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The Power of Unrestricted Charity Funding

3 Dec 2020

When corporate foundations give to charities, funding falls into two broad buckets: unrestricted and restricted. Charities can use unrestricted funds for any purpose. They offer the ultimate spending flexibility and can be spent wherever the need is greatest. Alternatively, charities must use restricted funding for something specific, agreed between the charity and the donor beforehand.

“100% of the funds we donate to our partner charities are unrestricted” said Louise Skinner, Programme Manager at Octopus Giving. “We are proud to say that this makes us pretty unusual. We believe that charities understand where funding is needed most, and we are passionate about supporting their organisational development long-term.”

With coronavirus putting pressure on charities and their fundraising, now is a good time to explore the power of unrestricted funding. We caught up with a few of our partner charities to find out what this would mean to them.

Building from the core

People are the key to a charity’s success. Without a reactive and dynamic core team, charities can’t function effectively. This is why core operating costs, such as internal auditing and staff salaries, play a central role in the day-to-day running of charities.

Restricted funders usually focus on areas where the return is easy to see. A donation to buy office equipment, for example, has a more visible impact than giving funds to cover a charity’s overheads. While giving with a specific outcome can be beneficial, Victoria Meier, Head of Fundraising at FoodCycle, believes that the need can be more pressing elsewhere: “The reality is that none of our work can happen without the staff training and support. If you don’t have the funding for those elements, the whole thing falls apart”.

So, what’s the priority? The shiny new office equipment or a well-funded core team? There are benefits to both, but crucially, unrestricted funding allows charities to make the decisions themselves. Ann Reynard, CEO at Downright Excellent explained that, in some cases, “Bolton outcomes that the funder wants to see because it fits their funding criteria can really impact on the work that you’re doing and dilute some of the core activities.” The alternative is unrestricted funding, giving charities the chance to put resources where they need them most.

Attribution vs Contribution

A funder may be more comfortable knowing what their donation will fund ahead of time as it allows them to clearly see the impact of their funding. However, there is a growing sense that funders must accept that this isn’t always possible. Rachel Clare, Head of Development at the Choir with No Name, calls for funders to be more comfortable knowing that they’re contributing to a greater good, rather than need to attribute their donation to something specific.  “[Unrestricted funding] has allowed us to replenish our reserves and has given us the financial security to look at launching new enterprises,” she explained.

At the end of last financial year, 84% of the Choir with No Name’s corporate income came from unrestricted funding, enabling the charity to set its sights on long-term impact and growth. With this added freedom, they’ve been able to make new hires and expand their services to reach over 1,500 marginalised people.

A Changing Landscape

A charity must be able to react quickly and effectively to changing circumstances. Coronavirus is a great example of this. At the beginning of the pandemic, FoodCycle transitioned to a food delivery model to make sure people still had access to meals, despite social distancing measures. They also had the clever idea of creating a ‘Check-in & Chat’ service, where volunteers called food parcel recipients to gather feedback and catch up for a friendly chit-chat. “We wouldn’t have been able to make these changes, in that time frame, had we been reliant on restricted funding,” Victoria from FoodCycle told us. “But we were able to divert unrestricted funds to create a post of the coordinator, and to invest in quite considerable system development.”

To use restricted funds for something other than their original purpose, charities must submit a proposal and wait for approval from the donor before they can take action. Unrestricted funding provided FoodCycle with the flexibility to adapt at speed. This ensured essential support could still reach those in need.

A vision for the future

The pandemic has reinforced the importance of charities such as Downright Excellent, the Choir with No Name and FoodCycle to vulnerable groups in our society. With charity income down 40-60% across the sector, budgets have been squeezed even tighter than before. This has made it more difficult for charities to continue supporting the people that depend on them.

While there is no one solution for the challenges of the pandemic, unrestricted funding offers a chance for donors to ease charity budgeting pressures. It puts the charity back in control of their spending, while cultivating meaningful partnerships that are based on trust and a shared vision for organisational development long-term.

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