The Shrinking Pool of Federal Grants: How Nonprofits Can Prepare for Increased Competition in Private Funding
Introduction
Recent policy shifts from the federal government signal a significant reduction in funding for nonprofits. In early 2025, President Trump issued a directive instructing federal agencies to review and potentially defund nonprofits and NGOs that are deemed to "undermine the national interest" (Nonprofit Quarterly).
Simultaneously, the National Endowment for the Arts (NEA) announced the cancellation of its Challenge America grants, which previously provided funding to small arts organizations serving marginalized communities (Artnet News). Last week also saw around 4,400 employees laid off by the National Park Service and the National Forest Service (The Guardian).
These changes, combined with the administration’s moves to dismantle USAID, suggest a broader contraction of federal grant funding. As a nonprofit consultant and grant writer, it is my job to keep you informed on current events that impact private funding and granting opportunities.
At this juncture, it is my professional recommendation that nonprofits prepare to face increased competition for private grants. I believe this to be especially important for nonprofits in the environmental, recreational, and arts and culture spaces.
What This Means for the Nonprofit Sector
For decades, government grants have provided essential funding to nonprofit organizations, particularly those supporting underserved populations. As federal funding streams diminish, nonprofits will be forced to seek alternative sources of financial support. This shift presents several key challenges:
Increased Competition for Private Grants
With fewer federal dollars available, more organizations will turn to private philanthropy, leading to a highly competitive grant-seeking landscape. Foundations and corporate sponsors will likely see an influx of applications from nonprofits that previously relied on government funding.
Shifting Philanthropic Priorities
Private foundations and donors may feel pressure to fill the funding gap left by the federal government. However, they may also refine their giving priorities, which could deprioritize funding for environmental, recreational, and arts and culture organizations. Nonprofits in these sectors may need to strengthen their case for support, demonstrating how their work aligns with broader social impact goals rather than shifting their mission to chase funding.
Challenges for Small and Midsize Nonprofits
Large nonprofits with established fundraising teams will have a competitive edge in securing private funding, making it more difficult for grassroots organizations to secure grants. Smaller organizations will need to sharpen their grant readiness and fundraising strategies to stay competitive.
Potential Entry of International NGOs into Domestic Grant Pools
If USAID funding is cut, international nonprofits that relied on U.S. government grants may pivot to U.S.-based private foundations, further straining available resources.
Donor Fatigue and Increased Expectations
With more organizations seeking funding from private sources, funders may become more selective. Nonprofits will need to provide stronger impact reports, clear sustainability plans, and data-driven outcomes to stand out.
How Nonprofits Can Prepare
In response to these shifts, nonprofits should take proactive steps to strengthen their financial resilience and fundraising capacity. Here are key strategies:
Enhance Grant Readiness – Organizations must ensure they have strong financial management, clear programmatic goals, and compelling impact stories. This will be essential to remain competitive for private grants. Get our FREE Grant Readiness Checklist to make sure you have all the necessary documents to impress funders and improve your chances of winning grants.
Diversify Funding Streams – Relying solely on private grants may not be sustainable. Nonprofits should explore revenue diversification strategies, including major donor campaigns, corporate partnerships, and earned income opportunities.
Strengthen Grant Writing & Prospecting – With increased competition, grant proposals need to be stronger than ever. Organizations should conduct thorough research to identify funders aligned with their mission and craft compelling narratives that showcase their impact.
Invest in Donor Relationships – Retaining existing donors will be just as crucial as securing new ones. Nonprofits should focus on stewarding relationships with individual donors and corporate sponsors through regular engagement and transparent reporting.
Stay Informed & Advocate – Nonprofits should actively monitor policy changes that impact funding and engage in advocacy efforts to protect critical funding streams.
Conclusion
The federal government’s recent actions to cut nonprofit funding highlight the importance of adaptability in the sector. As more organizations compete for private grants, nonprofits must be proactive in refining their fundraising strategies, enhancing their grant readiness, and diversifying revenue streams. By taking these steps, nonprofits can position themselves for long-term sustainability despite the shifting funding landscape.
For support with grant prospecting and proposal writing, contact us today.
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