How Nonprofits Can Survive the Coming Funding Crisis

Nonprofits across the country are facing historic disruption as federal, state, and local funding sources shift rapidly. In this Viewpoint article for the Stanford Social Innovation Review (Winter 2026), Southland Development Authority CEO Bo Kemp outlines the structural challenges ahead and the strategies mission-driven organizations must adopt to survive and continue serving their communities.

Below is the full text of the original article, linked here, and republished on our website with permission.

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How Will Your Nonprofit Survive?

In the face of current funding uncertainty, US nonprofits must innovate to sustain their missions.

By Bo Kemp

A confluence of events has dislocated funding for US nonprofits, and the disruption is likely to endure for some time. As a result of actions by the so-called Department of Government Efficiency (DOGE) and Trump administration policy measures, many federal agencies essential to nonprofit funding have been severely limited or eliminated altogether. The impact of this uncertainty extends beyond federal agencies to state, county, and individual municipal funding sources.

For most nonprofits, the problem isn’t simply the cancellation of funding; it is the uncertainty of when they will receive any continued funding. Many organizations are just not built to sustain cash flow disruptions with this level of risk and may be forced to close shop.

Beyond financial issues, the attack on many nonprofits’ missions has been highly unexpected. Most service organizations have the mission to support the most underserved, isolated, and marginalized communities. These missions are now being scrutinized and restricted by federal policy.

As a result of these trends, it is my opinion that more than 20 percent of nonprofits will be forced to close their doors by the end of 2027, if not earlier. Many smaller foundations are at risk of shuttering as well. The pool of available capital to support service organizations is shrinking dramatically, forcing nonprofit administrators to adapt to sustain their missions.

In response to this shift, I recommend three strategies for service organizations to consider implementing in the near term. First, they must innovate to grow, creating new and robust revenue streams on which they can offset funding losses. Second, they should consider strategic partnerships and even merging with other service organizations to bolster their bottom lines and extend the longevity of available resources. Third, they should invest in assets to strengthen their balance sheets. By pursuing at least one of these strategies, nonprofits can adopt an operational plan to surmount the current threat to their viability.

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Innovation as Imperative

In the face of such financial uncertainty, many organizations falsely believe they can hunker down and save their way through the decline. But this strategy confronts two problems. First, saving your way out of a financial crisis impedes your ability to execute your service mission. Second, this savings strategy is premised on the idea that the uncertainty is only temporary. Even with a quick reversal of policy at the federal level — something we cannot expect before the 2026 midterm election — the impact of the structural changes that have already been made will require months, if not years, to repair.

Nonprofits must innovate by finding new revenue streams, such as adopting new service offerings. This innovation can lead to stronger service and financial outcomes.

I speak from my experience heading the Southland Development Authority (SDA), a regional economic development organization. The SDA serves over 700,000 residents and 45 municipalities across the South Suburbs of Chicago. Larger than Washington, DC, and Detroit, the Southland is racially and ethnically diverse and encompasses urban, suburban, and rural communities. I joined the leadership team in 2017 and helped found the SDA in November 2019, just months before the COVID-19 shutdown. I served as board co-chair before becoming CEO in 2021.

We had only one full-time person and a budget of $250,000 when potential funding from the American Rescue Plan Act (ARPA) — the law passed in March 2021 to provide COVID relief to businesses and organizations — challenged us to help thousands of Southland businesses in jeopardy of closing. We turned this challenge into an opportunity and created what we now call the Business Growth Services (BGS) division of the SDA, which advises small and medium businesses — a significant service innovation.

BGS developed relationships with qualified third-party consulting and service companies that provide a direct-support ecosystem for Southland businesses. For each ARPA dollar spent, we supported both a local service and a consulting business, as well as a small or medium-sized business in the Southland. The impact of this service innovation prompted Cook County to increase SDA funding from ARPA for our efforts.

During COVID, we leveraged ARPA funds to contact 10,000 businesses and provided technical assistance to more than 400. These services included strategic consulting to over 125 companies and helping secure nearly $12 million in COVID-19 relief funding. By the end of 2022, we had grown from $250,000 in annual revenue in 2019 to more than $2.2 million, largely through the innovation of our service model.

