The head of the Arts Council of Wales (ACW) said they were committed to supporting a mix of organisations despite a fear of cuts.
Chief executive Nick Capaldi said: "Everything is under the microscope, from large to small.
"In some ways, smaller community groups are doing our most important work".
He said the ACW would be "bold and decisive" in its 29 June funding review announcement, which involves 116 different arts groups.
He added of the work of smaller groups, "they're working in commuities where the social and economic problems are terribly intense and working with young people who're disengaged and have perhaps fallen between the cracks."
Mr Capaldi told the BBC Politics Show said they would support the best and those who engaged with communities, while balancing geography and the size of organisation.
"We're going to have to make choices - and my council have been very clear they're going to be bold and decisive.
"They'll want to support the best organisations, large and small, those producing interesting, inspiring, compelling work, those that reach out and have a real impact on communities.
"We'll also ensure there's a reasonable geographical spread, north and south, east and west."
The ACW's £24m funding currently assists 97 Welsh arts organisations, ranging from small community projects to large organisations like Welsh National Opera (WNO).
Mr Capaldi defended the WNO, which received £4.5m, saying "opera was not cheap" and it was "important to support quality".
"I was fortunate enough to be at WNO last night for Bryn Terfel, one of Wales' most important cultural figures, with WNO one of the UK most important perfoming companies," he said.
"There were visitors there from all over the world who came for the performance of Die Meistersinger von Nürnberg.
"That message is transmitted everywhere, that Wales is a vibrant place."
Mr Capaldi argued that the arts were part of frontline services and were more popular than ever before, with a 20% increase over the last three years of people attending arts events.
"Tax-payers are voting with their wallets and feet," he said.
Groups have been asked to provide ACW with business plans for their future artistic programmes and projects.
But altogether, organisations have been asking for an extra £10m, at a time of a public sector budget squeeze.
The full picture will not emerge until December when the assembly government is due to announce the ACW's budget, and it could mean more cutbacks.