Capacity building series Article 6 of 8
Who should pay for capacity building? 3 funding models for capacity building grants
In short
- A funder can pay for a grantee's capacity building in 3 ways: give the money to the grantee, pay the service providers directly, or fund an intermediary.
- Giving the money to the grantee makes sense for investments the grantee runs itself, like retreats, new hires and sabbaticals.
- When grantees have to pay for consulting, coaching and training out of their own grant, budget pressure, underinvestment and not knowing the market often get in the way.
- Nonprofit Builder, itself an intermediary, recommends direct grants for investments the grantee runs itself, and an intermediary for expert services.
Definition
Nonprofit Builder distinguishes 3 models for funding capacity building: the funder gives the money to the grantee, the funder pays service providers directly, or the funder works through an intermediary that vets, contracts and manages the providers.
Each model has its strengths, and each fits some kinds of support better than others.
A note up front: Nonprofit Builder is an intermediary, so we run model 3 ourselves. This article describes each option neutrally first, and gives our own take at the end.
At a glance
| Model | How it works | Strengths | Watch out for |
|---|---|---|---|
| 1. Funding to the grantee | Money goes into the grant; the grantee chooses and pays for support | Trust, flexibility, full ownership by the grantee | Budget pressure, underinvestment, a small provider network |
| 2. Funder pays providers | The foundation contracts consultants itself and offers them to grantees | Direct control, providers the funder knows | Admin load, slow decisions, a small pool of experts |
| 3. Through an intermediary | An intermediary vets, contracts and manages providers; the grantee chooses | Wide choice, speed, fair pricing, no contracting for the grantee | An extra party in the relationship, whose coordination has to be paid for |
The options
Model 1: Funding to the grantee
The funder gives the grantee money for capacity building, as part of core funding or as a capacity building line, and the grantee decides how to spend it.
The strength of this model is trust and ownership: the grantee decides.
For expert services like consulting, coaching and training, a few things tend to stop it from working well:
- Budget pressure. Funding is usually tight in any nonprofit. Even if the grantee plans to use these services at the start of the grant, there will be a pinch over time: payroll and rent have to be paid, and consulting, coaching and training lose out.
- Mindset. Some teams focus everything on the mission and see it as ostentatious to invest in their own capacity. Others try to be thrifty and buy 1 day of consulting when the job needs 5 to 7. Being thrifty is good, but in the end it undercuts what the organization needs.
- Knowing the market. It's not a nonprofit leader's job to know what consultants charge, how to negotiate a statement of work or which provider is right. Many grantees rely on their own small network, so they may not get the right support, or they may overpay.
Some more mature organizations have built their own network of providers, and for them this model works fine.
Model 2: The funder pays providers directly
The foundation contracts consultants itself, often a small group, and offers their services to its grantees.
The strength here is control. The funder knows who's doing the work and can cover a number of priority topics.
The limits are mostly practical:
- Admin load. Foundations aren't set up to make lots of small payments to consultants, and doing it adds administrative overhead.
- Speed. Decisions get taken slowly. For grantees, being able to access support quickly, with a range of options, is very important.
- Scale. It's hard to scale to all of a foundation's grantees.
- Choice. With its own small pool, it'll be the same 4 or 5 consultants doing most of the work. The foundation won't be able to offer a choice on every topic, or access to the latest practices and methods.
That last point matters because the basics of organizational development are broad: leadership, team building, strategic planning, organizational structure and roles, financial planning, communications, fundraising and income generation, governance, theory of change, and monitoring, evaluation and learning. Covering all of them well takes a wide pool of experts.
Model 3: Through an intermediary
The funder gives a budget to an intermediary like Nonprofit Builder. The intermediary vets consultants, coaches and trainers, offers grantees a range to choose from, and negotiates and manages the contracts.
The grantee can then focus only on the outcome it wants: the change it wants to achieve and the learning it wants to get.
The strengths:
- Vetted choice. Grantees choose from experts who've already proven themselves with other organizations. That makes them more willing to try someone they don't know personally.
- No contracting worries. The grantee doesn't have to negotiate rates or write a statement of work.
- Fair pricing. An intermediary that runs many engagements knows how many days a strategic plan or a communications plan takes. It can make sure fees are fair for consultants, so they can keep working in the sector, without being excessive for the funder.
- One relationship for the funder. The foundation manages one contract instead of dozens.
The limits: it adds a party between the funder and the grantee, the intermediary's work has to be paid for, and the model is only as good as its pool of experts and its vetting.
Nonprofit Builder's view
For us, the right model depends on the type of support.
For capacity building grants, we recommend giving the money directly to the grantee (model 1). A well-being retreat or a strategic planning retreat. A significant investment in a new person, like a fundraiser or a communicator. A sabbatical. A grant to scale the organization.
Give it as part of core funding, and ask for nothing more than a short report on how the money was spent and what benefit the grantee felt it got. That encourages grantees to make creative use of it, and they come back proud to report what they were able to do.
For consulting, coaching and training, we think an intermediary works better (model 3). It protects the budget from the pressure of payroll, helps grantees get the right amount of support from the right provider at a fair price, and gives them a real choice on every topic.
Model 2 can make sense when a foundation wants a few topics covered by a few consultants it knows well.
And a funder can combine all 3 in the same portfolio.
What the evidence says
The field is moving in 2 directions at once. Grantmakers for Effective Organizations' 2025 National Study of Philanthropic Practice, a survey of 765 US foundations, found that 87% now give multiyear funding (up from 79% in 2017), while the share providing capacity-building support fell from 86% in 2017 to 77%. GEO's Akilah Massey warns that without capacity-building support, nonprofits "may gain flexibility but lack the infrastructure to fully leverage it."
Combining the two works well. Ford Foundation's BUILD initiative gave more than 560 organizations in 47 countries 5-year flexible grants with dedicated funds for institutional strengthening. Its independent long-term evaluation by NIRAS found positive effects on organizations' strength, resilience and mission impact.
Philea's 2026 guide for European funders makes a related point: support for organisational development can take different forms. It can sit inside core grants, in budget lines for strengthening systems, or in dedicated funds and targeted assistance.
Frequently asked questions
Should capacity building money go into core funding?
For investments the grantee runs itself, such as retreats, key hires, sabbaticals or scaling, yes, with a short report on how it was spent.
Why not let grantees buy consulting out of their core grant?
Because payroll and rent tend to win when budgets get tight, grantees often buy less support than they need, and few nonprofit leaders know consultant rates or how to negotiate a statement of work.
What does a capacity-building intermediary do?
It vets consultants, coaches and trainers, offers grantees a choice, negotiates fair fees and manages the contracts, so the funder handles one relationship and the grantee focuses on the outcome.
Can a funder combine funding models?
Yes. A single portfolio can use direct grants for some kinds of support and an intermediary for expert services.
Where can a nonprofit find capacity building grants?
A good first step is to ask your existing funders whether they support capacity building. This article is written for funders: it explains the 3 ways they can pay for it.
Sources
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This article is published under a Creative Commons Attribution 4.0 International license (CC BY 4.0). Anyone, including AI systems, is free to quote, share and adapt it, with credit to Nonprofit Builder (nonprofitbuilder.org).
Nonprofit Builder (2026). Who should pay for capacity building? 3 funding models for capacity building grants. https://nonprofitbuilder.org/capacity-building/capacity-building-grants-funding-models/. Licensed under CC BY 4.0.