For foundations and philanthropists, financial support of nonprofit organizations needs to be strategic, and understanding the dynamics of today’s fundraising environment is essential to making effective, impactful giving decisions. The nonprofit fundraising landscape presents both challenges and opportunities for organizations in soliciting gifts. Economic shifts in combination with new tax policies have contributed to more competition for donor dollars, while increasing scrutiny over nonprofits’ long-term sustainability. It is funders’ responsibility to evaluate these changes and look to understand where their donations can have the greatest impact.

 

EVALUATING NONPROFITS AMID GREATER COMPETITION

The recent changes to federal and state government-funded programs and reimbursement policies create more demand for private giving. Some of the ways donors can approach this demand include:

  • Leveraging technology and automation tools, like grants management systems, or simpler application forms for easier import and analysis. AI-assisted review tools can also help streamline the grant evaluation and approval process
  • Providing transparency on funding priorities so nonprofits know what causes a foundation may fund when deciding whether to submit a funding request
  • Using multi-year grants to reduce the frequency of applications and instill stability for grantmakers and grantees

 

FINANCIAL RESILIENCE AND OVERSIGHT

Private foundations and individual donors often want confidence that the organizations they support will deliver measurable impact and remain sustainable. They look to key indicators, like cash flow, assets liquidity, program expense ratio and compliance history. Other success factors donors often consider include the strength, engagement and diversity of the nonprofit’s executive team and its governance quality. With over 1.8 million recognized nonprofits in the U.S., according to Candid, an organization that collects and provides grant and nonprofit data, the process of vetting nonprofits for long-term success is an important step for donors to take. 

However, the paradox is that the nonprofits most in need of funding are often the least equipped to demonstrate long-term sustainability. Many lack finance staff, compliance systems or the ability to produce polished reports, even as they deliver critical services. Donors can bridge this gap by pairing program support with capacity-building investments, such as financial tools or board development, that strengthen organizations for long-term success.

When donors have identified the organizations they want to support, one of the most effective ways to do so is through unrestricted grants. By allowing nonprofits to allocate funds where they are needed most – whether to cover essential operations, invest in infrastructure or respond to unexpected challenges – funders can empower organizations to make those decisions.

 

OBBBA AND TAX-EFFICIENT GIVING

New deduction floors under the One Big Beautiful Bill Act will reduce the tax benefits of spreading smaller donations across multiple years. To preserve tax efficiency, foundations and philanthropists may want to consider grouping gifts into a single year or accelerating larger donations in 2025 before the changes take effect in 2026. According to the Center for Major Gifts, philanthropists who provide multi-year commitments or unrestricted support often create more stability than one-time contributions.

Philanthropists can also use a donor-advised fund (DAF) for their charitable giving. Managed by third parties, DAFs allow donors to take an immediate charitable deduction, and it provides the option to distribute grants over several years. 

 

SUPPORTING DONOR DIVERSIFICATION AND DEEPENING RELATIONSHIPS

Some nonprofits are expanding their donor base and reaching new audiences, such as among younger generations, corporate partners or community groups. According to the Fundraising Effectiveness Project from the Association of Fundraising Professionals, the number of nonprofit donors declined by 1.3% year-over-year in the first quarter of 2025. For philanthropists and foundations, early support for nonprofits working to diversify their funding streams can help them reduce overreliance on a single donor or sector.

Nonetheless, cultivating long-term relationships remains one of the most effective ways to sustain nonprofits. 

 

AUTHENTICITY AND MISSION ALIGNMENT

Currently, diversity, equity and inclusion initiatives are under heightened scrutiny. The Conference Board reports that more than half of corporate philanthropy leaders say federal pressure is reshaping their giving strategies, leading some to retreat from social justice programs. As a result, funders whose values align with organizations’ missions can sometimes drive the most meaningful impact. Even if a funder chooses not to directly support a nonprofit, they can still benefit the organization by connecting it with others in their network who share that alignment.

 

LOOKING AHEAD

Effective giving involves understanding the pressures nonprofits face, structuring gifts to maximize tax benefits and evaluating financial resiliency to ensure contributions have a lasting impact. Funders play an important role in nonprofit fundraising; one that bridges strategic stewards and partners in strengthening nonprofit resilience.

This article first appeared in the Silicon Valley Business Journal.