No Strings Attached: A Guide to Giving Unrestricted Funds
Philanthropy is transforming. With more and more funders looking to embrace trust-based principles, a new era of giving has arrived. The latest evolutions center the grantee and prioritize the community.
If you are part of a funding organization looking to shift its practices to align with power-sharing and participatory principles, providing unrestricted funding is perhaps the single most transformational change you can make.
When it comes to shifting practices, the onus is on funders. The power dynamics dictate that they have to be the ones to reimagine their relationships with grantees. Here, we’ll lay out how to make that happen.
How to shift your practices
- What is unrestricted funding?
- The benefits of giving unrestricted funds
- 3 common misconceptions
- 6 essentials for providing unrestricted funding
What is unrestricted funding?
When funders give to nonprofits but require that their contributions be used only for specific projects, those funds are restricted. On the other hand, unrestricted funding is financial support that a nonprofit can use to support their mission any way they see fit.
Unrestricted funds can go toward the essential overhead costs that keep nonprofits running. This can include staff salaries, rent, technology, equipment, and more. Although not always exciting, these investments in general operating support make a big difference. In short, it’s the infrastructure an organization needs to run their programs and have an impact on the community.
Because we believe that teams with experience on the front line of challenges will know best how to put the money to good use, we encouraged them to spend it however they choose.
MacKenzie Scott
Think of it this way: you can buy someone a fancy, souped up car, but if they don’t have any roads to drive it on or gas for the tank, it’s not going to mean much.
MacKenzie Scott, who recently gave away $2.7 billion to high-impact organizations, explains providing unrestricted funds this way: “Because we believe that teams with experience on the front lines of challenges will know best how to put the money to good use, we encouraged them to spend it however they choose.”
As Scott explains, unrerstricted funding is rooted in the belief that the nonprofit doing the work is the wisest judge of how their funds should be spent.
The benefits of giving unrestricted funds
Shifting away from project-based grants can mean rethinking long-held practices, but doing so can strengthen your relationships with grantees and improve long-term outcomes for the community in the following ways.
Stability
If a nonprofit has plenty of support for their programs, but doesn’t have enough to keep the lights on or pay their staff, they aren’t going to be very stable. This instability will prevent them from being able to show up when the community needs them most.
A team that’s barely scraping by is not going to have the flexibility to react when a sudden crisis hits. For instance, organizations with strong infrastructures could move swiftly and were in the best position to provide assistance to communities impacted by COVID. On the flip side, those nonprofits that had money tied to specific projects were forced to negotiate with funders to reallocate resources or start at square one with new fundraising efforts. This severely delayed much needed assistance.
When you allow a nonprofit discretion over how funds are used, the whole organization can be more nimble and resilient. Community needs are always evolving. Being able to adapt quickly in response is essential.
Longevity
Making a real impact takes time. The most successful organizations are the ones that are able to build relationships, refine their practices, and continually reimagine their work as needs and conditions evolve.
Giving unrestricted, multi-year funding helps support longevity. A team that is worried about how they will make next month’s payroll and rent does not have the bandwidth to do long-term planning.
You can help break the starvation cycle, which deprives organizations of the overhead they need to operate and fulfill their missions. The last thing the community wants is an organization that has a great mission, but doesn’t have the stability to enact long-term solutions.
Retention & Recruitment
The starvation cycle also plays a role in driving away the talent the sector desperately needs and is a barrier to attracting new talent. A recent study found that 45% of employees in the nonprofit sector planned to seek new employment by 2025.
Who can blame them? Imagine knowing where an investment is needed, but having your hands tied because a funder has decided to put restrictions on how you can use your resources. Or being completely overwhelmed with work, but unable to find the funds to hire more staff. What other industry asks folks to do so much with so little?
It’s no wonder so many nonprofits find themselves in a cycle of stress and burnout. Putting a stop to this culture benefits everyone. Nonprofits can invest in and retain effective leaders. Plus they can hire the staff they need to get the work done. People don’t make good decisions when they’re overworked and exhausted. By making it easier for nonprofits to invest in talent, funders show they value of the work their nonprofit partners do.
Innovation
From climate change to homelessness to racial inequity to human rights, philanthropy is tackling some complex issues. These challenges require dynamic solutions. Nonprofits won’t be able to make much headway unless they’re able to innovate. The catch is that innovation requires taking risks. And taking risks requires stability and agility.
