Restricted funds are those that a donor or grantor has given to be used for specific programs or activities. The intent of a donation or grant can be specified to become restricted in various ways, and Friends Groups should be careful not to inadvertently restrict funds. While restricted gifts may be an excellent fit for your situation, there are limitations associated with this type of funding.
How donations get restricted
Sometimes, a Friends Group may initiate a restricted fund as it raises money for a special project or activity. For example, if a Friends Group launches a fundraising campaign to raise money for a new trail center, it may create solicitation materials that indicate donations will be used solely for this purpose. This can be a strategic decision because such tangible projects often have more appeal to donors and result in more donations.
Friends Groups may also encounter a situation in which an individual or company initiates the restriction by telling you they want their donation to be used for a specific purpose. Often, these donations align with a personal priority for the donor. If the FG accepts the donation under these conditions, it must abide by that restriction.
How Grant Funds get restricted
The other common scenario in which a Friends Group may encounter restricted funds is through a grant intended to fund a specific program or activity.
Obligations and Limitations
State laws and accounting standards regulate restricted funds. This will undoubtedly result in additional time and effort spent on paperwork and financial tracking, in addition to managing the general fund.
Moreover, unforeseen circumstances can prevent the intended project from happening, which might require returning the money to the donor. Unless your group is equipped to handle these variables, the administrative burden of restricted funds could detract from the time and energy that could be better used for your group’s other activities.
How to avoid restricted funds
So, how can you make your funding request compelling without inadvertently asking for a restricted donation? While it’s tricky, it’s possible! In your funding request, emphasize your group’s mission and elaborate on it with the projects you’re currently working on or envisioning, then explicitly request funding for your general fund. This approach will enable your group to turn your projects into reality.