Unrestricted funding - Funding Strategy- IVAR UK

What is unrestricted funding?

The terms ‘unrestricted funding’ and ‘core funding’ are often used interchangeably, but they aren’t the same. We use:

Unrestricted funding to describe no strings funding that organisations can use for anything within their charitable objects.

Core funding to mean grants restricted to either a specific element of overheads (for example, rental costs or the Director’s salary) or grants available to be used for essential running costs more broadly.

Project funding to mean grants restricted to the delivery of a specific project or defined set of activities, often (but not always) including a percentage contribution towards general running costs.

Unrestricted funding is the single most powerful thing that funders can do to support charities. It enables us to be agile and decisive … while planning as best we can for whatever the future holds.

For charities

We don’t have any magic words for securing unrestricted funding, but we can share what it is, why it’s worth pursuing, and ideas that may be useful when considering how to make your case.

We are working with funders to adopt more open and trusting grantmaking practices including enabling flexibility – such as unrestricted funding – in the grants they make.

You need to focus on the end user and what’s best for them. By supporting an organisation’s work with a general contribution to core costs [unrestricted funding], we are enabling them to deliver outcomes for the people they want to support.

Tim Cutts, Allen Lane Foundation

If an organisation’s core is secure, that will create opportunities for them to experiment, take their own risks, form new relationships and continue to improve.

Philippa Charles, Garfield Weston Foundation

The majority of our funding is now unrestricted. We still use restricted funding for non-charities (in line with Charity Commission rules) and for charities with non-UK work, which we are not able to fund. Usually, the restrictions are light, and the grant can be broadly applied to overheads/core costs. And we use project funding when organisations request it, or we are funding collaborations or delegating funding decisions to other organisations.

Gina Crane, Director of Communications and Learning, Esmée Fairbairn Foundation

The Foundation is open to working together to define how funds will be used. Over 80% of our funding is towards core costs. Some applicants request grants towards specific core costs (for example, the salary of a particular post); some request project funding; some like their funding to be unrestricted.

Sufina Ahmad, John Ellerman Foundation

Are you ready to apply for unrestricted funding?

Unrestricted funding is a bit of a holy grail – highly valued and very hard to come by. Although relatively few funders give it now, many are working towards being more flexible in their funding and trying different ways to enable funded organisations to have greater control over their own spending. At IVAR, we’ve spent quite a bit of time talking to funders and organisations about why this is important, and how to make it more common. Read on for suggestions about how you can make your case for more flexible funding, and ensure your organisation is ready to make the most of it.

Be clear about what’s on offer

Both funders and charities describe different types of funding in different ways. So you may need to dig a bit to work out what is really on offer. If a funder says they are willing to give unrestricted grants, they are clearly stating that they will give ‘no strings attached’ funding. But, if they say they offer core funding, the situation may be less clear. For some, core funding is exactly the same as unrestricted funding. Others use it to describe restricted grants for defined elements of overheads (for example, a manager’s salary) or, sometimes, of grants to support established (‘core’) services, rather than new projects and initiatives.

All these grants are useful, but they don’t all give you the same flexibility in how they money can be spent. Most funders work hard to give good information about the types of grant they will make and will welcome a call if anything is unclear. If they do offer unrestricted funding, some find that charities can be cautious about applying for it – and want to encourage more to take up the opportunity.

How would you use unrestricted funding?

Unrestricted funding provides voluntary organisations with an opportunity – and the resources – to think, plan, test new things, improve services or just ensure a bit of security. Some organisations use their funding to support strong back office functions like finance, IT and human resources, all of which ensure the organisation is as effective as it can be in achieving its mission. Other organisations use unrestricted funding to develop or do some strategic thinking. They might undertake some research, design and test new approaches to improve their performance or adapt in times of rapid change. These sorts of activities are unlikely to happen without the space and time away from service delivery that unrestricted funding provides.

Organisations have told us that unrestricted funding has helped them to:

Become more confident
Engage in statutory consultations and service redesign
Develop strategic relationships that have led to further funding
Expand services into new areas
Establish new partnerships

‘We have more confidence now to be at the decision-making table with strategic partners. I feel like we are operating at a better, more strategic level locally and that is new – [we’re] really raising our profile in the local community.’

‘We are moving towards feeling an important part of the local infrastructure – I think part of this is us having greater confidence that we have value’

Make it easy for funders to say yes

Making a difference to beneficiaries

Funders obviously want to know that their money is making the most difference to beneficiaries as possible. Sometimes it can be tricky to demonstrate this sort of change/impact from an unrestricted grant, especially if you’re spending the money on research or strategic development. However, in our experience unrestricted funding used for this type of work can lead to some far reaching changes which do ultimately benefit communities and even strengthen whole sectors. Demonstrating how you align with a funder’s objectives or their thematic areas of focus (e.g. young people) should help you make the case.

Making a step-change

Funders often want to see a ‘step change’ in the way services are delivered, so it’s important to demonstrate that you’ve got the vision and ambition as well as the skills to follow through. Make sure you have a business plan to outline this. Be flexible – most funders don’t mind if plans change or adapt, as long as you can show why a change is the best course of action.

Leadership, leadership, leadership

Funders will be looking for strong leadership to ride the tide of organisational change. If they’re looking to strengthen your sector, they might look specifically for organisations who are well networked and already play a leadership or coordination role, and can deliver goals that they share.

Organisational readiness

We’ve found that organisations embarking on any kind of change often face a number of challenges which, again, appear to centre around leadership. Grantees have told us that as their organisations changed, so did their governance requirements. They needed new experience and skills to help them made big decisions such as buying a new property, merger, making changes to a funding model or seeking new partners. Making sure you have good support in place, including a strong board of trustees and knowing when and where you can access some professional development or mentoring support will help ensure your organisation is ready for unrestricted funding.