When you give unrestricted funds, you give leaders the opportunity to try new approaches. They can invest in developing technologies and emerging efforts. Without this freedom, many organizations are limited to doing things how they have always done them. This hamstrings any efforts to make meaningful change and often leaves many nonprofits mired in old, inefficient—or worse, ineffective—processes.
In a survey of 145 nonprofit leaders, 80% reported that innovation was an urgent imperative. However, only 40% of respondents felt equipped to meet it. This gap is worrisome for everyone. These are the organizations tackling some of society’s biggest challenges—if they aren’t prepared to evolve, what will the future of our world look like?
Trust
Letting nonprofits determine how to spend the money you give them helps build relationships rooted in trust. This trust fortifies the connection between funder and grantee. It establishes a more open line of communication and creates a foundation for deeper collaboration.
Rather than telling an organization how to use their resources, you reframe the conversation around listening. You can ask them: What do you need? What would make the biggest impact on your work? Starting from a place of openness and respect can do wonders not only for the relationship between funder and grantee, but for the community as a whole.
Shifting toward a more trust-based approach can help dismantle the inequities that have long plagued traditional philanthropy. The new era of grantmaking reduces the burden on grantees and breaks down the power imbalances that have often sidelined the communities being served.
Effectiveness
Nonprofits that are directly connected to the communities they serve are in the best position to know how to address the most urgent needs. They have first-hand experience—they’ve seen what works, what doesn’t, and they know what opportunities exist to make a real difference. Putting decisions in their hands is the best chance to build effective programs.
Letting the organizations you support prioritize the community means that the right needs are driving the action. You don’t want to center programs around what you think is best if it doesn’t actually serve the folks you’re trying to help.
Plus, program leaders will be much more effective if they can engage completely in the mission work. If instead they have to spend time and energy addressing organizational stability, it diminishes their capacity for doing deep programmatic work.
By providing unrestricted funding, you also ease the reporting burden. Rather than reporting on each specific program, leaders can think holistically about their impact. Of course, they will continue to track outcomes, but they won’t have the tedious task of creating unique reports for each funder. Instead they can produce one summary that examines their comprehensive impact and invest more time driving innovation, doing direct service work, pursuing professional development, or anything else that will better serve their mission.
3 common misconceptions about unrestricted funding
It puts distance between the funder and the grantee
When some people think of unrestricted funding, they imagine writing a check and walking away. That couldn’t be further from the truth. In reality, this model helps bring funders and grantees closer together.
Think about two people offering you a check. One says, “Here is some money, but I’ve already decided what you can spend it on.” The other says, “Spend this on whatever you need—I trust you.” Which person would be more likely to form a meaningful relationship with?
Of course relationships take work, but operating from a place of trust will help build more collaborative, equal partnerships that are built to last.
Funders won’t have data to share with their boards and stakeholders
When you support specific programs it’s easy to draw the line from the money you give to the impact on the community. Some funders might be wary of complicating that simple correlation. But when you provide funding without strings attached, you’re supporting all the programs an organization runs.
It’s also worth noting that program-specific data can be overly simplistic and can obscure some of the larger takeaways from the nonprofit’s total impact. You don’t want to take such a narrow view that you miss the forest for the trees.
You may need to rethink what metrics you include in your reports to your board and stakeholders, but you won’t have any trouble highlighting your impact. Not only can you include the outcomes from program work, you can showcase what you allowed the nonprofit to do on a broader scale—whether that was hiring more employees, retaining effective leaders, investing in new technology, innovating, or starting new initiatives.
The money might go to waste
Some people worry that giving money without attaching specific requirements means taking a risk that the money might be wasted. The question is, do you trust the nonprofits that you’re supporting? If you don’t have confidence in the organizations, then you might need to rethink how you choose your partnerships. But if you’ve found nonprofits that are trusted in the community, have a strong track record of delivering on promises, and have a clear mission you align with, then you shouldn’t worry that resources will be wasted. They are out there doing the work—your micro-management doesn’t help them do it.
