How Can You Accept Donations And Grants As A Cooperative?

Many cooperatives are solving societal problems that closely align with the missions of donors, foundations, and other funders, but they can feel blocked from accessing that capital without nonprofit status.

Here are two strategies cooperatives use:

1: Accept donations that are not tax deductible. Yes, you can accept donations as a business, and many of your donors may not care about tax deductions. Your language might look something like this:

Donate here to support our work: Please note donations made directly to our cooperative are not tax deductible.

2: Partner with a fiscal sponsor to give your donors a tax deductible option. For those donors, foundations, or grantors who do care about giving directly to a nonprofit charity, you can accept 100% tax-deductible gifts or grants by partnering with a fiscal sponsor.

What’s a fiscal sponsor?

Fiscal sponsorship is when a nonprofit organization utilizes its tax-exempt status to help other aligned organizations in work related to the nonprofit’s mission. This can include financial management and other administrative services, but most notably, nonprofit sponsors are able to accept tax-deductible donations and grants on behalf of the sponsored organization.

This arrangement can help mission aligned organizations, such as cooperatives, to pursue grant funding without needing to apply for 501(c)(3) status themselves. Because of our mission to grow the cooperative model, Start.coop offers this service specifically to coops.

For example, in 2022, the USDA announced their new Rural Energy Pilot Program, unlocking millions of dollars in federal grants for rural communities to develop local, renewable energy systems. The program was a perfect fit for Navajo Power Home (NPH), a 2022 Start.coop Accelerator graduate with a vision to bring community owned solar power to Navajo communities. The USDA grant would allow NPH to deliver solar electricity service for 10 years to 100 low-income households who could not afford to pay market rates, democratizing access to clean energy sources on tribal lands.

Navajo Power Home had found a perfect funding partner to provide critical capital. But there was one problem: the USDA would only provide grants to nonprofit organizations. Sound familiar?

To solve this problem, Navajo Power Home turned to Start.coop’s fiscal sponsorship program, allowing them to access $2 million in federal funding without the burden of applying for nonprofit status. This year, Start.coop is proud to announce that we are expanding our program beyond our graduates to any cooperative business that fits our eligibility criteria.

What to consider before pursuing fiscal sponsorship?

On the surface, fiscal sponsorship sounds like an amazing opportunity that allows the best of both worlds for organizations to pursue funding. However, here are a few questions to consider before seeking a fiscal sponsor:

• Mission alignment: You cannot ask just any nonprofit organization to be your fiscal sponsor. The organization or project must be aligned with the work the fiscal sponsor focuses on.
• Team capacity: While adding a fiscal sponsor builds fundraising capacity, you still need to have team members able to carry out the proposed work for any grants you receive.
• Liability and control: While there to distribute grant funding to sponsored organizations, fiscal sponsors must retain some control over funds raised for a particular project. It must also be clear that fiscal sponsors are not simply pass-through organizations for sponsored organizations or projects to receive funding.
• Fees: As should be expected, fiscal sponsors are paid through a small percentage of funds raised to cover the costs of their time and administration. Rates typically vary between 5–15% of funds raised (our rates range from 2–10% depending on the size of the grant and complexity of administration).

Why Partner with Start.coop as your Fiscal Sponsor:

If you’re a cooperative looking to increase your access to donation and grant funding opportunities, consider working with Start.coop as your fiscal sponsor.

Benefits to cooperatives:

• Access: Forming a 501(c)(3) is a long and complicated process that requires ongoing compliance requirements. You can receive tax-deductible donations immediately, before obtaining tax exempt status or even as an alternative to it.
• Credibility: Funders often only give to established 501(c)(3) organizations with solid track records. Partnering with a nonprofit with a strong reputation in the cooperative community can build credibility as your organization builds up its own reputation.
• Focus: You work best when you can focus on what you’re best at–growing and running your cooperative. Lighten your load by partnering with a 501(c)(3) on grant compliance and administration.

We understand how difficult it can be to grow and scale your coop in a sustainable and ethical way while figuring out how to fund it. We are here to help while you continue serving your members and community.

Learn more about how you can partner with us at start.coop/fiscal-sponsorship.

Note: The guidance in this article is for general education purposes only, and is not intended as tax guidance. Please always consult with a lawyer or accountant on your specific situation.