Grants come in a small number of shapes and the shape decides how useful the money is. Project money buys a specific thing and comes with a specific report. Operating money keeps the lights on and is far rarer. Capacity money pays for the organisation to get better at something rather than to do more of it. And a matching grant is not money until you have found the other money. Knowing which is which before you apply is what stops an office winning a grant that costs more to administer than it delivers.
Project and programme grants
The default. The funder pays for a defined piece of work over a defined period, and the reporting is against that work. They are the easiest to win because the funder can see exactly what its money bought, and the trap is the overhead: a small project grant with a full reporting burden can cost more staff time than it funds, which is a calculation worth doing before the application rather than after the award.
Unrestricted and operating grants
Money the organisation may spend as it judges best, or money explicitly for running costs. This is the most valuable grant income a nonprofit can have and the hardest to find, because funders like to point at outcomes their money bought. Where it exists it usually follows a relationship rather than a cold application, which is an argument for keeping a funder record: the second and third conversations are where unrestricted money appears.
Capacity building grants
Money to strengthen the organisation rather than to deliver more service: a database, an evaluation framework, a strategic plan, a fundraiser's salary for two years. Funders offer them because a stronger grantee is a better investment. Applications for them are different in kind, because the outcome is organisational rather than programmatic, and the evaluation section has to measure a capability rather than a service.
Matching and challenge grants
The funder commits an amount conditional on you raising a match, sometimes at a ratio and usually by a date. They are a fundraising tool as much as a grant, and the risk is obvious: the award is not income until the match exists. Before accepting one, be explicit about where the match will come from, whether in-kind counts, and what happens if you raise only part of it, because the answers vary by funder and are always in the agreement.
Questions people ask about types of grants
What is an unrestricted grant?
Money with no strings on how it is spent, beyond the organisation's charitable purpose. It is rare, it is the most useful money there is, and it usually follows a relationship.
Are capacity building grants harder to get?
They are harder to write, because the outcome is organisational. There is often less competition for them precisely because fewer applicants know how to describe one.
Should I take a matching grant?
Only if you can name where the match is coming from. An unmet match is an award you announce and then unwind, which costs more than not applying.