Benefits of Unrestricted Gifts 

As a nonprofit organization, there’s no doubt that you highly appreciate and value every donation you get. Restricted and unrestricted gifts, or funds, are two types of donations to nonprofits from donors that may or may not have some strings attached. While both gifts are welcome, unrestricted gifts are critical because they help you provide funding to the areas of greatest need. 

However, many donors prefer to give restricted gifts because they want to be able to control exactly where their money goes or give only to a very specific program or project your nonprofit is developing. There are strong points in favor of both options. In this article, we’ll review the perspective of both nonprofits and donors and help you learn how to build more trust with your donors to promote unrestricted giving. 

Restricted and Unrestricted Gifts 

These two types of donor gifts have very different expectations and procedures. Let’s take a look at the differences between restricted vs. unrestricted funds. 

Restricted Funds

Restricted gifts are generally donated for specific reasons chosen by the donor. These funds are conditional, and the donor usually requests the nonprofit donate the funds to a certain program, purpose, or even during a specific time. For example, if a donor is passionate about the mission you carry out in your nonprofit, particularly for a certain project, they might request to restrict their funds to only that project. However, restricted gifts can sometimes become tricky for nonprofits. 

Let’s say a donor contributes $10,000 to your animal rescue nonprofit with a restriction of only using their donation money for purchasing food for the animals you support. However, your nonprofit may have stockpiles of food but desperately need beds, blankets, crates, and other necessary items for the animals. 

Unfortunately, since the $10,000 donation comes with restrictions, you are obligated to only use it to purchase more food or return the gift to the donor. If you do not comply with the donor’s restrictions, donors can demand their money back or sue your organization, which can damage your nonprofit’s reputation and land you in financial and legal trouble. 

Unrestricted Funds

Unrestricted gifts come without conditions by the donor. This means that nonprofits can use the funds in any way it wishes to further their mission. Because unrestricted funds come without a gift exclusion limit, nonprofits can allocate the money where it’s most needed, such as for creating new programs, supplying more meals, or developing more opportunities for volunteers. 

Referring to the animal nonprofit example above, if you were to receive an unrestricted gift of $10,000, you could use it for more urgent needs, such as buying more beds and blankets. Unrestricted funds are more of a win-win for both the donor and the nonprofit because the nonprofit has flexibility to use the money in a more impactful way, while the donors feel the appreciation from the nonprofit and confidence that their donation is going toward more pressing needs. 

Why Donors Love Restricted Gifts

Though restricted funds come with limitations and conditions, there are many reasons donors prefer this type of donation compared to unrestricted gifts. Let’s review four reasons why restricted and designated gifts are ideal for some donors:

• Enhances their personal story: When providing funds for a specific purpose only, donors may feel it deepens their life story and makes them feel more heroic. With restricted gifts, donors know they are personally contributing to a specific transformation for a nonprofit, which makes their donor story that much better. 
• Gives them more ownership over impact: Restricted funds give donors the ability to say, “I did that!”, which can be a powerful feeling. Instead of saying they simply gave money to a particular nonprofit or charity, they can point out the specific role they played in helping to positively impact a program, building, or group of people.
• Gives them a bigger role to play: Restricted gifts position the donor as the change-maker and sets them apart. It makes them feel like they matter because they made something happen that helped others and gained the satisfaction of participating in a cause they care about deeply. 
• Makes them feel more in control: From the donor’s point of view, restricted funds are a way to ensure their money goes exactly where they want it to go and make a difference to whatever specific program or project resonates with them the most. Sometimes, the language and wording nonprofits use can cause donors to want to keep tight reins on their donations. 

Why Nonprofits Love Unrestricted Gifts

Unrestricted gifts provide the most flexibility for nonprofit organizations, which usually means these funds have the greatest impact. When donors give unrestricted gifts, they simply trust that the nonprofit will use them to honor their intentions and fulfill its mission, depending on what needs the most funding. Let’s review why nonprofits prefer unrestricted gifts:   

• They provide more flexibility: Unrestricted gifts let nonprofits quickly and easily fund their top priorities to serve their community and do their job well. When donations come with restrictions, they can complicate efforts and create obstacles. 
• They help nonprofits keep promises to other donors: When one or several donors provide all of the funding for a certain project or program, nonprofits cannot necessarily promise other donors that their money will directly help their mission because it has already been covered by restricted donations. With unrestricted gifts, nonprofits can assure all donors their funds are truthfully going to the cause. 
• No permanent restrictions: Some restricted gifts are temporary, meaning any leftover funds after a specified length of time can be used at will. Restricted funds can also be permanent, which can lead to nonprofits having to give back money once a project is completed and can no longer use the leftover funds. Unrestricted funds make it easier to fund various projects. 
• They always align with the nonprofit’s needs: Essentially, nonprofits will always need unrestricted funds because they can use them wherever they’re needed to make a difference. 

The Benefits of Unrestricted Giving

Though your nonprofit can still do amazing work with restricted donations, unrestricted funds open your organization up to limitless possibilities. Let’s take a look at the benefits of unrestricted gifts.

Stability and Longevity

If your nonprofit has plenty of restricted funds to construct a new building but doesn’t have enough to pay staff, maintain volunteers, or keep any of your other projects running, you aren’t going to be very stable. This can prevent you from showing up for your community when they need you most. With unrestricted funds, your money is not tied to specific projects or purposes, so you can allocate resources wherever they’re needed to enhance your organization’s resiliency. 

As with stability, unrestricted funds make it easier for your nonprofit to evolve, build relationships, refine your methods, and continually improve your work. Making a genuine impact takes time, and restricted funds can make it difficult to establish long-term planning. Donors who give unrestricted gifts can sustain your mission, provide longevity, and help you enact long-term solutions that align with your mission.

Innovation and Effectiveness

No matter your mission, your nonprofit likely tackles some complex issues, such as providing meals, clothing, education, or supplies for those in need. This means your nonprofit has to continually innovate and take risks to meet your goals and serve your community. Risk-taking requires stability and agility. With unrestricted funds, you and your organization leaders can try new approaches to reach solutions, such as investing in emerging technologies. 

Likewise, as a community organization, your nonprofit is in the best position to address urgent needs related to your mission because you know what works and what doesn’t. With unrestricted gifts, you can build more effective programs and make a bigger impact. 

Building Trust

By donating unrestricted gifts, donors can build more trust with nonprofits. Rather than donors telling you how to spend the money or use your resources, unrestricted funds can improve the connection between you and your funder because it supports a more open line of communication and deeper collaboration to help reduce donor skepticism.  

If donors are inclined to give a restricted gift, they can instead ask what your nonprofit needs and what will make the biggest impact on your mission. Encouraging this conversation ahead of time with your donors can help your nonprofit organization do more for your community. 

Build Trust With Your Donors

Receiving any type of donation to your nonprofit, whether it’s restricted or unrestricted, is always highly appreciated because it shows your donors see the work you do and want to help you make a difference. However, restricted funds can make it challenging for your nonprofit to meet your goals if there are specific needs that must be met outside a donor’s conditions. By building trust with your donors, you can encourage them to provide you with unrestricted funds because they will feel more confident their gift will go toward a genuine, visible impact. 

At GiveSmart, we know how important it is to build a better relationship with your donors and keep your mission going. With our donor management software, you can easily connect with donors and provide them with an engaging experience to promote unrestricted giving. Request a demo today to see how we can help you raise more money with unrestricted donations.