Ask many small charity CEOs what one of their New Year wishes would be – and a significant proportion would answer: “Make sure all our grants are unrestricted.”

Last year research indicated that at 5 selected charities, restricted funding made up 90% of their earned income. This trend seems to be the norm, although there have been some notable exceptions, eg. St John Ambulance where their restricted income was just 3% of their total.

Many of the small charities Minerva works with find that funders’ preference for restricted grants is particularly irksome because it cramps their ability to deliver for their beneficiaries. Owing to the uncertainty of fundraising, most small charities bid for more funds for specific projects than they need, in the belief – often proved correct – that only about one in 4 funders will make a grant. This sometimes leads to more funds being raised for a specific project than are actually needed.

This presents a dilemma: do finance managers simply bank the extra funds ? Or do CEOs write and ask for permission to use the funds elsewhere, with a promise that surplus grants will be returned if the alternative project(s) is/are unacceptable to the funder?

My advice is invariably that CEOs should write and explain the situation; and ought to return surplus funds if the new project(s) does/do not find favour. I am pleased to say that over the last 25 years, my advice has been taken in all but one case.

A preference for restricted funding on the part of grant-making trusts and other funders means that fundraising consultancies like Minerva and in-house fundraising teams must work harder to research suitable funders for specific projects, and need to spend time matching possible funders to the specific projects likely to find favour with their trustees. Apart from the extra cost to small charities, this is in itself no bad thing. Consultants and Directors of Fundraising need to ensure that their fundraising and research skills and those of their teams are honed and updated so that they continue to provide the best results for their charities’ beneficiaries.

Restricted funding is here to stay – so we need to make the most of it!