The Reserve Bank of Australia has just cut the official cash rate to 0.25%—a historic low.
Cheap money should be great news for R&D start-ups or businesses with capital hungry research projects. But here’s the rub; finance is cheap because global markets are spooked at the prospect of a coronavirus pandemic triggering a worldwide economic downturn. And when markets get the jitters they get risk averse. While capital may be more affordable than ever before—for you and your potential investors—it could end up being more elusive. When you’re a seasoned financial adviser, you’ve seen this movie a few times before. Think global financial crisis 2007-2009, dotcom bubble in the early noughties, or 1997’s Asian financial crisis and you get the picture.
So how can we help our clients navigate the potential for troubled waters ahead? We start by advising every business with R&D to look at three important sources of cash flow:
- Tax incentives/refunds: check which tax incentives/refunds your business can claim.
- Existing capital and R&D finance: make the most of capital you already have in your business.
- Grants: find out if your business can apply for grant funding
Federal Government R&D tax incentive scheme
Since 1986, the Australian Government has been offering tax refunds for companies with R&D expenditure.
It’s a great scheme. Companies are able to offset either 38.5% or 43.5% of eligible R&D costs against tax paid on their annual turnover. Having R&D that is eligible, and registering this with the Department of Industry, Science, Energy and Resources are vital steps if you want your business to secure this tax refund. Learn more about the R&D eligibility criteria and how to apply.
If the R&D tax refund has a shortcoming it’s that it can only be accessed once a year. Often, that’s too long for eligible companies to receive the money they need; money that’s theirs.
And when we advise businesses to review how they’re using their existing capital, we often recommend they apply for R&D finance.
R&D finance makes existing capital go further
It’s worth emphasising that the R&D tax refund is a government incentive. So the good news is, it’s not going to disappear over market fears about the coronavirus. R&D finance works so well because it bridges that 12-18-month gap when you’re waiting for your refund and helps you solve cash flow issues for your business.
One of the smartest R&D finance products on the market right now is the Radium Advance from Radium Capital.
Basically, if you’re eligible for the government R&D refund, then you’re eligible to apply for a Radium Advance. While you can deploy a Radium Advance as a one-off cash injection this year, you don’t have to. Unlike other R&D advances, you can use Radium Advances to access and reinvest your refund to smooth your cash flow throughout the year. We’re advising clients to choose Radium Quarterly Advances because the more frequently you bring forward your R&D refund, the more it benefits your business. Under the Federal Government’s rules, each time you use an R&D advance, it triggers additional refunds. It makes sense to do this each quarter. With the Radium Quarterly Advance model, you can choose to either increase R&D spend by up to 50% or reduce R&D capital outlay by up to 33%.
Another major plus point of Radium Capital is its technology. It uses a platform-based approach for Radium Advance applications, which is quick and easy to use. Clients get a two-day turnaround on loan approvals and access to their funds within three business days of signing their loan documents. These R&D loans are tailored to maximise client cash-flow. There are no upfront fees and no main or interest payments on a Radium Advance until you receive your full tax refund.
Radium Advance has an affordable arrangement fee of $699+GST and a flat interest rate of 14.99% per annum. The maximum amount you can advance with Radium is 80% of your R&D tax refund. So the interest and $699+GST arrangement fee are covered by the remaining 20%, with any funds left over returned to you.
Find certainty in these uncertain times
Radium Capital offers the certainty that other R&D finance providers can’t. Radium Capital is self-funded with a loan capital pool in excess of $100 million it can draw on for clients’ advances. Other R&D providers have to raise capital on the finance markets. At the best of times, that can leave clients waiting up to eight weeks to receive their R&D advance. But now with instability across global finance markets, all bets are off.
If you want to protect the health of your business while the world awaits treatments and vaccines for coronavirus, look for certainty. If you’re eligible for the Federal Government’s R&D tax refund, then Radium Advances are one of the smartest and surest ways to smooth your capital and cash flow.
Carbon is just one of a handful of Radium partners nationally, so please get in touch if you need assistance.