A fixation on accountability sometimes ignores how wasteful it is to build a program around funder priorities if they don’t line up with community needs. For example, if a funder wants to provide kids in a neighborhood with bikes, that might sound great, but is that what the community needs? Suppose the neighborhood isn’t equipped with bike lanes, and the kids don’t feel safe riding them. Maybe kids would benefit more from a mentorship program, a food pantry, or a community center. Measuring how many bikes were donated might look good to the funder, but it doesn’t take into account what’s wasted in centering the funder’s world view.
You also don’t want to forget how wasteful it can be to leave the nonprofit in a position where they need to scramble for grant funding to keep the lights on. The stress and negative impact of the starvation cycle squanders resources and staff time. Unrestricted funding allows the staff to focus on the most important work.
6 essentials for providing unrestricted funding
Providing a nonprofit with unrestricted funds is not complex, but to do it well, you want to have the right structures and tools in place.
A strong commitment
First and foremost, you need to set intentions. Get your staff and leadership on board by laying out a plan together. Highlight the benefits of shifting to a new approach and discuss what expectations need to be adjusted as you retool your practices. Making the case for general operating support can be easy once you’re equipped with the right information.
A study by the Center for Effective Philanthropy found no significant barrier to providing general operating support, but foundation leaders weren’t prioritizing it. Making a commitment is an essential step—no one is going to force funders to make a change. The motivation must come from within.
A clear mission
To choose the right nonprofit partners, you want to have a clear understanding of what kind of work you aim to support. Putting time in on the front end to articulate what outcomes matter most to you will help you find organizations that align with your mission.
Once you have clarified your goals, you can assess whether your current partnerships have strong mission alignment. Or, you can search for nonprofits that are doing the work you care about out in the community. This clarity will make it that much easier to hand over reins and trust the organization leaders to make the right decisions with the resources you provide.
A focus on equity
Adopting trust-based practices can improve your relationships with grantees and lead to better outcomes, but you need to be mindful to prioritize equity. If you don’t apply an equity lens to this work, you could wind up perpetuating existing power imbalances.
A recent report found that nonprofits led by people of color received less money and had more strings attached to those funds. As you identify organizations to support with unrestricted funding, be sure you’re addressing bias that may affect who you decide to trust.
A platform to help you stay connected
A strong relationship with your grantees is built on two-way communication. Using a grant management platform like Submittable gives you the capability to house everything in one place, including grant application materials, progress reports, and past correspondence. This prevents important information from being buried in various inboxes. Plus you will never have to ask for data you already have.
You want to give nonprofits an easy way to report on their progress. With Submittable, organizations can get in touch and share their work with your team at any interval throughout a multi-year cycle. With options to upload files in a variety of formats, you can use verbal check-ins in place of written surveys. Users can also upload videos or images to report on their work.
A way to deliver and track funds
For nonprofits, it can be incredibly frustrating to be awarded grant money and then have to wait weeks or months for the check to arrive. Many causes are urgent and a delay in funding means a delay in impact. In some cases, a long lag time could have dire consequences.
Submittable’s digital funds distribution allows you to deliver money quickly and securely. As soon as you make the decision to award funds, you can start the process with the click of a button. Funds can arrive as soon as 48 hours later. You’re also able to track and confirm delivery, so you know when the money has arrived. Streamlining this process and cutting out the paperwork takes a burden off the grantees and helps you establish your organization as one that can be trusted to follow through.
A clear picture of your impact
Whether you’re looking to update stakeholders or board members, or you just want to track the efficacy of your investment, assessing your impact is key. Using a platform that allows you to collect both qualitative and quantitative data will help you get a comprehensive understanding of your impact.
With Submittable’s Impact Reports you can aggregate all your data into reports with dynamic visualizations. This makes it easy to share with your team and the public. You also have the flexibility to accept feedback in a variety of formats, and you can let organizations submit documents that they created for other funders or that they use internally to save them from spending time and energy reformatting the same information in a new way.
By taking stock of how your shift to unrestricted funding made an impact, you’ll be able to expand your efforts in strategic ways. You’ll know what worked best and how you got there.
Find the right partners to support your evolution
As you adopt new practices and ethos, you want to leverage tools that will streamline your processes. As a social impact platform, Submittable was built to facilitate these evolutions. We make it easy to launch and manage your grantmaking programs. With tools to enhance equity, foster collaborative relationships, and build trust, it’s the ideal solution to support your work.
