Restricted vs Unrestricted Funding.

When a funder awards a grant, they typically attach conditions to how the money can be used. Those conditions create two fundamentally different kinds of funding: restricted and unrestricted.

Restricted funding can only be spent on the specific project, activity, or category of cost agreed with the funder. If you raise £100,000 restricted to a youth mentoring programme, you cannot use that money to pay your rent, your finance officer's salary, or to launch a different initiative — even if the charity desperately needs those things.

Unrestricted funding has no such constraints. The charity decides where it's most needed: a leaky roof, a salary uplift to retain a key worker, a new database, or growing a programme that's working. It is, by orders of magnitude, the most useful kind of money a charity can receive.

Most grants are restricted because funders want to know exactly what their money achieved. A trust giving £50,000 to support refugee integration wants to see refugees integrated — not to learn the money paid for the bookkeeper. Restricted funding is easier to evaluate, easier to report on, and easier to communicate to the funder's own trustees and donors.

From the funder's perspective this is reasonable. From the charity's perspective it creates a chronic problem: charities don't run on projects alone. They run on staff who turn up on Mondays, premises that have heating, software that works, finance functions that pay suppliers, fundraisers who keep income coming, and leadership that holds the strategy together.

Unrestricted funding pays for the boring, essential work that holds the whole organisation together. It also gives charities flexibility — to absorb a sudden funding gap, to respond to an emerging need, to invest in something that's working. Restricted funding can do none of this. Many sector veterans will tell you a £20,000 unrestricted grant is worth more than a £50,000 restricted one. They're not wrong.

A growing number of UK funders explicitly offer unrestricted or flexible funding, recognising that restricted-only giving creates fragile organisations. Lloyds Bank Foundation's three England-wide programmes, BBC Children in Need's Core Grants, Garfield Weston Foundation, and Esmée Fairbairn Foundation are all known for offering unrestricted or multi-year flexible funding.

These funders are highly competitive precisely because their offer is so valuable. When you find one whose priorities align with your work, treat the application with extreme care — they receive enormous demand for the small number of unrestricted awards they make each year.

Beyond named funders, individual giving, regular donor schemes, charity shops, and trading income (where appropriate) all generate unrestricted income. A resilient charity rarely depends on grants alone for its core costs.

You can still make restricted funding work for your organisation. The standard technique is full cost recovery — building a fair share of overheads, leadership time, and finance support into every project budget. Most funders accept this; some explicitly require it; very few refuse. If you're not doing it, you're effectively subsidising restricted projects from your unrestricted reserves.

Diversify your restricted funders so no single funder's withdrawal threatens the organisation. Use unrestricted income (individual giving, trading, reserves) to cover the gaps that restricted grants can't. Build relationships with funders over time so they come to trust you — and, over the years, are more willing to offer the unrestricted support every charity needs.