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Strategic Partnerships

To weather these challenging times, nonprofits should also consider combining forces. To be sure, the idea of merging often raises concerns among service groups. A better way to envision the possibilities is to consider a continuum of strategic partnerships, with mergers being at the extreme end of the commitment spectrum. At the lowest level of commitment and the easiest entry point on the continuum are fiscal sponsorships. Many organizations leverage fiscal sponsors to accelerate access to 501(c)(3) status and to secure financial and administrative support. The SDA, for example, was launched with the support of the South Suburban Mayors and Managers Association, which served as our fiscal sponsor for the first year of operations.

A higher level of commitment on the continuum is an operational agreement. Such an agreement could include sharing back-office support and/or coordinating service-delivery objectives. In this scenario, not only do both organizations achieve economies of scale, but by aligning their service objectives, they can accelerate each other’s mission and impact. In 2021, the SDA was approached by the South Suburban Land Bank (Land Bank) to temporarily manage the entity as it underwent leadership changes. Based on our initial engagement, the Land Bank asked us to serve as a long-term operational partner.

The Land Bank is an intergovernmental agency designed to accept abandoned and tax-delinquent properties, clear titles, and eventually resell those properties back into productive, tax-paying use. Although the SDA did not have the powers of the Land Bank, the objective of fostering productive, tax-paying property aligns with the SDA’s economic development mission. Both organizations benefited from the synergies by developing a strategic partnership that extended beyond a simple cost-sharing model. In the three years since the agreement, the SDA and the Land Bank have rehabilitated almost 200 properties, including residential, commercial, and industrial properties, furthering the mission of the Land Bank and the SDA simultaneously.

Given the current level of uncertainty, we at the SDA are now considering the highest level of commitment along the strategic partnership continuum — a merging of service organizations. For us as a community-focused organization, our work often requires collaboration with other groups to provide comprehensive support. In some cases, we work so closely with other organizations that combining forces could make sense, both strategically and operationally.

There are obvious advantages of merging with the right organization — including financial economies of scale, operational synergy, and broader service delivery for clients. But there are less obvious benefits that may be critical in difficult times. For instance, a merger may provide an expansion of both governance support and potential revenue sources as funders are introduced to the new organization.

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Working Capital

Finally, nonprofits should also develop strategies to access supplemental working capital by identifying potential asset purchases. Access to a bank loan is very difficult to secure for most companies, let alone nonprofit service organizations. In an uncertain economic environment, the ability to spend capital without having to contend with a protracted and complex reimbursement process, typical of nonprofit grants, is critical to survival. During the COVID pandemic, only the organizations that could withstand uncertainty around payment timing could access the largest ARPA grants available. Many service organizations, in need of and best positioned to put that ARPA money to good use, had to pass on grants or were denied funding because their financial operations wouldn’t accommodate the timing required to match federal compliance timelines.

The SDA invested heavily in compliance and regulations to leverage our ARPA contracts with the Cook County Bureau of Economic Development to secure multiple lines of credit from both commercial banks and Community Development Financial Institutions (CDFIs) dedicated to supporting the nonprofit sector. These working lines of capital provided several important supports, including a source of funding for unexpected timing differences in reimbursement, a verifiable source of funding for matching funds required for some grant applications, and access to unrestricted funding that could support both operational and investment projects.

Not all long-term funding contracts will support the business argument for a working capital loan. Financial institutions often require hard assets to lend against. As a relatively new organization, the SDA has neither an endowment nor an office building. To get assets on our books, we have had to be proactive and buy physical assets — namely, real estate.

We began by buying individual houses for redevelopment and rental, raising equity and borrowing debt from a commercial bank. We have now moved to acquiring more than 280 acres of land for regional development in partnership with local developers, leveraging our innovative Monarch Fund as one of the funding sources for our asset purchases. The Monarch Fund is a community-focused solution designed to offset the disruption caused by the federal government’s funding changes. Admittedly, this is easier for us as an economic development organization than it would be for some service groups, but I believe that more nonprofits could benefit from developing asset-acquisition plans and mitigating their reliance on grant-based capital deployments.

No one strategy will fit all nonprofits, but a mix of these tools can substantially increase their likelihood of surviving the current crisis. These structural and policy changes will require years, if not decades, to repair, even if corrected immediately. Nonprofits will need to adopt new strategies to navigate this new world.

— BO KEMP is CEO of the Southland Development Authority.