Contribution or Grant? What’s the Difference
From the blog archives of February 2014, the below blog is full of useful information that is still relevant to the nonprofit community.
Knowing the difference between contributions and grants can be difficult, as they share many of the same characteristics.
In their accounting policy on the subject, The University of Notre Dame states that, “sponsoring entities, private foundations and/or donors may use the terms [grant and contribution] interchangeably in both conversation and in the donative instruments, contributing to the complexity.” However, while the terms may be used interchangeably, the meanings of these terms differ greatly.
The University of Notre Dame (in the same article as stated above) states that a gift is a voluntary and irrevocable transfer of money,
services or property from an external donor for either unrestricted or restricted use in promoting the University’s goals. No commitment of resources
or services is required other than the stated donor restrictions.
While Loyola University Chicago states that a grant (aka sponsored program funding, award) is the transfer of money or property from a sponsor to an institution that may require performance of specific duties such as research, budget reports, progress reports, and the return of unused funds.
As you can tell by their definitions, despite the similarities between contributions and grants, they are completely different entities and cannot be used as if they are the same. Below are the characteristics of each to aid you in differentiating them.
Individuals and businesses usually make contributions
Types of transfers
Unconditional transfer of funds
- This means that the donor is giving you funds that you may spend as you wish, and that they have no ability to rescind their gift.
- These depend upon certain events happening or not happening in the future.
- For example, the donor may state that they will donate $5,000 to your organization, but only after your Saturday program has served 100 children.
- A condition can also include time. For example, that same donor could state that the program be operational for six months before their funds be used.
In either situation, your organization cannot claim rights to the funds or assets until the conditional event/time has occurred.
Contributions fall into one of three classifications:
- Unrestricted assets: This is revenue that has no impositions from the donor.
- Temporarily restricted assets: This revenue is restricted for one reason or another,on a short term basis. Once the time or purpose attached to it is fulfilled, it is released.
- Permanently restricted assets: This contribution is characterized by a restriction that can never be removed.
- Government entities and foundations usually award grants
- They usually have a contract and budget set
- The frequency of grant reports can vary from monthly, quarterly, to yearly; failure to report can cause your funding to stop.
- Grantors may audit your organization, and can request a refund if the money is not fully spent.
Types of grants
- Pass-through and non discretionary assistance grants: grant is received by a nonprofit and transferred to another entity, or spent on behalf of another entity.
- Third party reimbursements: payment made by a third party to a nonprofit for good delivered or services rendered to the nonprofits beneficiaries.
- Cost-reimbursement grants: reimburses specified costs incurred by the nonprofit in the performance of a specific program activity.
- Program support (operating) grants: provide funding for the operation of an entire organization or one of its programs. Unless conditions placed on grant, it is recognized as revenue at the time it is awarded.
- Challenge grants: a nonprofit is required to raise gifts from other contributors in order to receive the challenge grant proceeds. Grant is not reported as revenue until target level is reached.
- Unit of service performance grants: specified amount is paid by the grantor according to a formula based on units of service provided by the nonprofit organization.
- Clinical trial agreements: grant provided to an institution to test a new drug, process or product.
- Research grants: virtually same as clinical trial agreements except funds are used to conduct research and development activities.
Need more clarity?
If you’re still having difficulty telling them apart, Loyola University Chicago offers a table with side by side comparisons.
Renata Poe Massie, Content Creator for Jitasa