When the economy takes a downturn, many businesses, charities and nonprofits see their revenue fall. This makes it challenging for them to continue their important work, and they may need to cut back on staff or programmes. Fortunately, there is a type of funding that can help organisations to not just survive but thrive in difficult times – grants.
When businesses and nonprofits don’t have access to capital, it stunts their growth, innovation, and capability to carry out their usual operations. During recessions, charities see a decrease in donations while demand for their services increases. Again, grants provide a solution to these problems.
This article reviews several key ways in which grants help to stimulate the economy during recession as well as directly address the effects of a downturn.
The Effects of Recession on Charitable Giving
Whether charitable giving reduces during a downturn is uncertain. Some evidence shows that an economic boom has much more impact on increasing donations than a recession does on reducing them.
In addition, the extent of changes to donation behaviour varies among different populations. During the financial crisis of 2007-2009, for example, 54% of the adult population in the UK continued to donate to charity, even though the average donation amounts decreased slightly. On the other hand, donations from higher earners decreased.
Although the above may suggest that things are quite stable overall, the impact of donations are decreasing due to inflation. Giving declined during the pandemic to lower than average levels, but has since recovered. The total amount given to charity in the UK in 2021 was £11.3 billion compared to the 2019 total of £10.6 billion, but the figures do not take into account inflation.
Long-term trends also show that fewer people are making donations but those that are, are giving in greater amounts. Larger donations are of course, a good step towards recovery, but in the words of Neil Heslop, CEO of Charities Aid Foundation, “the sustainability of charities depends on mass giving”.
While data from previous recessions indicates that the decline in charitable giving is minimal during such times, the current situation is unpredictable, especially given the unusual combination of variables affecting us at present. Grants can help to offset the reduced value of donations caused by inflation, enabling organisations to stay afloat.
How Grants Benefit the Economy During a Recession
With businesses and customers becoming risk-averse during a recession, they tighten their purse strings and rein in spending, which can exacerbate the downturn. Meanwhile, governments scramble to find ways to spur the economy and get it moving again. In these moments, grant suppliers play a vital role. Grants provide much-needed capital when financing may be unavailable elsewhere.
During the Great Recession, many companies reduced their giving by more than 10%. Corporate giving is a vital source of support and with corporate social responsibility being an important factor in customer loyalty these days, when an organisation is able to continue – or increase giving – their beneficiaries may not be the only ones to gain.
Grants Directly Address the Effects of a Crisis
Grants also help to tackle the consequences of a recession directly by helping individuals cover the cost of housing, utilities and so on. An analysis of foundation giving during the Great Recession showed that 50% of crisis-related grants went towards housing and shelter, while 25% was given to emergency assistance, including food assistance.
Crisis-related grants are especially important in deprived areas that would otherwise be unable to withstand the impacts of a recession. They may also help such communities weather the storm by supporting local employment.
Grants Create Jobs
As discussed above, grant funding provides organisations with the opportunity to hire more staff members, increasing the number of people that are receiving a salary and contributing to the economy.
When there is an economic downturn, governments also need to spend on programs that compensate for lost jobs. For example, if people are not able to pay their mortgages, the government may need to spend millions on housing assistance. However, if grant funding is secured, less people need to face unemployment and rely on government support.
Grants Provide a Safety Net for Businesses
When the economy is booming, many businesses are able to secure funding through investors. This investment capital is often used to finance new initiatives and create new jobs. However, in times of economic uncertainty, investors may become more cautious and pull back their funding, rendering businesses unable to take on new projects or hire new employees. Instead, they may have to cut back on their operations, which could lead to job losses. Grant funding helps ensure that organisations can continue to operate without relying on investors.
In some scenarios, an organisation may be able to put the money from a grant towards something with a high-impact, such as hiring or developing a staff member. This may allow them to take on more projects or provide new services that they couldn’t provide before, and these initiatives may prove to be highly valuable in the long-run.
When the economy takes a downturn, businesses, charities and nonprofits need additional funding due to the risk-averse decisions of investors and consumers. With reduced revenues, these organisations rely on grant funding in order to stay afloat; and for organisations that are particularly hard-hit and are failing to continue their day to day operations, grants could be the factor that determines whether or not they pull through.
Grant funding also helps build capacity, providing organisations with more resources to expand their programmes and hire and develop staff for roles that can have a significant long-term impact. It also prevents job losses and the consequences that follow, such as reliance on government support and reduced economic input.
Some organisations choose to diversify the allocation of their funds during such times, giving smaller grants to a larger number of applicants. Regardless of the approach you take, with increased competition for available funds, having a reliable platform to manage all stages of the process will reduce the burden on your organisation. Improving your efficiency in this way will keep your own administrative costs down.
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