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Grants are a valuable source of funding for nonprofits, but they often come with strict conditions. Whether the money comes from a government agency, private foundation, or corporate funder, every grant agreement is a legal contract. Signing a grant without fully understanding its terms can expose your organization to compliance risks, financial penalties, and future funding issues.
If your Atlanta nonprofit relies on or plans to pursue grant funding, it’s essential to understand what you’re agreeing to before you accept the money.
Restricted vs. Unrestricted Grants
Most grants are restricted, meaning the funds must be used for specific purposes defined by the grantor. These restrictions can include:
- A designated program or service
- Specific geographic service areas
- Certain populations served
- Defined time periods for use
Using the funds outside these parameters, even unintentionally may constitute misuse. In some cases, this can trigger a repayment obligation or harm your standing with the grantor.
Unrestricted grants offer more flexibility, allowing the nonprofit to apply funds toward overhead, salaries, or general operations. Unrestricted funding is less common and typically awarded in smaller amounts.
Key Terms to Review Before Signing
- Use of Funds:
This section outlines how the funds may and may not be used. If the language is vague, ask for clarification in writing. Avoid making assumptions based on prior grants from the same funder.
- Matching Requirements:
Some grants require the nonprofit to match a portion of the funding, either with cash or in-kind contributions. Be realistic about whether you can meet this obligation within the required timeframe.
- Reporting and Deliverables:
Most funders require periodic financial and programmatic reports. Failing to submit these reports on schedule or omitting required data can put your funding at risk.
- Reversion of Funds:
Many agreements include a clause that allows the grantor to reclaim unused or misused funds. This may apply if the project changes substantially or if your organization falls out of compliance.
- Audit Rights:
Some grantors reserve the right to inspect financial records or perform audits. Ensure your internal bookkeeping and record retention policies are sufficient to meet this obligation.
- Publicity and Acknowledgment:
Some grantors require your nonprofit to acknowledge their support publicly, such as including logos on event materials or press releases. Check if this requirement might conflict with obligations to other funders.
Be Cautious With Pass-Through Grants
Government-funded programs may issue pass-through grants administered by another nonprofit or local agency. These arrangements can create additional layers of compliance, especially around procurement, fair hiring, or allowable cost categories.
Understand the Long-Term Commitments Created by Grants
Not all grant obligations end when the money is spent. For example:
- You may be required to continue a program for a set number of years, even after the grant money runs out.
- You might need to maintain or share evaluation results in the future.
- You could face clawbacks if performance benchmarks aren’t met.
In Georgia, foundation and corporate funders rarely enforce penalties without warning. Government agencies, however, may be less forgiving. Always clarify expectations around sustainability, staffing, and post-grant duties before signing.
What If You Need to Change the Program?
If your nonprofit needs to pivot due to staffing shortages, lack of demand, or cost overruns, don’t assume the funder will approve the change. Most grant agreements require you to notify the funder and request formal approval before changing program details or reallocating funds.
Making changes without approval may violate the agreement and compromise future funding relationships.
Track Restrictions Internally
Many Atlanta nonprofits receive multiple grants with overlapping timelines and different restrictions. To stay compliant and avoid violating agreements:
- Use separate accounts or categories in your accounting software to track restricted funds.
- Maintain written policies for expense approval and grant compliance.
- Train staff to recognize restricted vs. unrestricted funding.
Grant compliance is a fiduciary issue, and board members can be held liable if restricted funds are mismanaged.
Consider Consulting an Outside Nonprofit Attorney Before Accepting Grant Funds
Some grant agreements are straightforward, but grants that deal with intellectual property, program licensing, or multi-year deliverables are more likely to have complex legal language and reporting requirements. If you’re unsure about a clause or are facing pressure to sign quickly, it may be in your best interest to consult a nonprofit attorney.
Cameron Hawkins can help review high-stakes grant agreements, explain your obligations in plain language, and help your board or leadership make informed decisions before committing to multi-year contracts. Contact us at (678) 921-4225 to schedule a consultation.
