Guide · Budgets & Allowable Costs
Most budget rejections are not about the total. They are about a line item the funder never intended to pay for. This guide explains allowable vs unallowable costs for nonprofits, which expenses are grant eligible, and how to test any cost before it reaches your budget worksheet.
By the GrantFit team · ~10 min read
The framework
Federal awards run on the Uniform Guidance cost principles (2 CFR Part 200), and most private funders borrow the same logic in plainer language. Before you ask whether a specific expense is covered, run it through these four tests.
Would a prudent person in your position spend this to deliver the funded work? If the cost only exists because grant money arrived, it usually fails.
The award benefits from the cost in proportion to what you charge it. Splitting one staff member across three grants requires a documented allocation basis.
You cannot call the same cost direct on one grant and indirect on another. Your cost policy has to apply to every funding stream.
The general rules are the floor. The award terms and the funder's budget instructions are the ceiling, and they are usually stricter.
A cost that fails any one of the four is unallowable, no matter how essential it feels to your program.
Reference
Use this as a starting point, then confirm against the specific award terms. The column on the right is where most teams get surprised.
| Cost | Typically | What to watch |
|---|---|---|
| Program staff salaries and benefits | Allowable | Charged in proportion to time actually worked on the funded program, documented with time and effort records. |
| Contracted trainers, evaluators, consultants | Allowable | Must be procured competitively under federal rules and priced at fair market value. |
| Program supplies and participant materials | Allowable | Directly tied to delivering the funded activity, not general office stock. |
| Equipment over the capitalization threshold | Sometimes | Often needs prior written approval, and the funder may retain a title interest or require disposition at closeout. |
| Rent, utilities, insurance, IT | Sometimes | Usually recovered through an indirect cost rate rather than billed as a direct line item. |
| Indirect or administrative costs | Allowable | Federal awards allow a negotiated rate or the 15 percent de minimis rate. Many private funders cap admin at 10 to 15 percent. |
| Food and refreshments | Sometimes | Allowed when integral to the program, such as meals in a youth program. Rarely allowed for staff meetings or receptions. |
| Travel and mileage | Sometimes | Allowed at published per diem and mileage rates when tied to program delivery. First-class airfare is not. |
| Participant incentives and stipends | Sometimes | Often permitted in research and workforce programs with a documented policy. Cash gifts without controls are a common audit finding. |
| Fundraising and development staff | Rarely | Explicitly unallowable on federal awards and excluded by most private funders. |
| Lobbying and political activity | Rarely | Unallowable across the board. Nonpartisan public education is a separate category and must be documented as such. |
| Debt service, penalties, interest, reserves | Rarely | Prior debt, fines, bad debt, and building reserves are unallowable on nearly every award. |
| Capital purchase or construction | Sometimes | Only under a grant explicitly labeled capital or facilities. Never assume a program grant covers a building. |
The hard part
Direct costs are traceable to one program. Indirect costs, including rent, finance staff, insurance, audit, and IT, keep the organization running so the program can exist. Funders differ sharply on how much of that they will pay.
On federal awards you may use a federally negotiated indirect cost rate, or, if you have never had one, the de minimis rate on modified total direct costs. Private funders often cap administrative recovery at 10 to 15 percent, and some fund program costs only. If a funder pays no indirect, the shortfall does not vanish. It comes out of unrestricted revenue, so treat it as a real cost of accepting the grant.
The practical rule: never submit a budget until you know the funder's indirect policy and have written the subsidy, if any, into your own financial plan.
Avoid these
FAQ
Yes. Salaries and fringe benefits for staff who work on the funded program are one of the most common allowable costs. You must charge only the percentage of time actually spent on that program and keep time and effort documentation to support it. Fundraising and lobbying staff time is not allowable, even if that fundraiser supports the same program.
Usually yes, but through an indirect cost rate rather than a direct line item. Federal awards let you use a federally negotiated rate or the 15 percent de minimis rate on modified total direct costs. Many private foundations cap administrative recovery at 10 to 15 percent, and a few still fund program expenses only.
Often, with conditions. Items above your capitalization threshold typically need prior written approval, must be inventoried, and may have to be transferred or bought out at the end of the award. Build the approval request into the application rather than discovering the requirement after purchase.
Only when food is integral to the funded activity, such as meals for participants in an after-school or shelter program. Refreshments at staff meetings, board dinners, and donor receptions are generally unallowable.
No. Interest on prior debt, fines, penalties, bad debt write-offs, and contributions to reserves are unallowable on nearly every award. General operating support is the closest legitimate alternative, and it must be a grant type the funder actually offers.
The recurring list is fundraising, lobbying, entertainment, alcohol, fines and penalties, bad debt, most interest, goods or services for personal use, and any cost already reimbursed by another award. Charging the same cost to two funders is the most damaging version of this error.
Next steps
Allowable cost language rarely sits in one place. It is scattered across the funding announcement, the budget instructions, the general terms, and any referenced regulation. Reading all of that for every opportunity is exactly the work GrantFit automates: paste the opportunity and the engine pulls eligibility, cost restrictions, match requirements, and deadlines out of the source text.
Related reading: build a go/no-go checklist before you budget, and see what compliance looks like after the award.
GrantFit reads the funding opportunity and reports the cost restrictions, match requirements, and eligibility rules against your organization's profile.
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