New National Study Sheds Light on Gaps Between What Nonprofits Need and How Philanthropy Supports Capacity

NEW ORLEANS, October 13, 2026 — Catalyst Exchange, a national nonprofit working to strengthen organizational capacity in the mission-driven sector, released its inaugural State of Capacity Building report, Closing the Capacity Gap: Bridging the Distance Between Nonprofit Mission and Organizational Capacity. As the first survey of its kind, the report establishes a national baseline for nonprofit sector capacity to track over time, and provides a unique snapshot of a sector caught between the compounding pressures of rising demand, funding cuts, burnout and AI transformation.

Drawing on input from 408 nonprofits, 101 intermediaries and 135 funders working in education and youth development, the report finds broad agreement on priorities for capacity building. However, this consensus does not consistently translate into investment, effective support or equitable access to capacity-building resources. The findings point to opportunities for funders and nonprofits to rethink how capacity needs are identified, funded and supported over time, and to strengthen the capacity-building ecosystem so nonprofits can more easily access support they need to deliver on their missions.

“Nonprofits are being asked to navigate increasingly complex needs while carrying what we call ‘capacity debt’ — organizational needs that accumulate when there is not enough time, funding or support to address them,” said Leona Christy, Founder and CEO of Catalyst Exchange. “This research gives us a clearer picture of where organizations are feeling that pressure and establishes a baseline for the field to learn from what works, strengthen organizational health and build a stronger, more resilient social sector.”

Findings include:

• Nonprofit capacity is under compounding pressure, and the need is widely recognized. Growing demands and unaddressed capacity needs can compound over time, creating “capacity debt” that constrains organizations’ ability to adapt and deliver on their missions.
• Fund development (66%) and revenue strategy (52%) are top nonprofit capacity needs, and funders identify these same areas for nonprofit support, with alignment across several other areas.
• Across all 18 capacity domains, 57% of identified needs received no or very little support, contributing to organizations’ “capacity debt.”
• AI adoption is an emerging capacity challenge, with nearly half of nonprofits exploring AI but not adopting it. Limited staff time (44%), funding (33%) and uncertainty on where to start (36%) are key barriers.
• Recognition does not consistently translate into support. Capacity building is often missing from investment decisions, and support does not follow recognized priorities.
• Fewer than half of funders report funding capacity building, while only 19% of nonprofits received a grant designated for capacity building in the past year.
• Funders identify institutional constraints and limited expertise as barriers to acting on nonprofits’ capacity needs, including a lack of dedicated funding (49%), indicating capacity building fell outside of funding priorities (24%) and limited expertise (27%).
• Receiving support does not guarantee it works. Capacity-building results vary due to organizational readiness, finding the right support and how well that support fits their needs.
• Most nonprofits (69%) saw benefit from capacity building in the past 12 months, but only 13% rated the results as highly effective.
• Three out of five funders do not have a way to capture capacity-building needs, and only 33% of nonprofits say funders seek feedback about capacity, making it difficult to identify and strengthen effective support.

• The frictions in capacity building can compound existing disadvantages. The capacity-building ecosystem can shape who benefits from it, and organizational readiness can compound existing advantages and disadvantages.
• Organizations with budgets less than $1M have fewer resources and less bandwidth to engage in capacity building, making it harder to grow.
• Black-led nonprofits show increased organizational readiness and are more likely to report improvements, but report challenges in access to funding and culturally responsive providers.

“Chronic underinvestment in capacity is one of the social sector’s most persistent, yet solvable problems. Organizations need the right resources and support to strengthen the people, systems and infrastructure behind their work, and the field needs to better understand what works,” said Jim Shelton, Chief Executive Officer of Blue Meridian Partners. “We’ve seen what’s possible when leaders are trusted to invest in their own strengths. This report is an opportunity for the sector to take a closer look at where we are and how we can deepen impact.”

You can view the full report here, including its findings, implications for the sector and recommendations for funders and nonprofits alike. The report draws on survey responses, focus groups and interviews with nonprofit, funder and intermediary leaders. As part of Catalyst Exchange’s ongoing study on nonprofit sector capacity, this inaugural edition will be followed by additional reports tracking how capacity-building needs, investments and experiences evolve over time.

The State of Capacity Building report was made possible with support from Blue Meridian Partners, and more than 600 leaders who shared their time, insights and experiences to inform this research.

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