The cost of applying for grants is a significant problem in the charity sector, but many foundations are failing to recognise it, newly published research suggests.
A research project explored the costs incurred by both charities and funders in the processes of making and administering funding applications.
The cost of raising money is high for charities, and especially for small charities. The researchers estimate that applying for grants costs the sector at least 5.6% of the amount raised, and at least 17.5% for small charities.
The report reads: “Small charities especially struggle with many funders’ application processes, and are disproportionately affected by the time and resources required to raise funds.”
Indeed, it says “application costs are a major problem”. The researchers previously estimated that UK charities spend at least £900m every year applying to charitable foundations.
However, the report by Giving Evidence said it had found mixed opinions amongst foundations about whether the cost of application processes was a problem, with some seeing it as way of lowering demand.
“Some foundations did see it as a priority and have redesigned their processes accordingly. Others did not,” it said.
“Giving Evidence has encountered many foundations who do not see these costs as a problem for them and indeed some foundations view them as a way of (helpfully) reducing demand.”
Factors driving cost
There are several features of the current funding system that drive cost, according to the report.
“First, there is the number of applications that are made, many of which will not succeed in attracting funding. Most funders are oversubscribed, so can only ever fund a small proportion of applications they receive,” it states.
For instance, in 2021 Esmée Fairbairn Foundation only funded about 4% of applications received through its website.
The researchers also found “there is a lack of transparency or clarity” about what a foundation will and will not fund.
“This increases costs, not least by producing many ineligible applications, which creates waste,” it states.
Charities spend considerable time to discover suitable funders and may still submit ineligible applications, it adds.
The researchers also found an information problem and an incentive problem. The information issue is that few foundations, and also few charities, monitor the costs which application processes cost.
Foundations “face no biting pain” themselves if their processes create costs for charities, it says.
The report adds charities tend to “significantly underestimate” the costs of applications. Some charities told the researchers that they were more concerned about building relationships with funders than they were about improving the efficiency of the application process.
It says: “The main reasons for most of these costs arise because of how funders develop their application and funding processes to suit their own operational and governance needs – often copying traditional approaches and layering on additional steps over time – without proactively working with applicants and grantees to develop these processes to test whether they’re useful or to review them.”
Recommendations
To reduce administrative burdens on charities, the report suggests foundations may consider splitting the application process into two parts.
The first part is to rule out applicants unlikely to succeed and the second round process can be more in depth without every applicant investing more time.
Other practices that could help, it says, include foundations being clear about eligibility and funding priorities via their websites, for example by adding an eligibility checker for potential applicants.
The researchers also identified some approaches such as randomising grant decisions, “that while not common practice in the sector, merit further research and testing”.
It adds that for some foundations, “social norming” amongst foundations is a driver. This means that if some foundations start to work on reducing these costs others may follow, and publishing information about the costs created by various foundations might be a lever.
The research was funded by the Law Family Commission on Civil Society, and the researchers were Caroline Fiennes, Gemma Bull and Sarah Sandford.
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