A knowledgeable and confident individual, the president and CEO of the nonprofit where I was a longtime board member, sounded uncharacteristically conflicted. 

Our organization had been a finalist for a six-figure, multiyear competitive grant by a leading funder, but we were ultimately passed over. Shortly after, however, the awarding foundation doubled back to us: Thanks to a funding surplus, they were in a position to now offer a substantially smaller amount, spread over two years.

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“I understand the need for accountability,” the CEO said. “The issue here is they want us to jump through an awful lot of hoops.” 

The modest funding came with onerous reporting requirements, leaving the CEO concerned that the nonprofit’s already over-extended management would spend an outsized amount of time on documentation. Trusting in our CEO’s judgment, I encouraged him to follow his instincts and assured him our board would back whatever decision he made. In the end, he passed on the grant — not an easy decision.

Sustaining a healthy nonprofit ecosystem is a delicate balancing act, as we’ve learned in recent years. A stagnant economy in 2022 resulted in charitable contributions dropping nationally for only the fourth time in 65 years. The effects of the COVID pandemic still linger. Add to that tumult in broader society, including our national reckoning on racial inequality and efforts to advance diversity, equity and inclusion. These and other forces are making it an unprecedented moment for nonprofits, and our Jewish institutions are no exception. They are grappling with issues that include: difficulty recruiting and retaining staff; leadership transition; increased demand for nonprofits to promote warm, people-centric cultures that prioritize DEI, professional development, staff wellness and team unity amid perpetual transitions; outdated technology, financial systems and onboarding; giving fatigue and the prospect of inflation; thin operating reserves resulting from the pandemic; transitioning back to in-person programming; and insufficient bandwidth to develop forward-thinking strategic plans and fundraising activities.

Demand for services is high, while resources are stretched and human capital is strained. Staffing issues, including hiring to fill gaps, have compounded and are widely indicated to occupy vast amounts of management time. And even as organizations address new staff openings, they’re being challenged to devote greater focus and attention on the well-being and mental health of current personnel, an often-neglected need. 

In response, the philanthropic sector is adapting. More than ever, bolstering nonprofits’ internal infrastructure, systems, resources and operations is critical to achieving their missions and ongoing success. Stepping up capacity-building grants is one means. 

There is a paradigm shift in funding underway, part of a movement toward enterprise capital: treating longer-term and flexible-use capital as high-value currency that propels nonprofits to fulfill their missions. These are monies that can provide essential capital to support projects that include technology upgrades, strategic planning and staff restructuring, and program and leadership development. While program revenues and fundraising sustain nonprofits’ daily operations, capacity-building funds can address core infrastructure needs. Just as access to working capital is essential to the growth of for-profit corporations, the philanthropic sector is recognizing it as the lifeblood of a viable social enterprise, too.

Flexible funding, including capacity-building monies, is not intended for glitzy social-innovation programs. Consider the federal budget as an analogy: Moonshot promises to cure cancer and to explore Mars grab headlines, but critical and essential infrastructure projects — highways, bridges, dams and power grids — allow the country to run.

So, how can the philanthropic and nonprofit sectors align to achieve more malleable, less rigid grantmaking? 

It begins with funders recognizing that it’s no longer business as usual. In my region, recent reports show 41% of Southern California nonprofits are hiring new staff; 60% are investing in new technology; and 67% are interested in strategic planning. Now, more than ever, nonprofits are struggling to achieve short-term security, long-term continuity and the ability to withstand future turbulence. The needs of the moment require more flexible solutions than ever before that will strengthen the underpinnings of Jewish nonprofits and ensure their ongoing viability.

Reciprocally, frontline nonprofits must look peripherally at their organizations to assess where they need to build capacity and how to use funding most productively. Trusting in nonprofit leadership that they understand best how to grow their social enterprises is one cornerstone. Assessment, too, is critical to identify necessary technical resources that will drive the implementation of both the business plan and, in the long term, the evolution of the nonprofit’s financial model.

Consider ways to loosen funding restrictions and conditions. Too often, grant dollars come with too many strings attached, such as onerous reporting requirements and narrowly focused terms for use of funds. Perhaps the answer is judicious consideration by funders of what reporting is needed and how a more trust-based approach and flexible requirements can fulfill recipients’ obligations. There needs to be faith and confidence that these organizations understand their needs better than any funder ever will and that dollars will be used responsibly, allowing latitude to adapt as circumstances demand.

Capacity-building monies can help lift our Jewish nonprofits to achieve their ambitions and full potential — a currency nothing short of transformational. Organizations are obligated to their funders and the stakeholders they serve to evaluate their needs and make sure dollars used to these ends align closely with organizational needs. But let’s dispel the notion that the term “capacity-building” implies a weakness or defect in our Jewish nonprofit sector or a lack of human capital necessary to succeed. Instead, we should look at this moment affirmatively: It is an opportunity to direct resources that allow organizations to achieve growth and address the complex challenges inherent to far-reaching visions that can uplift lives.

Gerald Freisleben is president of FolFry LLC, a Los Angeles-based strategic marketing and corporate communications firm. He has more than 25 years of experience conceiving and executing initiatives for foundations and nonprofits in the Jewish and general communities that launch and position programs, sustain development efforts, build and safeguard reputations, and drive thought leadership.