Search

Does 501(c)3 status REALLY matter?

When they first contact me, a lot of clients will say something like "I have this business, and I want to eventually make it/add a 501(c)3, but I'd like to start applying for grants now." If you're in this situation, 9 times out of 10, I will advise you to go ahead and get non-profit status first. Here's why: it's going to open up an entire world of grant opportunities for you, and those can help you get the money to really get your effort off the ground.


The vast majority of the grants out there, the federal, state, local, and private opportunities, will only accept applications from organizations with non-profit status. This is for a couple reasons. First of all, the funding organization is likely operating under guidelines that say all their tax exempt philanthropy should go to non-profits. Secondly, if a big organization is going to give charitably, they want to see that their money is going to go to helping as many people who truly need it as possible. If you're starting a business, that money is viewed as going only to helping you. If you're running a mentoring program for incarcerated youth, that money goes to many more people within a vulnerable population.


You might be thinking, "but my small business will allow me to employ lots of people and make a difference in their lives!" Hopefully that's true! But in that case, you're looking more for a Small Business Association grant or loan, and those are only open at specific times throughout the year. Almost every other opportunity is going to push you the loan route, which can be great! I've seen funders offering 2% interest for projects they like. But if you're looking for free money, getting non-profit status and having a genuinely charitable mission is still the way to go.


I said that 9 times out of 10 I recommend getting non-profit status before starting the grant process. What about that other 1 time? That's when the client runs a school, government organization, or a healthcare program or is an indigenous tribe. These tend to be tax exempt already, so filing for 501(c)3 status is usually not necessary. Just confirm that you are in fact tax exempt and you're good to go.


So in general, when you decide you're ready to go for a grant, make sure that your non-profit status is in place (and not just pending), and file to receive your EIN number, which is used in all grant application (more on that in another post). Now you're good to go!