FOR-PROFIT SMALL BUSINESSES aren’t the only firms getting squeezed by the downturn. Between October 2008 and February 2009, 52% of nonprofits reported declines in contributions, compared to 34% in January through September of last year, according to the latest survey of public charity and private foundation employees from GuideStar, a nonprofit research organization in Washington, D.C. However, if the White House gets its way, select nonprofits across the country may see some relief soon.

In April, President Obama signed into law the Edward M. Kennedy Serve America Act, which establishes a new $50 million Social Innovation Fund aimed at helping nonprofits. The fund is designed to funnel money into nonprofits that cater to policy areas in line with the administration’s priorities, including education, health care and economic opportunity, and it will incorporate a specific mandate to support lesser-known organizations.

“We also want to find those hidden gems that haven’t yet gotten the attention they deserve,” President Obama said in a speech delivered last Tuesday at the White House. “We’ll invest in those [nonprofit organizations] with the best results that are most likely to provide a good return on our taxpayer dollars.”

If Congress votes to fund to the program this summer, its stewards would have just $50 million to divide among the organizations that apply for grants. However, more money could be allocated to the fund in the future, says Diana Wells, the president of Ashoka, an Arlington, Va.,-based nonprofit organization that invests in entrepreneurs that address social problems, and who was involved in early discussions about the program’s development. “This program presents a huge opportunity to bring new resources to bear, spread what works and increase the impact of what social innovators and social entrepreneurs have been working on,” she says.

Before these entrepreneurs start planning how to divvy up the prospective funds, figure out if this program is right for you. Here’s a breakdown of what to expect from the new Social Innovation Fund:

Nonprofits Only – for Now

For those whose bottom lines include profitability, the Social Innovation Fund isn’t for you – at least not yet. “The current program is intended for nonprofits, but we are exploring how we can assist for-profit enterprises,” says Shin Inouye, a spokesman for the White House.

The challenge with including for-profit social ventures is educating investors and taxpayers about their social goals, says Andrew Wolk, a senior lecturer at MIT Sloan School of Management and the founder of Root Cause, a nonprofit entrepreneurship research advocacy organization in Cambridge, Mass. “When you speak about for-profits that solve social problems, people trend toward disbelief,” he says. “As such, there are baby steps being taken right now about how they talk about it.”

Start-ups Need Not Apply

Organizational efficacy is a bit more difficult to quantify for nonprofits than for profit-focused enterprises. Still, nonprofit applicants must be able to prove that their models are successful, according to a senior administration official who didn’t wish to be named because the program is still in its early stages. “We’ll use different kinds of measurement and evaluations tools,” she says. “Overall we’re focused on what works.”

Katherine Freund, the president of ITNAmerica, a Westbrook, Maine, nonprofit that helps affiliate communities arrange door-to-door transportation for seniors, says her organization is well-positioned to benefit from the new program. ITNAmerica’s affiliate community in Portland, Maine, has reached economic sustainability — that is, the funds it raises from the community meets the program’s financial obligations — and other affiliates in Orlando, Fla., and Charleston, S.C., are close to meeting that same level of self sufficiency, she says. “We spent eight years building the business model,” she says. “Now we need some funds to help more communities participate in a sustainable solution.”

Broad Ideas Are Welcome

The administration has launched or promoted other programs to address specific issues, such as the Department of Education’s newly minted $650 million “What Works Fund,” which offers money to education ventures. However, the Social Innovation Fund isn’t restricted to one particular field. Interested nonprofits apply through the Corporation for National and Community Service, which has a less strict charter than other agencies. “This fund can invest in a range of broader issues,” Wolk says. “While the money is less, it can peek its head into all sorts of different agencies.”

Must Find a Match

The government won’t foot the bill alone, Obama said last Tuesday. To access funds, nonprofits will be required to get matching investments from more typical backers, including businesses, foundations and philanthropists. This condition might be a challenge for some ventures. Bringing other investor dollars to the table can help validate an organization’s platform, but meeting such requirements can be tough because there’s less money to go around these days, says Rick Aubry, a social entrepreneurship professor at Stanford University's Graduate School of Business.

Still, requiring matching funds does complement the small size of the program, Aubry says. The match helps the government’s funds go further and “limits the projects the fund chooses to work with to ones that already have some capacity to identify resources,” he says.

—Writeto Diana Ransom at dransom@smartmoney.com

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