In the fast-paced world of business innovation, research and development (R&D) plays a pivotal role in driving growth and maintaining a competitive edge. While investing in R&D can unlock new opportunities and boost your business’s potential, it often requires a substantial upfront investment, which can put a strain on your finances.
This is where R&D finance comes in as a strategic solution. It helps businesses overcome cash flow challenges by providing the necessary funds to continue investing in innovation and R&D without facing financial roadblocks. However, the benefits of R&D finance go beyond just funding research. It can also help improve overall cash flow management, ensuring that your business has the liquidity to cover everyday expenses, seize new opportunities, and maintain stability during periods of financial uncertainty.
But what exactly is R&D finance, and how can it help your business thrive? Let’s explore how it works and why it could be the right financial tool for your growth strategy.
About the R&D Tax Incentive
The R&D Tax Incentive, established by the Australian government, is designed to encourage businesses to invest in R&D activities by providing tax offsets for eligible expenditures.
This incentive aims to stimulate innovation and technological advancement by alleviating the financial burden associated with R&D projects.
One of the key advantages of this financing option is the ability to secure a lump sum based on your expected R&D tax refund. Typically, small to medium-sized enterprises (SMEs) with an annual turnover of less than $20 million can get back up to 43.5% of their R&D spending. Larger companies can receive a tax refund of 38.5%.
This allows businesses to get back some of the money spent during the last financial year on R&D, so they can reinvest in their R&D activities without delay.
The R&D Tax Incentive is crucial for fostering a competitive business environment, driving economic growth, and ensuring that companies can continuously improve and develop new products, processes, and services.
By providing financial support and reducing the risk associated with substantial R&D inv
estments, this incentive empowers businesses to innovate more freely, stay ahead of industry trends, and contribute to a vibrant, dynamic economy.
Ultimately, it helps create a landscape where businesses of all sizes can thrive and compete on a global scale.
What is R&D Finance?
R&D finance is a specialised financial service that allows businesses to receive a loan or advance based on their anticipated R&D tax refunds.
This type of financing is secured against the company’s expected R&D tax return, allowing them to use their expected R&D tax return as collateral and access up to 80% of their expected year-to-date R&D refund throughout the financial year.
Instead of waiting for the lengthy government processing period or enduring unstable and high-interest bank loans, companies can access a significant portion of their expected year-to-date refund within just a few business days of the loan being approved.
How is an R&D loan repaid?
An R&D loan is typically repaid directly through your anticipated R&D tax refund.
The loan amount is based on the estimated year-to-date R&D tax refund you are eligible to receive. Once you get your R&D tax refund from the government, the loan is repaid directly from this refund.
There are no monthly repayments or high interest rates to worry about; we work with a fixed interest rate, and the entire loan is settled when the tax refund is received. This approach ensures that the repayment is secure and predictable, reducing financial strain on your business.
More on R&D financing:
- 6 strategies to overcome cash flow problems in your business
- R&D loan requirements—the 3 simple things you need to do to get started
- Tips for start up business funding
- Debt financing vs equity financing—which is best for my business?
Why might you need R&D financing?
R&D Financing has many benefits and can help in many different ways. Here are just a few examples of how businesses can benefit from accessing their R&D rebate early:
Immediate access to funds
Instead of waiting for the annual tax refund process, R&D financing allows you to access up to 80% of your expected year-to-date R&D tax refund within days. This provides a quick cash flow boost, which can be reinvested into ongoing or new R&D projects.
Maintain cash flow
Cash flow is essential for keeping your business operations running smoothly. By securing R&D financing, you can ensure that you have the necessary funds to cover expenses like salaries, rent, and utilities, even while investing heavily in R&D.
Avoid high-interest debt
R&D financing offers a lower-cost alternative to traditional high-interest loans and credit options. This can help you avoid accumulating debt that can drain your cash flow with high interest and monthly payments.
Non-dilutive financing
Unlike raising equity, which requires giving up a portion of your business ownership, R&D financing allows you to retain full control and ownership of your company. This means you can make strategic decisions without outside interference.
Continuously invest in innovation
With regular access to funds through R&D financing, you can sustain your investment in research and development activities. This continuous support helps maintain your competitive edge and fosters ongoing innovation and growth.
Financial stability
Having a reliable source of funds through R&D financing helps stabilise your financial situation as you can arrange to receive your loan in one lump-sum payment, or have your payments staggered throughout the year. This stability allows you to focus on strategic growth initiatives without worrying about cash flow shortages.