Ultimately, the organisations that are able to make the most of their unrestricted funding have been led by committed, passionate individuals with clear visions for their organisations and an understanding of how to manage strategic change. As one organisation told us:

‘Overall this is about improving the quality and quantity of our services’

Webinar: Why and how foundations give unrestricted funding

For foundations

Why offer it?

Unrestricted funding enables organisations to have greater control over their own spending. This adds value in (at least!) seven ways:

Better use of expertise
More flexibility and agility
More effective work
Better relationships
Building confidence
Lighter processes
Reduced organisational risk and greater resilience

1. Better use of expertise

It respects the experience, skills and knowledge of funded organisations, freeing them to make informed judgements about the best use of funds:

‘Those closest to the issue trying to be solved are the best-placed to design and understand what’s needed, and how to adapt and change’

Philippa Charles, Garfield Weston Foundation

2. More flexibility and agility

It recognises that the future is unpredictable, and it enables funded organisations to manage well in uncertainty, responding quickly to changing circumstances and needs:

‘Unrestricted funding gives our partners the freedom to be outcomes-focused and community-led. They can do their best in the best way; it enables them to plan and allows them the discretion to stop what is not working and adapt to new realities.’

Eleanor Harrison, Impetus

3. More effective work

It maximises the chances of delivering the greatest positive impact for the communities and causes that the funder seeks to support:

‘If you feel comfortable about trusting an organisation, it is likely that unrestricted funding will have the greatest impact. You’re backing their team to direct their funds better than we can pre-emptively.’

Tom Chandos, Trustee, Esmée Fairbairn Foundation

4. Better relationships

It helps towards levelling the power relationship and opens the way for greater mutual honesty between funded organisations and their funders:

‘Grantees can be more honest. They don’t have to play the project game and collude in what a colleague has called “the dance of deceit”.’

Jan Garrill, Two Ridings Community Foundation

5. Building confidence

A more supportive, less transactional funding relationship delivers a significant boost to funded organisations.

‘When we fund an organisation, we say “we back you and we stand beside you” – and that means their Board, their staff, their strategy, their infrastructure. It gives them confidence. We focus on what they want to do and what they are there to do.’

Rennie Fritchie, Trustee, Lloyds Bank Foundation for England and Wales

6. Lighter processes

It reduces bureaucracy for both funders and funded organisations:

‘There has been less admin and process than would have been necessary with restricted funding -for example, changing the use/terms of a grant. The logistics are easier to manage.’

Aanchal Clare, former Trustee, Peter Minet Trust

7. Reduced organisational risk and greater resilience

Unrestricted funding gives funded organisations much greater scope to cover all essential costs; deal with challenges quickly and effectively; and experiment:

‘Restricted funding is a peculiarity of the sector which would be mad in commerce. How can you deliver if you run out of overhead? Restricted funding is generally a burden we place on grantees for our own ends.’

Nigel Woof, Trustee, William Grant Foundation

Critical questions for foundations

We have identified some of the critical questions that help foundations to navigate the opportunities and barriers they experience in offering unrestricted funding under the headings:

Legal powers and purpose
Effectiveness
Equity
Risk and who bears it
Judging impact and success

Legal powers and purpose

How far can we go in offering unrestricted funding?
How do we keep spending in line with our priorities?

Trusts and foundations must, of course, fund within their own legal powers. Beyond this, funders are free to choose what and how they want to fund. Alternatives to controlling spend through restricted project funding include relying on application and assessment processes to determine fit with priorities; individual conversations about how best to allocate funds; and asking for reports on a specific area of interest.

Effectiveness

Does the way we give our grants actively support the contribution we are trying to make?
Does the way we give our grants reflect our confidence in our own strategy, staff and processes?
Is unrestricted funding cost effective?

These questions often mark the starting point on a foundation’s journey to offering more flexible funding. They reflect a desire to achieve ‘the best possible alignment between “how we do things” and “what we are trying to achieve”’.

Equity

Does how we fund help us tackle challenges around equity and power in our funding relationships?

Foundations are very aware of the power differential inherent in funding relationships. Many are actively looking for ways to shift the dynamic in their relationships with funded organisations so that they hear what is really needed and can make a stronger contribution. For some, unrestricted funding is the single most powerful mechanism for supporting this change:

‘We are genuinely trying to find a way to get alongside small organisations and be helpful. A perennial question along that journey is about how we get honesty from the organisations we fund. We have learned that being honest with them is a start. And unrestricted funding is a key part of that, because it is expressing faith in people. You can’t overestimate its importance.’

Paul Streets, Lloyds Bank Foundation for England and Wales

Risk and who bears it

What is the risk to us in giving funded organisations more control over their spending?
What is the risk to funded organisations if we don’t give them more control over their spending?

Many funders do not see unrestricted funding as inherently more risky that restricted funding. In fact, unrestricted funding is a tool used by some funders to reduce the risk of charities relying on a patchwork of restricted project funding, ill-suited to enabling them to be responsive, effective, sustainable and accountable. Enabling funded organisations to have greater control over their own spending significantly reduces the risk those organisations are managing.

Judging impact and success

Does the way we think about impact call for greater control over how funds are spent?
How do we judge our own impact?

One thing that can help is exploring ‘the concept of contribution rather than attribution’. You can be actively interested in what is being achieved without needing ‘to track a direct link between “our money” and “these results”’.

Download briefing: Making the case for unrestricted funding. Click here to access the download page for the briefing.

The holy grail of funding: Why and how foundations give unrestricted funding

Read our popular report on unrestricted funding which presents how 12 trusts and foundations approach common challenges, as told by trustees and senior staff.