The benefits of unrestricted funding

Charities are increasingly struggling to find income to improve their organisation and offer better services to communities.

Funders are helping by offering grants. But too often these come with restrictions on how money is spent.

Instead, charities can be better helped by funders offering unrestricted grants, so charities can decide how they can be spent best to meet their aims.

Giving charities freedom to meet pressing recruitment challenges is among benefits of unrestricted funding. Another is allowing charities to invest more in digital services and infrastructure to improve their organisation.

According to the 2022 Charity Digital Skills report, two in five charities say they need funding for devices, software, and digital infrastructure. This has risen from being the third biggest challenge the previous year to the top priority. 

Flexibility in funding is especially important for buying digital support and services, as often charities are unable to initially give details of the costs involved. Four in ten charities say they aren’t clear on what their digital costs will be, found the report.  

Amid this concern around accessing funding for improvements, a study has been published this year on why funders should be offering charities unrestricted funding.

“Compelling” evidence

The report, called Why restrict grants?, has been published by sector body IVAR and takes stock of the latest research around restricted and unrestricted funding.

It says there is now “compelling” evidence of the benefits of unrestricted funding, where grant makers offer long term grants that charities can choose how to spend, over restricted funding, where grant makers can often dictate strategy and how money is spent.

IVAR found that unrestricted funding frees up time and resources for both funders and charities, and ensures communities can be better supported. In addition, they help foster greater community involvement.

“The research evidence provides reasonable assurance that enabling funded organisations to exercise greater control over strategy means they make better choices when judged in the light of their own mission, priorities and changing context,” says the report.

“In light of these findings, funders may wish to consider what, if any, additional value they see in restricted funding above and beyond that delivered by their own due diligence processes.”

For example, a key finding from the 2020 evaluation of Ford Foundation’s Build Program, which provides multi-year flexible funding to organisations, found that 87% of funded organisations reported this form of funding had “a large positive influence on their organisation”.

Charities are also more efficient.  A raft of studies also looked at by researchers over the last decade found that charities which receive unrestricted funding “report being better able to invest in internal management and administration systems”.

Helping recruitment

Another important benefit of flexible funding is to help charities tackle recruitment and retention challenges.

Research published by think tank Pro Bono Economics and Nottingham Trent University’s National VCSE Data and Insights Observatory in March 2023 found that more than half of charities have vacancies and most of these are battling to recruit new staff.

Further research by IVAR, published in 2022, called on grant makers to offer multi-year unrestricted funding, allowing them to meet recruitment challenges by changing project plans and budgets as required.

One of the 32 charity leaders interviewed by IVAR for this research said: “What we can do now is not we said we would do at the start of the grant. Funders don’t understand how much it costs to cover staffing costs.”

Unrestricted funding in action

Many funders are already offering unrestricted funding to give charities flexibility in how it is spent.

Among these is Lloyds Bank Foundation, through its £3 million Race Equity Programme to support charities led by and working with people who face racial inequality.

This launched in 2023 and is offering around 40 grants to charities with an annual income of £25,000 to £500,000. Crucially these are unrestricted.

Black, Asian, and minority ethnic charities to already benefit from the grant maker’s focus on unrestricted funding include Ipswich-based Black, Asian, and minority ethnic charity P.H.O.E.B.E, which campaigns against violence to women and girls.

“The grant from Lloyds Bank Foundation was a two-way partnership; we were the experts, encouraged to explore and adapted where we could make the most impact, rather than having a restriction on what to do,” said the charity’s Director Mollin Delve.

The Foundation’s Chief Executive Paul Streets added: “The small and local charities we partner with, run by minoritised communities, witness first-hand how structural and institutional racism continues to impact lives. These charities often find it difficult to secure funding and yet play a crucial role in reaching those often left behind by mainstream services.”