Just days before last month's event, which saw more than 300 people take to the town's streets with HEADS and Thingumajig Theatre, the group received news that their application for cash from the Arts Council, England, had been turned down.
Now trustees say their pot will run out by early Autumn and the future of HEADS, based in Hangingroyd Lane, Hebden Bridge, is in doubt.
Chair of the board of trustees Lee Comer said: "About two or three days before the parade we found out that we weren't going to get funding on the basis that we had before.
"There is simply not enough grant money from the Arts Council, England, to go around to all the organisations."
HEADS, which has been running community arts projects since 1999, never had regular funding but applied for cash year on year.
It needs around £25,000 a year to pay the rent, rates, salaries and other bills and allow its two part-time staff to bring in extra money by fundraising.
But there is a glimmer of hope as HEADS, a registered charity, can apply to the Arts Council for separate funding for specific projects.
Ms Comer said: "We hope to continue in one way or another as it would be too awful to see it fold completely as so much would be lost."
She added that HEADS work in quite different settings to many other groups including day centres for the elderly, hospitals and schools for physically or mentally disabled children.
"The other difference between community arts groups and other arts organisations is that they charge people to come in or take part, where we only charge a very nominal fee.
"It opens art up and allows us to reach a lot of people who wouldn't get the opportunity to do it otherwise."
Ms Comer said she also expects the local community would be devastated to see HEADS stop as they was a huge response to the Handmade Parade with many residents calling for it to become an annual event.
Local people and businesses can donate to HEADS or become a member for £5 a year or find out more by calling the office on 01422 846060 or Ms Comer on 07754485548.