A beginner’s guide to funding with few or no restrictions

Home » Blog » A beginner’s guide to funding with few or no restrictions

NPC has been advocating for funders and philanthropists to give funding without restrictions for over a decade.

The crises of the last few years—from Covid, to the current cost of living crisis, and the ongoing environmental crises—have demonstrated a pressing need for flexibility. Five-year strategies can become redundant within months. Within this context, funding that is restricted to particular outputs can be almost impossible to commit to.

Frontline charities are best placed to know where social need is greatest and what interventions are required. Funders and philanthropists, because they tend to be one step removed from the ‘frontline’, will rarely be able to draw upon this level of up-to-date insight and understanding. Funding that comes without restrictions provides frontline charities with the flexibility to pivot easily if things aren’t working. It is better to fund initiatives that lead to better social impact, than those which don’t. But in the funder/frontline charity dynamic it can be difficult to assert these things.

The relationship between a funder (or philanthropist) and a frontline charity should be one of mutual gain—both working towards social impact. The frontline charity is more likely to know what needs to be done to solve global problems and the funder facilitates this through their support, this is trust-based philanthropy in action.

But if you’re used to giving with restrictions, how can you move towards a more unrestricted model?

Due diligence

It all starts with having clear criteria for who you want to fund and why. Doing more work upfront, means less work later.

The kind of things you will want to understand about prospective charities are:

Strategic focus: do they know what impact they want to have, and are they clear about how they communicate this? This is best reflected in an organisation’s theory of change i.e., the rationale for what they’re doing and why.

Impact measurement: how do they assess and evaluate their impact? Are they asking the right questions?
Learning and improvement: do they learn from their experiences and are they adapting what they do based on the impact they’re having (or not having)?
Financial health: how are their finances? Are they dependent on only a few sources of income?
Leadership: what’s the make-up of their Trustee Board, or senior management if they’re big enough to have staff? Do you have faith in their decision-makers?

It’s ok to ask questions. Ask if you can meet the Chair of the Board of Trustees, if you can visit in person or if there’s a service user who might be happy to chat. This kind of research should be proportionate to the size and length of the grant you’re considering.

Your aim is to build a good understanding of the charity, what drives them, and how they operate. So that when you do fund them, you can genuinely say that you trust them to spend that money wisely.

Funding on a spectrum

The levels of restriction you put on funding can be considered along a spectrum: from inputs, to outputs, to outcomes and finally to impact.

If your organisation isn’t quite ready to give fully unrestricted funding, consider where along this spectrum you would feel more comfortable.

For example:

Categories:

Funder best practice Pushing the boundaries of funding

table: with more specific restrictions at the decreasing down the scale 1 Inputs/activities eg a new teacher 2 Outputs eg 500 new books for the library 3 utcomes eg improved literacy 4 Target groups of themes eg education. The fewer the specific restrictions the more flexibility for the charity

(Source: Granting Success)

It is tempting to operate at the inputs-level of restricted funding because it represents tangible commitments and is easier to explain to a Board or colleague. But this can limit the organisation you’re funding, giving them little to no leeway to adapt their work, or put learning into practice.

In the example above, a teacher could well be an excellent investment. But this teacher would have no additional budget to achieve their aims and therefore, may not be able to do as much to improve literacy.

Imagine that you’re funding an education charity which has identified that working directly with parents leads to huge gains in child literacy. There are a multitude of ways they could engage these parents, but if you are only willing to fund a teacher, then their hands are tied. While they might provide you with reports each year on the great work this teacher is doing, neither of you will know whether there could have been greater impact through taking a different approach.

Take time to reflect:

Consider how much control you like to have over how your funding is spent, and why
Imagine what a Board report would look like with different levels of restriction, where is your comfort level?

Try moving one step along the spectrum and see how it goes.

Reporting

Funding without restrictions can reduce your administrative burden. You don’t need long reports with lots of questions. Instead, you can ask three simple questions:

What have you done over the last year (or other length of time)? Make sure to ask about internal activity as well as external, as organisational health and investment can be just as important as delivery.
Why? This represents a learning approach to impact – what is actually needed by users, what is working well or less well etc.
What was your impact?

Some funders and frontline charities might set out high level goals that represent progress (these can sometimes be called ‘Organisational health indicators’). These goals are not targets or restrictions by another name, rather they help frame the conversation between the funder and grantee.

Consider having some form of written communication so that there’s an audit trail and how can you make this period of review meaningful for you as a funder – especially if you have to then report to a Board of Trustees.

By funding without restrictions, you get to hear about what the organisation has achieved as a whole, rather than just one part of it. You might be inspired by areas of work you never knew about. All of which represents the impact you helped bring about.

Trust on both sides

There are complicated power dynamics between frontline charities and those who fund them. It can be easier to surrender to a funder’s requests than to deliver what might actually be needed on the ground.

It can also be hard for charities to trust their funders, to believe that they are prioritising impact by giving in a less restricted way.

Over to you

We hope this is a useful starting guide for anyone thinking of moving into less restricted giving.

If you’re already funding without restrictions, how are you finding it? What works well, what works less well? Let us know.

If you want to learn more, you can view our recent philanthropist and funder drop in, which covered the topic of how to approach unrestricted funding.

If you would like consultancy support, get in touch. If you’re a philanthropist, staff member, or trustee at a grant-making organisation and would like to be on the invitation list for our philanthropist and funder drop-in series, please contact Alfie Vaughan.

If you’re used to giving with restrictions, how can you move towards a more unrestricted model? In @NPCthinks latest blog they outline how. Click To Tweet