R&D Tax and Grants

Is R&D finance the right choice for your business?

Strapped for cash

Ten months into the financial period R&D budgets tend to hit a low point. This can create worries about how much runway your business has left. But don’t forget that although your R&D program might be creaking due to your depleted capital reserves, you still have options. While you’ve been busy driving your innovation forward over the past three quarters, you’ve potentially already accrued ten full months of your R&D tax refund. That means once you’ve lodged your tax return, you’ll receive an influx of non-strings attached capital – funds that are your own money. But that doesn’t help you now. Businesses can wait up to 18 months from expenditure to receiving their R&D tax refunds. So what can your business do to maintain momentum in the meantime?

Assess your capital options

Start by scanning the landscape for the capital options your business can access in the short term. We’re talking bank loans or government-guaranteed loans such as the pared-back Small and Medium Enterprise (SME) coronavirus guarantee scheme. Maybe your business can bring forward a planned capital raise? Then there’s the big wide world of alternative finance. R&D finance is part of this ecosystem and an obvious choice for businesses doing R&D. But first, you must ensure your research qualifies for the R&D tax incentive (RDTI). This is a critical first step to accessing R&D finance.

Registering your research with AusIndustry

Check whether your business is eligible for the RDTI. Businesses that are eligible for the R&D Tax Incentive are:

liable to pay income tax in Australia
conducting at least one activity that meets the government criteria for core R&D.
spending more than $20,000 on eligible R&D.

R&D experts can help your business identify whether your research is eligible, which R&D expenses you can claim, and help you register your research with the Department of Industry, Science, Energy & Resources.

What is R&D finance?

R&D finance is essentially a loan secured against your pending R&D tax refund that allows you to ‘unlock’ that refund early. Depending on the type of R&D finance, businesses can access their R&D early multiple times throughout the year or bring it forward as a one-off lump sum.

Benefits of R&D finance

Flexibility: R&D finance offers flexibility, and businesses can bring forward their R&D refunds as frequently as required throughout the year.
Improved cash flow: bringing forward your R&D refund means your business avoids waiting months for much-needed capital.
Fast access to capital: R&D finance is guaranteed to arrive before your R&D refund. And platform-based products like the Radium Advance have approval times of two business days if you have the correct documentation in place. And once you sign your loan documents, you won’t have to wait more than three business days to receive your funding. An important advantage that shouldn’t be overlooked, if your business needs capital urgently.
Non-dilutionary: R&D advances are effectively your own money that you’re accessing early. So they’re typically only secured against your upcoming R&D tax refund. That means you don’t have to give up a stake in your business to receive this funding. And if you’re looking for other sources of finance, including venture capital, the non-dilutionary boost to your R&D and cash flow can even make your business more attractive to would-be investors.
Fixed-price and cash flow friendly: There are different R&D finance offerings on the market: but some, including the Radium Advance from Radium Capital, offer an affordable, fixed-price establishment fee and interest rate that is only due for repayment, along with the loan capital, after your R&D refund arrives.
R&D finance can trigger additional benefits: If you reinvest your R&D advance back into R&D, it triggers additional refunds. By way of example, if you bring forward your R&D refund four times a year and reinvest into more R&D each time, you could boost your R&D spend by 50% using the same expenditure.

How to apply

With platform-based solutions, applying is quick and easy, and the more R&D advances you access, the easier it gets. However, you do need to gather some documents to support your loan application. Crucial paperwork you’ll need to apply for R&D financing includes:

A comfort letter from an approved R&D advisor confirming that your business is an eligible R&D entity under RDTI rules and is entitled to receive the refundable R&D tax offset.
A description of the review of your business and R&D activities undertaken by an approved R&D advisor.
Details of the eligible R&D expenditure your business has incurred.
An estimate of R&D tax refund amount/offset.
Verification of your company’s tax position from an accountant.
Documents relating to your AusIndustry registration, business activity and previous year tax return.

If you’d like to learn more about R&D finance or how to apply for the RDTI and a Radium Advance, the expert advisers at Radium Capital are there to help. Contact Radium today and get the ball (and your R&D) rolling this quarter.