complexities that do require attention to detail.
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In this post, we’ll cover the basics of what a fiscal sponsor is, breaking down the types of fiscal sponsorships as well as where you can find fiscal sponsors to fund your project or organization.
What is a Fiscal Sponsor?
Fiscal sponsors often act as the prime vehicle through which individuals and smaller organizations without 501(c)(3) nonprofit status can receive grants and donations in order to fund both short-term and long-term projects.
The 501(c)(3) nonprofit status of the fiscal sponsor temporarily extends to the chosen individual, project, or organization. This fiscal sponsor often oversees all aspects of operation, including administrative tasks, supervising volunteers and other members, and handling donations and any other funds.
Any organization with a recognized and verified 501(c)(3) nonprofit status from the IRS is eligible to be a fiscal sponsor. Beyond applying for, achieving, and maintaining nonprofit status in the eyes of the IRS, there are no other requirements for the fiscal sponsors themselves.
So why would an individual or an organization seek a fiscal sponsorship in the first place?
Many new nonprofits seek fiscal sponsorships when they first start out as a way to save money, specifically in terms of marketing, housing, and any other operating costs. Fiscal sponsorships also allow newer organizations who haven’t yet secured a 501(c)(3) nonprofit status to receive grants and donations to fund projects.
Sourcing income for projects can be extremely difficult for smaller organizations, especially those without a 501(c)(3) status and whose depth and scope of mission is large. Impossible goals such as traveling abroad can move within reach through the tax-exempt efforts and support of a fiscal sponsor.
Likewise, individuals seeking donations may require a fiscal sponsor to help them achieve a particular mission.
For example, a film student may seek fiscal sponsorship in order to document interviews with World War II veterans as a way to capture their perspectives on such a historical event. Individuals tend to have a much higher rate of success achieving a partnership with a fiscal sponsor than they might in earning scholarships or other types of financial support alone.
Micro-charities also follow this same pattern by using the resources of a larger organization to help provide additional support to their causes.
It is very common for sponsored projects to align with the mission of the fiscal sponsor, though this is not required by any means. Some nonprofit organizations are dedicated fiscal sponsors, while others take on sponsorship on a case-by-case basis.
Speaking specifically to donations, fiscal sponsors receive money directly for the cause and typically allocate it to a designated bank account associated with the sponsored project as restricted funds. The fiscal sponsor must retain visibility standards as outlined in their own nonprofit status, and provide tax-exempt documentation for donors when any donation is made.
Because the fiscal sponsor heads up the initiative under their own name, they’ll oftentimes send out thank you letters recognizing donations from their community on behalf of the sponsored organization. In these letters, they may include details about the sponsored program, organization, event, or individual as a way to designate the funds visually for donors.
Types of Fiscal Sponsorships
There are two main types of fiscal sponsorships: comprehensive and pre-approved.
Both types involve similar relationship structures between the fiscal sponsor and the sponsored organization, with a few key differences based on funds and where they come from.
Comprehensive fiscal sponsorships retain the fiscal sponsor as directly responsible for fiscal and legal supervision of the project, be it an individual’s mission, program, event, or organization.
These types of fiscal sponsorships are best for testing new programs and/or short-term projects. An example could be the establishment of an annual food drive and harvest festival for helping low-income families in the area during Thanksgiving.
Pre-approved fiscal sponsorships are characterized by projects that the fiscal sponsor funds directly through grants. Here, fiscal sponsors are not legally responsible for the projects, individuals, and organizations they fund, but they do retain oversight in terms of a grantor-grantee relationship.
Organizations and individuals can apply for these grants, but once the funds are obtained and the application is approved, the funds are dispersed as the applicant sees fit. The grants awarded through pre-approved fiscal sponsorships are typically funded by other nonprofit activities performed by the fiscal sponsor.
In addition, fiscal sponsorship applicants typically approach a nonprofit organization if they want to broaden their horizons in terms of available grant opportunities. It’s a lot less of a risk, in the eyes of grant-awarding organizations, to choose an applicant who is backed by a fiscal sponsor than one who is applying solely as an individual.
Many fiscal sponsors require either monthly or quarterly expenditure reports, which detail how the funds are applied by the individual, organization, event, or program.
These reports can also act as milestones, allowing the grantee to demonstrate how the funds are benefiting the community. The large majority of fiscal sponsors retain these expenditure reports for use when filing Form 990s during tax season as well.
Beyond expenditure reports, fiscal sponsors generally outline the terms of their sponsorship through a contract. Within the contract are the specifics of the relationship between the fiscal sponsor and the individual, organization, or project.
Terms vary depending on the specific circumstances. However, though many fiscal sponsors may provide their services for free, others may charge a 5-10% fee to provide resources such as volunteers, physical space, marketing, etc.
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How Can You Find a Fiscal Sponsor?
There are many databases you can use to search for fiscal sponsorships that fit your goals best.
For example, FiscalSponsorDirectory.org allows you to look up a list of sponsors as well as tune into news on the topic. If you scroll down the main page a bit, you can also search available fiscal sponsorships by service category as well.
The National Network of Fiscal Sponsors is also a great resource when it comes to searching for available fiscal sponsorships. You will need to become a member in order to take advantage of most of their resources, but the cost is relatively low compared to the vast amount of opportunities available, from networking to member-specific events.
At the same time, you shouldn’t overlook local affiliations you’ve already established when looking for fiscal sponsorships. Speak with nonprofit management support organizations in your area, as well as local associations of foundations, local attorneys, bar associations, consultants, and other fundraisers.
One of the best ways to find a local fiscal sponsor that is already making a difference is to talk to staff at nonprofit events near you. They may be able to direct you towards the fiscal sponsors they use, and even fast-track you to a specific person you’ll need to reach out to in order to learn more about how that fiscal sponsor can help your program.
For many, finding the best fiscal sponsor for your cause could be a networking conversation away at an event you may already be attending.
Knowing how to determine if a fiscal sponsorship is right for you starts with understanding what your goals are and how you’re going to achieve them. Fiscal sponsorship applications with solid grant proposals or business plans have a greater chance of acceptance, especially if specifics are outlined for the fiscal sponsor to review.
To start, ask yourself questions like:
- What is your primary goal in obtaining a fiscal sponsorship?
- How will you be using the funds to achieve that goal?
- Where will funds be directed once the project is complete?
The answers to these questions will help you find available fiscal sponsorships that align with your specific mission as well.
Wrapping Up: What is a Fiscal Sponsor?
Fiscal sponsorship doesn’t have to be complicated. Finding the best fiscal sponsor for your project or organization simply requires knowing where and how to look.
In this post, you learned the basics of fiscal sponsorships, their types, and where to find them. With this new knowledge of how to find fiscal sponsorships, there’s nothing stopping you from funding your next project or event. Find the best fiscal sponsor for your vision to unlock new potential and make a lasting impact on your community.
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