In a report on the progress of Futurebuilders England, due to be published today, the organisation's advisory panel recommends extending the programme to 2011 as well as backing ministers' proposals to widen the range of recipients.
But the report warns that opening up funding to cover all areas of public service delivery could result in court action.
"The panel is concerned that an expansion might prompt legal challenges from previously rejected applicants," it says.
Ministers asked the panel to consider the impact of expanding the scope of the programme to cover all areas of public service delivery from April 2008.
If the funding guidelines are broadened, the programme must continue to give priority to the five current service areas, according to the report.
These areas are: children and young people; community cohesion; crime; health; and education and learning.
Futurebuilders must also put in place clear targets to measure performance and applications across all the five current strands, the report recommends.
Applications in some areas were fewer than anticipated because of a "largely reactive approach".
Although Futurebuilders has placed an emphasis on providing loans to organisations, the third sector advice and support fund must also continue to provide grants, the report adds.
- See Finance News, page 11.