Unrestricted funding
What is it? How and why do foundations offer it? How can charities ask for it?
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
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:
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”’.
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.
Evidence Review: Why restrict grants?
This review explores contrasting rationales for restricted and unrestricted funding – and whether they are substantiated by evidence.
Making the case for unrestricted funding
Our briefing summaries the key points for foundation staff and Boards so that they can consider and the make the case for unrestricted funding.
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