Preparing Your Grant Strategy for an Economic Downturn
Grant-funded organizations have good reason to prepare for leaner times. Significant global markers point toward rising inflation and more expensive borrowing. Pressure in government bond markets and key economic inputs disrupted by the US-Iran conflict signal economic risks that are likely to rebound on funders and communities.
Uncertainty surrounding federal grant programs, driven in part by the proposed changes to the OMB Uniform Guidance, only makes forecasting more difficult. A downturn would intensify these pressures by intensifying competition for funding while potentially increasing demand for services. Preparing now gives organizations time to strengthen their programs’ funding case and pursue additional sources before those pressures become urgent.
Squeezed funding and rising demand
When the economy contracts, the need for community services can grow quickly. Along with rising demand for basic services, traditional economic pressure valves are likely to face additional funding needs. For example, colleges and universities may see an uptick of demand from young people who seek education as an alternative to a depressed job market, but need assistance to succeed. Organizations serving affected populations may face longer waiting lists and more urgent requests while their own operating costs continue to rise.
Many nonprofits already have little room to absorb that pressure. In Nonprofit Finance Fund’s 2025 State of the Nonprofit Sector Survey, 36% of respondents reported ending 2024 with an operating deficit, and 85% expected demand for services to increase in 2025. Executives facing budget shortfalls are already keenly aware of the issue. A proactive grant strategy can be an important part of the solution.
Anticipate the response of your funding sources
Begin by assessing how a potential downturn could affect an organization’s existing funding sources. Vulnerability will vary by the type of funding your nonprofit depends upon.
In a downturn, private foundations may face investment losses that constrain future grant budgets. Existing commitments can leave less room for new awards, and some foundations may tighten spending to preserve assets. Where funders prioritize renewals, new applicants may face fewer opportunities.
Corporate support can come under pressure as businesses reassess expenses. Grants and sponsorships may be reduced as companies tighten discretionary spending. Last year, the LA Times asked if we’re seeing a “corporate giving recession” driven by federal DEI policies. In a climate of declining profits, giving may further decline.
Government funding introduces another set of variables. Federal relief measures can create opportunities during a downturn, but organizations cannot assume new funding will materialize. Proposed federal grant-rule changes could create additional uncertainty, particularly for organizations whose missions or activities conflict with administration priorities. Declining state and local revenues may also threaten grants and service contracts.
Economic downturns can have silver linings. Some funding may expand. Funders may give greater attention to immediate needs such as food security and housing. Understanding each funder’s priorities and financial exposure can guide decisions about which relationships to strengthen and where to seek additional support.
Identify vulnerabilities before they become urgent
Examine where a disruption would put essential services at risk. Which programs depend on a single award? What would happen if a renewal fell through or a payment arrived months late? Restricted grant funds may offer little flexibility to cover the gap. Plan how essential services would continue under those scenarios.
Consider how increased demand would affect staffing and delivery costs, too. A clear picture of the cost of maintaining essential services, and what additional capacity would require, provides a foundation for funding decisions. Early conversations with existing funders can clarify renewal expectations and whether flexibility is available if circumstances change.
Three grant strategy priorities to act on now
Preparation can begin with work that will strengthen your funding prospects in any economic climate. The following priorities build on your understanding of where programs are vulnerable. Acting now gives staff time to develop the materials and relationships that become harder to prioritize when demand rises.
Polish your programs for grant readiness.
Document the need each program addresses, whom it serves, and what it achieves. Update budgets and supporting evidence, resolve inconsistencies, and prepare concise program descriptions that can be adapted for individual funders. Clear documentation makes applications more efficient to prepare and gives reviewers a stronger basis for assessing your work.
Use that preparation to diversify funding.
Identify prospective funders whose interests align with your programs, then assess their eligibility requirements, award sizes, and restrictions. Begin building relationships before a funding gap becomes urgent. Consider whether new sources reduce your exposure to disruption: several awards tied to the same public budget may offer limited protection.
Incorporate future risk into grant narratives where relevant.
Explain how economic stress could affect the people you serve and how your program is equipped to respond. A workforce program, for example, might connect reduced hiring to participants’ need for retraining or stronger employer connections. Ground that argument in evidence, distinguish projections from current conditions, and show what funding would enable you to accomplish.
Take steps now
Organizations cannot control the timing of a downturn, but they can prepare for the pressure it would bring. Clear program documentation, relationships with additional funders, and a credible account of emerging community needs can strengthen funding prospects now. Doing this work before staff face heavier demands puts organizations in a better position to sustain services when their communities need them most.
If your organization needs a clearer funding case or a fresh look at prospective foundation funders, send me an email. I can research suitable opportunities and develop or re
fine letters of inquiry and foundation proposals that communicate your programs’ value.
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