So here's the situation: I've been in contact with a potential advisor since fall 2018 who made it clear from the beginning that he would be willing to work with me but does not have funding to support my research interests. I applied for the NSF GRFP, but my hopes are fairly low as my proposed project was pretty small in scope and I am still finishing up my undergraduate degree. But I scheduled an informal visit to the lab because my family lives close to the university, and he took the time to meet with me and show me around the facility. He has also been very communicative about the application process since then and encouraged me to apply in case I do secure funding. My application is essentially on hold at the university because there is no funding to support a position (so no formal acceptance or rejection--just a waiting game).
I've recently been offered a funded position in a program I would be more excited to attend. So even if I did receive NSF funding, I'm no longer interested in working with this potential advisor for a graduate degree. But it is a small field where everyone seems to know each other, and I don't want to burn any bridges at this early stage in my career. Should I wait until the NSF results come out (so if I don't receive funding I can use that as an excuse) or reach out now to inform him that I have decided to accept a position elsewhere (even though I haven't fully decided between two other programs at this point)?
Thank you in advance for any insights or advice you can offer!