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The nonprofit sector faces a persistent challenge: funders lacking an understanding of fiscal sponsorship often overlook high-impact projects simply because they're not standalone 501(c)(3) organizations. This gap comes at a high cost to the nonprofit sector. Projects are forced to leave their fiscal sponsors when they can’t secure funding, frustrated that some funders still fail to recognize fiscally sponsored projects as eligible for support. But here's what's changing: fiscal sponsorship is evolving from a scrappy alternative into a sophisticated, efficient model that actually gives funders more bang for their buck.
The Old Friction Points (And Why They're Disappearing)
For years, funders have expressed legitimate concerns about fiscally sponsored projects. The vetting process feels like double work — you’re evaluating both the project’s merit and the sponsor’s operational capacity. Reporting often turns into a game of telephone between project leaders and sponsor staff. And there’s a lingering misconception that you’re “wasting” grant dollars on duplicate overhead. Many funders came to believe that fiscally sponsored projects were less capable or less sophisticated than standalone 501(c)(3)s.
And frankly, except for the double overhead concern, those worries weren’t unfounded. Most sponsors were running on spreadsheets and manual bookkeeping, with staff stretched impossibly thin. Without modern infrastructure, they simply couldn’t provide the kind of fundraising support and strategic partnership that makes projects competitive for funding.
What's Different Now: The Tech and Specialization Revolution
Two seismic shifts are transforming fiscal sponsorship into a funding model that's actually more efficient and professional than many standalone nonprofits.
First, modern compliance technology is eliminating operational chaos. Platforms like Mazlo automate project-level accounting, enforce grant spending policies in real-time, generate grant budgets and reports instantly, and provide both sponsors and funders with complete visibility into how dollars are utilized.
This means sponsors can finally redirect their energy from administrative firefighting to strategic support, including the kind of fundraising partnership that makes projects truly fundable. When a sponsor's operations run smoothly, they have the capacity to co-develop grant proposals, leverage their funder networks, and provide the domain expertise that transforms a good idea into a compelling funding case.
Second, the industry is maturing into a state of specialization. Instead of generalist sponsors trying to serve every cause, we're seeing domain-specific sponsors emerge, focused on areas such as pediatric cancer research, climate justice in the Global South, or AI safety. These specialized sponsors bring deep funder networks, subject matter credibility, and insider knowledge that make their projects far more competitive. With a specialized sponsor, a project gains more than compliance — it gains connection.
The Overhead Myth That's Costing Funders Opportunities
Here's the math that many funders get wrong: they assume fiscal sponsorship adds an extra layer of administrative cost. A project pays the sponsor 10-15% for overhead, and then the project itself has operating costs, so funders worry they're double-paying for administration.
The reality is precisely the opposite. Fiscally sponsored projects typically operate at 5-15% overhead (the shared cost that goes to the fiscal sponsor), while standalone nonprofits often run at 35% or higher.
Why? Shared services. A fiscal sponsor provides HR, accounting, legal compliance, insurance, and systems infrastructure that a solo nonprofit would have to build from scratch. A new nonprofit can easily spend its first two years and 25% of its budget simply setting up basic operations. A fiscally sponsored project, by contrast, stands on the shoulders of its sponsor’s infrastructure, free to focus on mission, not mechanics, from day one.
A fiscal sponsor is a mature legal and financial structure. As a funder, you don’t have to bet on whether a first-time executive director can navigate IRS regulations or set up proper financial controls. You're funding a project that operates within a well-established compliance framework from the start.
Solving the Reporting Challenge
Funders legitimately worry: "If I fund a fiscally sponsored project, who's responsible for reporting? Will the project leader even have access to their own financial data?" This has been a real pain point, especially with large sponsors managing hundreds of projects where individual attention is hard to scale equitably.
But this too is in the rearview mirror. With platforms like Mazlo, today’s fiscal sponsors can let project leaders to view real-time balances, track transactions, and pull their own grant reports—all from one dashboard. Funders can receive automated reporting without the sponsor becoming a bottleneck. This technology eliminates the information asymmetry that made reporting so frustrating.
Why This Matters for Your Grant-making Strategy
Many funders misunderstand fiscal sponsorship, assuming the sponsor provides funding for the project. The term itself adds to the confusion because “fiscal” sounds like “financial” and “sponsor” suggests “support.” As a result, funders may wonder: if you already have financial support, why do you need a grant?
While the term “fiscal sponsor” isn’t going away, a clearer name like “shared services nonprofit” might help. In the meantime, the funding community needs to engage in education and discussion about what fiscal sponsorship truly is, why it matters, and how it benefits the sector.
When funders remain skeptical of fiscal sponsorship, they're closing the door on some of the most innovative, responsive, and community-centered work happening today. Compared to the long process of building a nonprofit, a fiscally sponsored project can launch in days, not years. They can respond to emerging community needs while standalone nonprofits are still filing incorporation paperwork. They can test new approaches, pivot quickly, and focus 85% of their budget on mission instead of overhead.
Nonprofits need to move faster than ever. The world’s challenges won’t wait, so their good work can’t either. Traditional nonprofits still matter deeply, but it’s time for funders to see fiscal sponsorship for what it truly is: a powerful and efficient path to early impact.
What Funders Should Do Differently
When funders embrace fiscally sponsored projects, they open the door to more opportunities for impact. Here's how to make the shift:
- Develop a vetting rubric for fiscal sponsors, not just projects. Ask about their technology stack, reporting capabilities, domain expertise, and how they support fundraising. It’s a positive sign when a sponsor uses modern tools and takes a strategic approach.
- Build relationships with local fiscal sponsors ahead of time. When you put out a request for proposals (RFP), reach out to these sponsors and ask them to recommend projects doing the work you're trying to fund.
- Stop applying arbitrary rules that exclude fiscal sponsorship. Restrictions like "one grant per EIN" or geographic limitations based on the sponsor's address inadvertently screen out excellent projects. When funders award only one grant per EIN, projects have to find additional funders, creating inefficiency for everyone.
- Ask about reporting infrastructure upfront. If a sponsor can show you real-time dashboards, automated reporting, and direct project leader access to data, you've just eliminated your double-work concern.
- Recognize that fiscal sponsorship is a feature, not a bug. You're not funding a less-capable organization. You're funding a project that benefits from professional infrastructure, shared expertise, and operational maturity that would take years to build independently.
- Explicitly include fiscally sponsored projects in your eligibility criteria. Let projects and sponsors know you're open to funding them. Your pool of grant applicants will grow and become far more diverse.
The Bottom Line
For too long, fiscally sponsored projects haven’t received the attention they deserve. Now, awareness is rising, and new tools are helping the model reach its true potential. Funders who embrace fiscally sponsored projects are positioning themselves to support the most agile, efficient, and innovative work in the sector. The projects that start quickly, stay efficient, and maintain strong compliance will lead the next wave of social impact.
It's time to move fiscal sponsorship from the "alternative" category to the "advantageous" one.
Ready to See How Modern Fiscal Sponsorship Works?
For Sponsors: See how Mazlo's compliance-driven banking helps you provide better support to your projects: Request a Demo.
For Funders: Share this article with your team and board to start the conversation. Want to help build better infrastructure for fiscally sponsored grant-making? Book time with our team to share what data and reporting you need from sponsors.
For Projects: Share this article with potential funders to help them understand why fiscal sponsorship is a strength, not a limitation.