How to Choose a Fiscal Sponsor: A Guide for New Projects

You've decided that fiscal sponsorship is the right path for your project — faster than filing for your own 501(c)(3), lower upfront costs, and less administrative burden. Now comes the harder question: which fiscal sponsor should you choose?

Not all fiscal sponsors are equal. The wrong choice can mean excessive fees, poor financial reporting, slow fund disbursements, or — in the worst case — a sponsor that jeopardizes your project's reputation. This guide walks you through what to evaluate, what to ask, and what red flags to watch for.

What a Fiscal Sponsor Actually Does

Before evaluating sponsors, understand what you're getting. A fiscal sponsor provides:

• Tax-exempt status — Donors can make tax-deductible contributions to your project through the sponsor's 501(c)(3)
• Financial administration — The sponsor receives donations, manages funds, and disburses payments
• Compliance — The sponsor includes your project in their Form 990 filing and handles state registrations
• Oversight — The IRS requires the sponsor to ensure funds are used for charitable purposes

In exchange, you pay a fee — typically 5-15% of revenue. The sponsor assumes legal and financial liability for your project's activities.

Step 1: Determine Which Model You Need

Fiscal sponsorship comes in several models (defined by the National Network of Fiscal Sponsors). The three most common:

Model A (Direct Project)

Your project operates as a program of the sponsor. The sponsor has legal control ("variance power") over funds. Best for: new projects that want minimal administrative responsibility.

Model C (Pre-Approved Grant)

The sponsor makes grants to your organization, which operates independently. Best for: projects that want operational autonomy but need tax-exempt status for fundraising.

Model F (Group Exemption)

Multiple organizations share a group exemption. Each operates independently. Best for: networks of related organizations (denominational churches, federated nonprofits).

Most new projects choose Model A or Model C. The model affects your fees, your level of control, and the accounting treatment — so decide this before approaching sponsors.

Step 2: Evaluate Potential Sponsors

Mission Alignment

The best fiscal sponsors share your mission area or serve a related community. A sponsor focused on arts and culture may not be the right fit for an environmental justice project — not because they can't do it, but because:

• Their board may not understand your work
• Their donor base won't overlap with yours
• They may lack relevant compliance expertise (e.g., environmental regulations)
• Grant funders may question the alignment

Track Record

Ask potential sponsors:

• How many projects do you currently sponsor? — A sponsor with 2 projects is very different from one with 50
• How long have you been providing fiscal sponsorship? — Experience matters for compliance and IRS interactions
• Can you provide references from current or former sponsored projects? — Talk to them
• Have you ever had an IRS audit or compliance issue? — Not disqualifying, but you want transparency

Financial Health

Request the sponsor's:

• Most recent Form 990 — Available on GuideStar/Candid. Check total revenue, expenses, and net assets
• Audited financial statements — If they have them. Look for clean audit opinions
• Current ratio — Can they cover their obligations? A sponsor in financial distress may delay your fund disbursements

Technology and Reporting

This is where many sponsors fall short. Ask:

• What accounting software do you use? — Spreadsheets are a red flag for sponsors with 10+ projects
• How often will I receive financial reports? — Monthly is standard. Quarterly is acceptable. Less than quarterly is a problem
• Can I see real-time fund balances? — Modern fiscal sponsorship software provides this. Spreadsheet-based sponsors cannot
• How do you track restricted funds? — If your project receives restricted grants, the sponsor must track them separately
• Is each project's data kept completely separate? — This ensures your project's data is private from other sponsored projects

Fee Structure

Understand exactly what you'll pay:

• What is the fee percentage? — Get the exact number, not a range
• What's included in the fee? — Donation processing, receipting, financial reporting, compliance
• What costs extra? — Payroll, insurance, grant management, audit support
• Is there a minimum fee? — Some sponsors charge a minimum monthly amount regardless of revenue
• Are fees negotiable? — Especially if you expect high revenue or bring your own accounting

Read more about typical fee structures in our Fiscal Sponsorship Fee Structures Explained guide.

Looking for a fiscal sponsor with modern software? Schedule Your Free Setup | Explore Features

Step 3: Review the Agreement

The fiscal sponsorship agreement (sometimes called an MOU or Letter of Agreement) is the legal foundation of your relationship. Key provisions to review:

Fund Disbursement

• How quickly are funds disbursed? — Weekly? Monthly? On request?
• What approval process is required? — Can you spend under a certain threshold without approval?
• Are there restrictions on fund use? — Beyond the general charitable purpose requirement

Intellectual Property

• Who owns your project's IP? — Under Model A, the sponsor may claim ownership
• What happens to your brand, content, and materials if you leave?
• Can you use the sponsor's name and logo?

Termination and Transition

• How much notice is required to end the relationship? — 30 days? 90 days?
• What happens to accumulated funds? — Can you transfer them to a new sponsor or your own 501(c)(3)?
• Who owns the donor list? — This is critical. Some sponsors retain donor data
• Is there a transition fee? — Some sponsors charge for the administrative work of closing out your project

Insurance and Liability

• Does the sponsor's insurance cover your project? — General liability, directors & officers, workers' comp (if applicable)
• What liability does the sponsor assume vs. what falls on you?
• Are you required to carry your own insurance?

Red Flags to Watch For

• No written agreement — Everything should be in writing before you start
• Fees above 15% without substantial included services
• No financial reporting or reports only available annually
• Slow fund disbursements — If it takes weeks to get reimbursed, that's a problem
• No data isolation — Your project's financial data should be separate from other projects
• Resistance to providing references — Healthy sponsors are proud of their track record
• Unclear termination terms — If you can't leave cleanly, you're trapped
• The sponsor is in financial distress — Check their 990 for declining revenue or negative net assets

Where to Find Fiscal Sponsors

• National Network of Fiscal Sponsors (NNFS) — fiscalsponsors.org maintains a directory of vetted sponsors
• Community foundations — Many local community foundations offer fiscal sponsorship
• Sector-specific sponsors — Arts, environment, education, and health each have specialized sponsors
• State nonprofit associations — Often maintain referral lists
• Ask peer organizations — Other projects in your space can recommend sponsors they've worked with

Getting Started

Whether you're a project seeking fiscal sponsorship or a fiscal sponsor looking to better serve your portfolio, the right software makes the relationship work smoothly.

For projects: Look for sponsors that use modern software with real-time reporting and complete privacy between organizations.

For fiscal sponsors: Alignmint's Enterprise plan provides complete privacy between organizations, automatic fee allocation, and consolidated reporting that makes managing multiple sponsored projects operationally sustainable.

Schedule Your Free Setup or Explore Features

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Related:

• Fiscal Sponsor Management Software — Purpose-built for managing multiple organizations from one account
• Fiscal Sponsorship vs. Starting a 501(c)(3) — Which path is right for your project?
• Fiscal Sponsorship Fee Structures Explained — Understanding what you'll pay
• Best Fiscal Sponsorship Software in 2026 — Comparing software options