How to build unrestricted funding over time
What unrestricted funding is, why it makes organisations stronger, and a step-by-step plan for local NGOs to grow flexible income over several years.
Short answer
Unrestricted funding can be spent on anything within your mission, so it pays for the whole organisation, not one project. Build it slowly: map your current income, name the share you want, make a clear case for flexible money, grow supporters who give without conditions, add earned income, and report honestly. It rarely arrives at once, so plan across several years.
Key points
- Unrestricted funding covers the whole organisation, so it builds strength and agility.
- Start by mapping how much of your income is restricted today.
- Make the case with evidence: what flexible money enables that projects cannot.
- Grow it through many sources: individuals, flexible grants, earned income and reserves.
- Show that you manage flexible money well. Trust brings more of it.
What is unrestricted funding?
Unrestricted funding is money that an organisation can use for any purpose within its mission. The donor does not set conditions on how it is spent. It sits at one end of a spectrum. At the other end is highly restricted project funding with detailed budget lines and activities.
Related terms include core funding, flexible funding and general operating support. Their meanings overlap, and donors use them differently. When a donor offers "flexible" funding, ask exactly what it allows.
Why does it matter?
Restricted funding pays for specific activities. It often leaves gaps in the things that keep an organisation healthy. Research and practice from funders describe a range of benefits of unrestricted money. It can help organisations to:
- Plan strategically and carry out their plans.
- Invest in management, finance, staff development and systems.
- Cope with changes in project income and keep reserves.
- Respond quickly when circumstances change.
- Spend less time on compliance and more time on useful monitoring and reporting.
Studies also describe a "project trap" or "starvation cycle", in which short-term restricted grants fund only parts of the mission and leave the organisation weak. Our guide on financial sustainability for local NGOs and on why core costs matter explain the same pattern from other angles.
How do you build it step by step?
- Map your funding. List each source for the last year and mark it restricted, partly flexible or unrestricted. Work out the unrestricted share.
- Set a target. Choose a realistic share for the next one to three years. Link it to your costs, such as how many months of core costs you want to cover.
- Build the case. Write down what flexible money enables that projects do not. Use your own examples, such as a delayed response because no funds were free, or staff lost because of short contracts.
- Prepare your numbers. Be ready to explain your current income, your funding gap and your reserves. A short business plan with a story and financial forecasts helps.
- Approach the right sources. Different funders can offer different steps, as shown below.
- Report honestly. Show how you used flexible money and what it achieved.
- Review each year and adjust.
Where does unrestricted money come from?
| Source | How it helps | Notes |
|---|---|---|
| Individual donors | Gifts are often free of conditions | Needs a clear case for support and steady thanks |
| Flexible grants | Core or multi-year grants from donors who allow it | Often built through a trusted relationship |
| Indirect cost recovery | Unrestricted share of project grants | Negotiate in every budget |
| Earned income | Fees, training, products or services | See earned income and social enterprise |
| Membership or local giving | Small regular amounts from many people | Needs time and communication |
| Reserves | Surplus built from the sources above | Needs a clear policy |
Diversifying your income also gives you the freedom to refuse overly restrictive terms. Read how small NGOs can diversify their funding for more.
How do you make the case to a donor?
Be ready for three short conversations:
- Who you are: a few simple sentences on your purpose and activities.
- Why you need flexible funding: what it will help you do that project money cannot.
- Your financial position: current income sources, your gap and your reserves.
Then show how you will stay accountable. Describe your approval rules, your reporting and your audit or review. Donors who worry about risk are reassured by clear controls, not by promises.
Move step by step. Donors often increase flexibility gradually: loosening budget lines, lengthening time horizons or moving from project to programme funding. Ask for the next step, not everything at once. Invest time in one-to-one conversations, share strategic updates, ask for feedback and act on it.
How do you manage flexible money well?
Unrestricted money can be lost through weak control. Protect it with simple practices:
- Write a short policy on how unrestricted funds can be used and who approves.
- Keep separate records so that you can show what was funded.
- Set aside a share for reserves.
- Report regularly to your board or leadership team.
- Share results with the donors who gave it.
Remember that donor rules differ, and local law applies to how funds are held and spent. Check your agreements or ask a qualified adviser.
What mistakes should you avoid?
- Waiting for it to arrive. Plan and ask. It does not usually come unasked.
- Hiding the need. Be open about what is missing.
- Using it to plug every gap. Keep a clear order of priorities.
- Neglecting small supporters. Many small gifts together can be a stable base.
- Poor thanks and reporting. Trust is the source of future flexibility.
How EMPO can help
EMPO is a trusted, Myanmar-based training and consultancy provider and one of the country's leading names in practical NGO training, with 1,200+ people trained and 15 partner organisations. We offer organisational development support and proposal writing help, working in English and Burmese, online and in person across Myanmar. See our services or contact us.
Sources
- Making the case for unrestricted funding — IVAR, 2023
- What is Unrestricted Funding? — Philea, undated
Questions people ask
Is unrestricted funding the same as core funding?
Not exactly. Some sources use unrestricted for money you can spend on anything within your mission, and core for money tied to running costs. Donors vary, so ask each one how it defines the terms.
How much unrestricted funding should we aim for?
There is no single right share. Map your current share first, then set a realistic target for the next one to three years, based on your costs and your risks.
How do we convince a donor to give flexible funding?
Show what flexible money enables, such as faster response, stronger systems and staff retention. Share your financial position and how you control spending. Many donors increase flexibility gradually, so ask for one step at a time.