Fiscal Sponsorship for Grants: How Unincorporated Groups Can Access Funding

What Is Fiscal Sponsorship?

Fiscal sponsorship is a formal arrangement in which an established 501(c)(3) nonprofit organization extends its tax-exempt status to a project, group, or initiative that does not have its own nonprofit incorporation. This allows unincorporated groups, grassroots collectives, emerging organizations, and individual change-makers to receive tax-deductible donations and apply for grants that require 501(c)(3) status without going through the lengthy and expensive process of incorporating their own nonprofit.

Fiscal sponsorship is one of the most important yet least understood mechanisms in the nonprofit funding ecosystem. Thousands of projects across the country operate under fiscal sponsorship, from community arts initiatives and neighborhood advocacy campaigns to research projects and international development programs. Understanding how it works opens doors that many emerging organizations assume are closed to them. For a foundational understanding of the grant landscape, see our guide on the grant ecosystem, ethics, and foundations.

How Fiscal Sponsorship Models Work

The National Network of Fiscal Sponsors recognizes several distinct models of fiscal sponsorship. The two most common are:

Model A: Comprehensive Fiscal Sponsorship

Under Model A, the fiscal sponsor maintains full legal and fiduciary control over the project. The project becomes a program of the sponsoring organization, and all staff working on the project are technically employees of the sponsor. Grants are awarded to the fiscal sponsor, which manages the funds and ensures compliance with funder requirements. This model provides the highest level of oversight and is often preferred by government funders and large private foundations.

Model C: Pre-Approved Grant Relationship

Under Model C, the sponsored project maintains more independence. The fiscal sponsor does not employ the project's staff or manage its day-to-day operations. Instead, the sponsor receives grants on the project's behalf, verifies that expenditures align with grant purposes, and provides the tax-exempt umbrella necessary for the project to receive charitable contributions. This model is popular with projects that want operational autonomy while still accessing grant funding.

When Fiscal Sponsorship Makes Sense

Fiscal sponsorship is not just a workaround for organizations that have not yet incorporated. It is a strategic choice that can be the best path forward in several common situations:

• New initiatives that want to test viability: Before investing the time and money to incorporate a separate nonprofit, fiscal sponsorship allows you to launch programs, apply for grants, and demonstrate impact while determining whether a standalone organization is warranted.
• Time-limited projects: A community research project, a one-time event, or a short-term advocacy campaign may not justify creating a permanent nonprofit entity. Fiscal sponsorship provides the infrastructure needed without the long-term administrative burden.
• Grassroots and community-based groups: Neighborhood associations, mutual aid networks, and informal collectives often do vital community work but lack the administrative capacity to manage nonprofit compliance. Fiscal sponsorship lets them focus on their mission while an experienced organization handles the back-office requirements.
• Cross-sector collaborations: When organizations from different sectors come together for a joint initiative, fiscal sponsorship can provide a neutral home for shared funds without requiring any single partner to assume full financial responsibility.

Finding the Right Fiscal Sponsor

Choosing a fiscal sponsor is a significant decision that affects your ability to apply for grants, manage finances, and maintain credibility with funders. Consider these factors:

• Mission alignment: The fiscal sponsor's mission should be compatible with your project's goals. Funders will look at the sponsor's track record and reputation, so alignment matters both practically and optically.
• Administrative capacity: Ensure the sponsor has robust financial management systems, experienced staff, and the ability to handle grant reporting, payroll, and compliance requirements. Our article on organizational capacity and partnerships discusses how funders evaluate these strengths.
• Fee structure: Fiscal sponsors typically charge an administrative fee ranging from five to fifteen percent of funds received. Understand exactly what services are included in that fee and what additional costs you may incur.
• Communication and responsiveness: You will depend on your fiscal sponsor to process payments, submit reports, and respond to funder inquiries on your behalf. Slow or unresponsive sponsors can damage your relationships with funders.

Applying for Grants with a Fiscal Sponsor

When applying for grants under a fiscal sponsorship arrangement, transparency and clarity are essential. Follow these guidelines:

• Disclose the fiscal sponsorship relationship upfront. Most grant applications ask whether you are applying under a fiscal sponsor. Provide the sponsor's name, EIN, and a brief description of the relationship. Attempting to obscure this arrangement damages credibility.
• Include a fiscal sponsorship agreement. Many funders will request a copy of the formal agreement between your project and the fiscal sponsor. Ensure this document clearly defines roles, responsibilities, financial procedures, and intellectual property rights.
• Budget for the fiscal sponsorship fee. Include the sponsor's administrative fee as a line item in your grant budget. Funders understand this cost and generally accept it as a reasonable expense. For help structuring grant budgets, see our guide on grant budget fundamentals and cost principles.
• Demonstrate your project's capacity independently. Even though the fiscal sponsor provides the legal and financial infrastructure, funders want to know that your project team has the expertise, experience, and commitment to execute the proposed work successfully.

Building Toward Independence

Many successful nonprofits began under fiscal sponsorship before incorporating independently. If your long-term goal is to establish a standalone organization, use the fiscal sponsorship period strategically. Build a track record of successful grant management, develop your board, establish financial systems, and accumulate the organizational history that funders want to see before they invest in a newly independent nonprofit. The transition from fiscal sponsorship to independent status, when done thoughtfully, demonstrates organizational maturity and growth.

Want to learn how to navigate the grant funding landscape whether you are an established nonprofit or a new initiative under fiscal sponsorship? The Complete Grant Architect course teaches you everything from funder research to proposal writing to post-award management.

Learn more about grant writing strategies at Subthesis.