Expert guidance
Partnering with R&D financing specialists provides you with expert guidance throughout the financing process. They can help you navigate the complexities of R&D tax incentives, ensuring you maximise your benefits and use the funds effectively.
Traditional Financing vs R&D Financing
Traditional financing options, like bank loans or raising capital, can be slow and come with many conditions. Examples of traditional financing options may include:
Equity raising: This involves selling shares of your company to investors. While it can provide substantial capital, it also dilutes your ownership and control over the company.
Traditional bank loans: Bank loans are common, but they often require significant collateral, have lengthy approval processes, and come with high-interest rates.
Government grants: These are non-repayable funds provided by the government. While highly beneficial, they are also competitive and can be difficult to secure, making them an unreliable source of funding.
R&D finance on the other hand, is a much simpler and low-risk alternative to capital raising. To put it simply; debt is much cheaper than losing equity. By using your R&D tax refund as collateral, you can get a lump sum of cash quickly, without giving up any ownership of your business or tying up other assets.
How R&D financing may benefit your business:
- Secured against tax refunds: The financing is secured against your anticipated R&D tax refund, reducing the risks compared to traditional loans that may require substantial collateral or personal guarantees.
- Predictable repayment: Since the advance is repaid through the tax refund, businesses are not burdened with unpredictable loan repayments or high interest rates.
- Non-dilutive capital: Unlike equity raising, which requires you to give up a portion of your ownership in exchange for funding, R&D financing is non-dilutive. You’ll retain full control and ownership of your business while continuing to make strategic decisions without outside interference.
- Faster access to funds: Traditional bank loans can be slow, often requiring lengthy approval processes and substantial collateral. Alternatively, R&D finance allows you to access funds typically within days of signing the loan documents.
- Support from experts: Partnering with R&D financing specialists ensures you navigate the complexities of R&D financing with confidence and helps you get the most out of your R&D loan.
Want to know if R&D financing is right for your business? Contact us today to learn more about how R&D financing can benefit your business and help you achieve your growth objectives now.
Maximising R&D Investments
Managing your R&D funds well is key to keeping your innovative projects moving forward and growing. By putting your R&D funds back into your business, you can plan for future R&D activities and maintain a competitive edge.
Rocking Horse Group’s R&D finance solutions enable businesses to consistently access their R&D tax refunds throughout the year, allowing for continuous reinvestment in their R&D programmes. This strategic approach not only improves cash flow but also maximises the benefits of the R&D tax incentive, helping businesses sustain and grow their innovative projects effectively.
Need help maximising your R&D return? Contact us today to learn more about how we can support your business in making the most of your R&D funds.
Common misconceptions about R&D Finance
It’s only for large companies
One of the biggest misconceptions is that R&D finance is only available to large corporations with extensive R&D departments. In reality, R&D finance is accessible to businesses of all sizes, including startups and SMEs. These smaller businesses often benefit the most from early access to funds, as it allows them to accelerate their innovation and compete with larger players.
The application process is complicated
Many business owners believe that applying for R&D finance is a complex and time-consuming process. While it does require some documentation, reputable providers like Rocking Horse Group have streamlined the process to make it as simple and efficient as possible. With clear guidance and support, you can complete your application quickly and easily.
It’s only for high-tech industries
Another common misconception is that R&D finance is only available to businesses in high-tech or scientific industries. In fact, R&D activities can occur in a wide range of sectors, including manufacturing, agriculture, and even creative industries. If your business is developing new products, processes, or services, you may be eligible for R&D finance.
The interest rates are too high
Some businesses avoid R&D finance because they believe the interest rates will be prohibitively high. However, providers like Rocking Horse Group offer competitive rates that are often lower than traditional financing options. Additionally, the benefits of immediate and regular cash flow injections can far outweigh the costs of the loan, making it a valuable financial tool.
It affects ownership and control
There’s a misconception that obtaining R&D finance will require giving up equity or control of your business. Unlike equity financing, R&D finance is a non-dilutive funding option, meaning you don’t have to give up any ownership. You retain full control over your business while still gaining access to the funds you need.
It’s not worth the effort for small refunds
Small and medium-sized businesses might assume that R&D finance isn’t worth the effort if their tax refund isn’t large. However, even smaller refunds can significantly impact cash flow. Plus, the cumulative effect of financing multiple smaller refunds over time can provide substantial financial support for continuous innovation.
Understanding the realities of R&D finance can help businesses of all sizes leverage this valuable tool to support their innovation efforts and maintain a healthy cash flow.
