For start-ups and growth-stage companies investing heavily in research and development (R&D), cash flow can be a constant challenge. Innovation demands capital upfront, but returns often take time. That is where bridging finance comes into play.
In this blog, we explore what bridging finance is, how it works, and why it is becoming an increasingly valuable tool for businesses that need short-term funding to keep building, hiring, and innovating.
What is Bridging Finance?
Bridging finance is a short-term loan that helps cover temporary funding gaps. It is commonly used in property development and corporate finance, but it also has significant relevance for R&D-intensive businesses. In this context, it helps businesses continue operating smoothly while waiting for a confirmed future payment, such as the R&D Tax Incentive (R&DTI) rebate from the Australian government.
Traditionally, bridging finance has also been used in the context of home loans, particularly when someone needs to buy a new home before the sale price of their existing property is finalised. It covers the gap between the property sale and the new purchase. In many of these cases, borrowers use equity in your current home to secure funding. Understanding how a bridging loan works in both corporate and residential scenarios helps clarify its short-term, transitional role.
The core function of bridging finance is to provide fast, flexible funding that is repaid as soon as the expected inflow of funds is received. This allows businesses to unlock working capital tied to expected income, without waiting for the usual processing time associated with tax lodgement or government reimbursement.
Why R&D-Intensive Businesses Use Bridging Finance
R&D-heavy businesses face a specific financial challenge: they spend consistently on eligible R&D activities throughout the year, but the government rebate for that expenditure does not arrive until after they lodge their company tax return. This means a delay of several months between spending the money and receiving the refund.
For eligible entities, the R&DTI can return up to 43.5% of their eligible R&D expenditure. This rebate is often critical for maintaining operations, funding new product development, or simply staying cash-flow positive.
Bridging finance resolves this timing mismatch by allowing businesses to borrow against their already accrued R&D spend. This is not based on future projections or unverified claims. It is secured against real, eligible expenditure that will be reimbursed once the tax return is lodged.
In both corporate and personal finance, the loan amount and associated terms are often tied to the borrower’s equity and risk profile, including factors such as the loan-to-value ratio. While these metrics are more common in home loans and property contexts, commercial bridging finance also involves risk assessment based on future receivables and business viability.
How Bridging Finance Supports Innovation
Innovation does not wait. Businesses building new technologies, running pilot trials, or developing software platforms cannot always afford to pause work due to delayed funding. Bridging finance provides an important tool for keeping R&D on track.
Some of the key benefits include:
- Smooth Cash Flow: By filling short-term gaps, bridging finance helps businesses avoid peaks and troughs in spending. This is crucial for maintaining operational consistency.
- Continued R&D Investment: Without this form of finance, some businesses may be forced to delay projects, postpone hiring, or scale back their ambitions. Bridging finance enables them to keep moving forward.
- Talent Retention: Skilled staff are expensive and difficult to replace. Bridging finance ensures you can continue paying your team on time, preserving morale and avoiding churn.
- Strategic Agility: Having capital available lets you respond to new opportunities, fast-track development phases, or invest in areas that need urgent support.
This type of funding does not just plug a gap. It enables founders and CFOs to make decisions based on strategy rather than short-term liquidity constraints.
How It Differs From Traditional Loans
Bridging finance differs from conventional lending in several key ways:
- Short-term Duration: Bridging loans are typically repaid within three to six months. They are not designed for long-term use, but to cover a temporary shortfall.
- Linked to Specific Receivables: The loan is backed by a known and expected inflow, such as the R&DTI rebate. This reduces risk for both the lender and the borrower.
- Faster Processing: Traditional business loans can take weeks or months to approve, often requiring detailed forecasts, business plans, and collateral. Bridging finance is usually faster and more streamlined.
In many property-based bridging loans, borrowers make interest-only repayments until the full loan is repaid after selling their existing home. While this structure is less common in R&D finance, it highlights the flexible, stopgap nature of bridging arrangements designed to finance the purchase or continuation of key activities.
How Rocking Horse Provides R&D Bridging Finance
At Rocking Horse, we specialise in R&D finance designed to support innovative businesses across Australia. We offer bridging loans based on a company’s accrued R&D spend, providing early access to their expected rebate.
We do not offer tax advice or determine eligibility for the R&DTI. That is the role of your tax advisor or accountant. What we do is provide a clear, efficient path to accessing your rebate early, giving you more control over your cash flow and more confidence in your growth plans.
The process is straightforward:
- You confirm your accrued R&D expenditure with appropriate supporting documentation.
- We assess the value of your claim and determine your loan eligibility.
- If approved, you receive funding that same month, without waiting for your tax return to be processed.
Once you receive your R&D rebate from the government, the loan is repaid, and your balance sheet reflects the completed transaction.
When Is Bridging Finance the Right Choice?
At Rocking Horse, we specialise in R&D finance designed to support innovative businesses across Australia. We offer bridging loans based on a company’s accrued R&D spend, providing early access to their expected rebate.
We do not offer tax advice or determine eligibility for the R&DTI. That is the role of your tax advisor or accountant. What we do is provide a clear, efficient path to accessing your rebate early, giving you more control over your cash flow and more confidence in your growth plans.
The process is straightforward:
- You confirm your accrued R&D expenditure with appropriate supporting documentation.
- We assess the value of your claim and determine your loan eligibility.
- If approved, you will receive funding within two weeks, without waiting for your tax return to be processed.
Once you receive your R&D rebate from the government, the loan is repaid, and your balance sheet reflects the completed transaction.