We divide our grants into four categories

In charity accounting, funds held by a charity – and grants made to them – can either be ‘restricted’ or ‘unrestricted’.

A restricted fund (or grant) can only be used for the purposes set out by the donor and within any constraints they specify (or by the terms of any appeal the charity may have undertaken to solicit the donation). An unrestricted fund (or grant) may be applied for any purpose in line with the charity’s objects.

Multiple surveys have shown that charities generally value unrestricted funding over restricted grants. So we often make our grants unrestricted – but not always. Typically, about half of the grants we award are of this nature.

We divide unrestricted grants into those for general use and those for what we call designated use, and restricted grants into broadly or narrowly restricted.

Which of the four options we choose depends on how our aims – which relate to specific places, topics and approaches – align with what the organisation needs our funding for.

Below is a description of each category and when we use it in descending order of flexibility.

Unrestricted, general

This is a no-strings donation, for general use by the charity to advance its mission. We give this kind of funding when we are interested in everything an organisation does, think it’s well run and effective, and believe its leaders are better placed than we are to make decisions about how our contribution will add the most value. We do this whenever we can because it’s the most useful type of funding for organisation and it helps to develop trust, which we feel is likely to lead to the most successful partnerships.

Unrestricted, designated

This category is also unrestricted but ‘designated’ by mutual agreement for a particular purpose. We use this when we’d be happy to support everything the organisation does, but we’ve identified a project or activity which we’re particularly interested in and the size of our grant probably reflects the cost of it. But if the organisation can get some or all of the money for that from elsewhere, we’d be happy for them to use our money for something else. So we ask them to report specifically on the activity we’re interested in, but make the grant unrestricted.

Broadly restricted

This is used if we want our grant to benefit a specific type of work, beneficiary group or place but allow the organisation to use it flexibly within that scope. E.g. our focus is Scotland, so if we fund a UK charity, we make a grant restricted for its work north of the border. Similarly, through our Youth Opportunities strand we might make a grant restricted to support the youth work activities of an organisation that also works with adults.

Narrowly restricted

This is used when our grant is to be used for a specific programme, project or cost item. This makes sense if our aims as a funder only overlap with this one thing in the organisation, or if the case for support is based solely on this specific need. We expect any revenue grant like this to also include a contribution to the organisation’s central (core) costs on a ‘full cost recovery’ basis. And although we may require extra financial reporting in these instances to confirm the organisation has spent as much in total as expected, we don’t ask to approve every change in the budget.

TypeUsed if…Reporting requirements
Unrestricted – generalWe want to support the organisation generallyAnnual report and accounts
Unrestricted – designatedWe are happy to support the organisation generally but want to prioritise how our funding is usedAnnual report and accounts + a focused report about the project or area of particular interest to us
Broadly restrictedWe want to provide general support but only to part of the organisation’s workAnnual report and accounts + (possibly) a focused report on our area of interest
Narrowly restrictedWe want to support just a specific project or costFocused report including a financial summary

Note that we only make unrestricted grants (the first two categories) to registered charities or other organisation types that are constituted for public benefit and have an asset lock that prevents their resources being used for private gain.

Learning more

If you hold a grant from us and are unsure regarding the restrictions on its use or our expectations, please check your grant offer letter or get in touch with your contact at the Foundation.

We’re still learning about how best to refine our use of these grant categories – and are particularly interested in evaluating the designated unrestricted approach. We’re happy to hear from anyone who would like to discuss it or share any feedback.

The Institute for Voluntary Action Research (IVAR) is researching evidence about the benefits of unrestricted funding and the barriers and enablers to its wider use by funders and foundations. You can read more in a series of reports, blogs and articles on their website.


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