You can’t access finance because your business is pre-revenue
While pre-revenue businesses can’t go to big banks for finance yet, R&D finance is available to all types of businesses, including those in the pre-revenue stage. In fact, the vast majority of our clients actually reach out to us in the pre-revenue phase! Here at Rocking Horse, we’re all about supporting your journey, even before you’re making revenue.
If you have more questions or want to explore how R&D finance can benefit your business, contact Rocking Horse Group today.
Beyond innovation: what else can you use your R&D loan for?
While the primary purpose of an R&D loan is to fuel innovation and R&D activities, how businesses can use their R&D funds extends far beyond these areas. Including:
Reinvesting in day-to-day operations
Getting your R&D tax refund sooner can greatly improve your business’s cash flow. You’ll have the money you need to cover everyday expenses and jump on new opportunities as they come up, helping your business run smoothly and grow.
Reducing the need for external capital
With an advance on your R&D tax refund, you won’t need to rely as much on outside sources of funding like equity raising or traditional loans. This keeps you in control of your business and avoids giving up ownership by issuing new shares.
Expanding your team
You can use the funds from your R&D tax refund to hire new staff or keep your current employees, especially those working on R&D projects.
Training and development
Investing in training and development programs for your R&D team ensures they stay up-to-date with the latest methods and technologies. This ongoing education keeps your team skilled and competitive.
Investing in infrastructure
Your R&D tax refund can be used to upgrade or expand your business infrastructure. This might mean buying new equipment, improving your facilities, or investing in technology that supports both your R&D efforts and overall business operations.
Boosting marketing
A portion of your R&D tax refund can go towards marketing and promotional activities. By boosting your market presence, you can attract new customers, build brand awareness, and drive sales growth.
Upgrading technology and equipment
Investing in the latest technology and equipment can make your R&D projects more efficient and improve their quality. Use your R&D tax refund to buy new lab equipment, software, or other tools that streamline your research processes and deliver better results.
Developing strategic partnerships
With extra funds, you can form strategic partnerships with other businesses, research institutions, or industry experts. These collaborations can bring fresh ideas, enhance your R&D capabilities, and open up new opportunities for growth and innovation.
Accelerate commercialisation
In this day and age, everyone needs to get their product or service to market first. You can use R&D funds to re-invest in R&D straight away, allowing you to get to market quicker.
Hit a milestone ahead of going to market
If you are close to going to market for equity but need to hit a milestone before that, such as increasing the value of your company, you can use R&D funds to help you get there.
By leveraging R&D finance across more areas of your business, you can achieve a more balanced and strategic approach to growing your business. At Rocking Horse Group, we are dedicated to helping you unlock the full potential of your R&D tax refund.
Contact us today to find out how!
How to Apply for R&D Financing
We’ve made applying for R&D finance with Rocking Horse Group quick and easy. You can apply for R&D finance with Rocking Horse Group in just a few simple steps.
- Get in touch
Contact us for an initial consultation. Our R&D finance experts are ready to assist you. Send us a message, request a callback, or call us at [phone number].
- Check eligibility
We’ll help you determine if you qualify for R&D finance. If you’re currently receiving the R&D Tax Incentive and you can provide a comfort letter from an R&D advisor you will qualify to apply for R&D finance with Rocking Horse Group.
- Gather documents
Provide necessary documents like your AusIndustry registration letter and previous financial year’s tax return.
- Confirm ATO position
Verify your tax position with business activity statements.
- Apply
We’ll guide you through the application process and help you with the necessary documents. Start your application here.
- Receive funds
After we review your application and you sign the loan documents, you’ll receive funds within 1-2 weeks.
Why partner with Rocking Horse Group?
At Rocking Horse Group, we pride ourselves on building strong, lasting relationships with our clients. As R&D specialists, we understand the unique challenges you face and are dedicated to providing more than just financing.
We’re your strategic partner, committed to supporting your growth at every stage of your business journey.
Not only will we help you access your R&D tax refund early, but we’ll also leverage our extensive industry network and connect you with potential partners, suppliers, and additional funding sources to create valuable opportunities for you and your business.
With Rocking Horse Group, you can manage your R&D expenditure more effectively and access the funds you need to drive your innovation forward.
Whether you are planning your financial year or looking to capitalise on your R&D tax credit, we’ll work with you to find the best possible solution for your business.
Apply for R&D Financing Today!
Ready to unlock the potential of your R&D tax incentive? Apply for R&D financing with Rocking Horse Group and take the first step towards securing the funds you need to fuel your innovation. Innovation doesn’t wait – neither should you. Contact us today and unlock the power of your R&D refund with Rocking Horse Group’s R&D financing solutions.