Throughout the pandemic, philanthropists, trusts, and foundations have done a phenomenal job of supporting charities and other social purpose organisations by providing them with emergency grants.

However, many of the emergency grants made by funders at the beginning of the crisis have now ended. The result of this is that many organisations that relied on emergency funding have been left with tough decisions to make that could negatively impact their organisations, and the people and communities they aim to support.

Sometimes there are good reasons for funders to bring a funding relationship to an end, but doing so can cause big problems for the charities they currently support. Funders should prioritise long-term support where possible but, when they must draw their funding to a close, make sure they do this in the right way. So, how should funders go about ending funding relationships with the organisations they support? And how can funders reduce the chances of negative impacts?

Oddly, there is very little guidance on how to stop funding organisations well, despite how frequently funders do it – often for reasons unrelated to their grantees’ performance, such as a change in the funder’s strategic focus or funding criteria.

This blog provides three tips for funders thinking about bringing a funding relationship to a close, based on our personal experience advising The Stone Family Foundation. We hope these tips can help other funders rethink their funding practices, so that we can build a better funding ecosystem following the Covid-19 pandemic.

Tip 1: Understand the organisation’s situation and needs

Whenever you are thinking about ending a funding relationship with a grantee, it’s essential to ask questions about how the loss of your funding might affect the organisation and the challenges it faces. This will enable you to better understand the potential negative impact that choosing not to renew your funding may have and also help you to support your grantee to mitigate risks.

The end of a funding stream can force a charity into making difficult choices and significantly alter its plans. It might leave it having to think about ending some of its programmes and partnerships, or downsizing its core function to remain sustainable. It might mean the organisation has to put significant resources into seeking funding and partnerships elsewhere.

The timing of your decision may also interact with other challenges the organisation faces. These challenges may be caused by external pressures (such as changes in their funding environment) or internal pressures (such as capacity challenges in areas such as impact management, fundraising and marketing).

To gain greater insight into your grantee’s situation, ask them questions like:

• What impact will no longer receiving funding from us have on your organisation?
• What challenges does your organisation have now?
• What are the biggest threats facing your organisation over the next few years?

Tip 2: Decide if now is the right time to stop funding an organisation and consider providing it with an exit grant

Based on your attempts to understand how the loss of your funding might impact your grantee and how this might interact with the other challenges they are facing, you should have a good idea about whether now is really the right time to not provide the organisation with a new grant.

If the organisation is in a good position to face the future without you, and you think that your money would be better spent elsewhere, then you can feel comfortable that ending your relationship with them is the right thing to do. However, if the grantee faces challenges that the loss of your funding would compound, then you should consider providing the organisation with an exit grant. These are short-term grants designed specifically to help the organisation mitigate the potential negative impacts of your funding coming to an end.

If you decide to provide the organisation with an exit grant, work with the grantee to design a grant that gives it the capacity to cope with its challenges and minimise the negative impact of no longer receiving your funding. This might take the form of funding to boost its impact measurement, fundraising or marketing capacity, or even just an extension to its existing grant to give the organisation time to find an alternative way of funding the activity.

To design an effective exit grant:

• Agree the objective of the grant together but allow the grantee to define the best means of achieving it and give the grantee flexibility to adapt its plans to meet it. Remember that people at the organisation will know its situation and context better than you do (but let them know the constraints they must work within, such as what budget they have available to them and what period the grant will cover).
• Act as a sounding board to help the grantee review its plans. Having you to bounce ideas off can help ensure the organisation gets funding for the things it needs, rather than the things its people think you are prepared to fund. This should involve trying to understand the logic of their proposal and asking them why they haven’t opted for alternative solutions.

Tip 3: Throughout, communication is important

Throughout the process of deciding whether to stop funding one of your grantees, it’s critical to communicate with the organisation effectively.

Timing it right

You must tell the grantee its funding isn’t being renewed as early as you can – ideally at the beginning of the grant (remember to tell the organisation why you are thinking about not providing it with a re-grant too.) This is so it can start to plan for the implications of losing your funding, rather than having to make cuts to its programmes or core expenditure. The more time you give it, the more opportunity it has to find replacement funding.

Coming up with a good exit strategy also takes time as it might involve consultation with many stakeholders, such as programme staff and board members, and it can take a few iterations to get right. This means you need to start working with the grantee to design an exit grant well in advance of the funding coming to an end.

Be aware of the funder power dynamic

Power dynamics are a challenge throughout, grantees may be unwilling to divulge information about their challenges if they think it will jeopardise their chances of receiving funding now or in the future. To counteract this, be transparent about your processes and emphasise that your goal is to help them tackle the challenges they face.

When designing an exit package, grantees can be highly sensitive to any suggestions you make about what you might fund and any timeframe you suggest for developing a proposal. As mentioned above, people working at the organisation may be alert to cues as to what you might be willing to fund and may try to reduce the risk of having their proposal rejected. Be mindful of this during your conversations with them. Let them lead the conversation on what support their organisation needs and the timeframe for developing this support as much as you can. This will help them to get the best possible outcome for their organisation in a minimally burdensome way.

Improving funding practice to help build back better

Funders have already done a lot to improve their funding practices since the outbreak of Covid-19. The provision of emergency grants, the removal of funding restrictions, and the increased flexibility around reporting requirements were welcomed by the sector and they should remain in place beyond the end of the pandemic. But there is still more funders can do to reduce the negative impacts of their grant-making.

By establishing sound processes for ending funding relationships with charities and other social purpose organisations – making use of the three tips we have set out above – funders can help build a better funding ecosystem than the one we had before the pandemic began.

This article was first published by New Philanthropy Capital on 2 June 2021. It is being reprinted in Alliance with permission.

Matthew Mannix is a Consultant at NPC, and Charlotte Lamb is Principal: Strategy at NPC.