Defining the Terms

Restricted Funding

Money that must be spent on specific activities, projects, or purposes designated by the funder.

Examples: "£50K for youth mentoring programme," "£20K for equipment purchase," "£100K for three-year mental health project"

Unrestricted Funding

Money you can spend however needed to advance your mission—no strings attached.

Also called: Core funding, general operating support, flexible funding, unrestricted grants

The Funding Flexibility Spectrum

Type	Can Fund	Can't Fund
Highly Restricted	Only specific line items	Any variance requires approval
Project Restricted	Anything within project scope	Non-project costs
Designated	Broad theme/area (e.g., "youth work")	Work outside theme
Unrestricted	Anything advancing mission	Nothing (total flexibility)

Why Unrestricted Funding Matters

What Unrestricted Funding Enables:

✓ Core staff salaries: CEO, finance, HR, operations—the backbone restricted grants won't fund
✓ Rapid response: Address urgent needs without waiting for project approval
✓ Strategic investment: Staff training, new technology, research and development
✓ Reserves: Financial cushion for difficult periods
✓ Risk-taking: Pilot innovative approaches before evidence exists
✓ Gap-filling: Cover costs that don't fit any funder's categories

The Hidden Cost of Over-Restriction

Organizations with 90%+ restricted funding face chronic challenges:

Cash Flow Crises

Restricted funds arrive for specific projects while overheads go unpaid. You're "grant-rich but cash-poor."

Mission Drift

Chasing restricted funding that doesn't fully align because you need the money, gradually moving away from core purpose.

Administrative Burden

Tracking multiple restricted pots, separate reporting, complex accounting—overhead that restricted funds won't cover.

Strategic Paralysis

Can't invest in new directions or respond to changing needs because all money is committed to existing projects.

Target Funding Mix

Healthy Funding Balance:

• 30-40% Unrestricted: Core operations, reserves, strategic investment
• 50-60% Project-Restricted: Specific programme delivery
• 10% Designated: Flexible within theme areas

Organizations below 20% unrestricted face sustainability challenges

How to Secure Unrestricted Funding

1. Target Core-Funding Specialists

Some funders explicitly provide unrestricted support:

Tudor Trust: Multi-year unrestricted grants for smaller charities
Esmée Fairbairn: Core funding for organizations demonstrating impact
Paul Hamlyn Foundation: Strategic core support
Lloyds Bank Foundation: Invest programme (unrestricted capacity building)

2. Build the Case for Core Support

When applying for unrestricted funds, emphasize:

Track record of delivering impact across multiple programmes
Specific capacity gaps unrestricted funding would address
How flexibility enables strategic responsiveness
Organizational development plan and growth trajectory

3. Graduate from Project to Core

Many funders offer this pathway:

Year 1-2: Project-restricted grant proving you deliver

Year 3-5: Request shift to unrestricted support based on track record

Example: "Having successfully delivered X project with your support, we're seeking three-year core funding to strengthen capacity and scale impact."

Managing Both Types

Financial Management

Separate accounting codes for restricted vs unrestricted
Clear policies on overhead allocation
Regular monitoring of restricted fund balances
Never "borrow" from restricted pots for unrestricted needs

Strategic Allocation

Use unrestricted funds for core infrastructure first
Build 3-6 month operating reserve from unrestricted income
Invest in development: fundraising capacity, systems, staff development
Maintain flexibility for opportunistic initiatives

Conclusion

Unrestricted funding is organizational oxygen—you can't thrive without enough of it. Strategic fundraising pursues both types deliberately, building toward a healthy balance that enables sustainability and impact.

TL;DR: Restricted vs Unrestricted

✓ Restricted = specific project/purpose; Unrestricted = flexible core support
✓ Target 30-40% unrestricted for healthy organizational sustainability
✓ Unrestricted enables: core staff, reserves, innovation, strategic response
✓ Over-restriction creates cash flow crises and mission drift
✓ Some funders specialize in core funding—target them deliberately
✓ Build pathway from project funding to core support with existing funders