Here’s an interesting contradiction: the Reserve Bank of Australia has cut interest rates twice in 2025, bringing the cash rate down to 3.60%. That should mean more investment, right?
Not quite. According to the RBA’s August 2025 Statement, business investment is actually expected to flat-line through 2025–26. As a result, most companies are hitting pause on major spending, even though borrowing costs have eased.
For start-up founders, this creates an unusual moment. While your competitors slow down and delay projects, you have a chance to sprint ahead. The challenge is finding the right way to fund that sprint without giving away too much equity or waiting months for traditional financing.
If your start-up is doing research and development work, there’s a funding option you might be overlooking: R&D loans. Let’s break down what they are, why they matter right now, and how they could help you reach market faster.
Why Australian Start-Ups Are Finding It Harder to Seek Funding in 2025
First, let’s look at where things stand for Australian founders in 2025.
Venture capital funding bounced back somewhat in 2024, hitting A$4.0 billion across 414 deals, up 11% from the previous year. That sounds encouraging until you realise we’re still well below the 2021 peak. Angel investors and venture capital funds are more selective, deal timelines are longer, and the bar for securing start-up funding keeps rising.
Meanwhile, Australian companies are still investing heavily in innovation. The latest ABS data on Business Expenditure on R&D shows continued growth in research spending across multiple sectors. And the business formation numbers remain strong; thousands of new ventures are launching despite the economic headwinds.
So what does this mean for you? There’s clearly an appetite for innovation, but capital is harder to come by. Traditional funding options all have trade-offs:
- Equity investors bring money and expertise, but they take ownership and often want a say in how you run things
- Business loans and start-up loans from banks keep you in control, but they require proven revenue or assets you might not have yet, plus you’ll face interest rates based on your risk profile
- Government grants don’t need to be repaid, but they’re competitive and slow to secure
For small businesses and start-ups doing genuine R&D work, there’s another option that sits between these categories.
How R&D Finance Works: A Different Type of Start-Up Funding
Think of R&D finance as an advance on money the government already owes you.
Here’s how it works: Australia has a program called the Research and Development Tax Incentive (R&DTI). If your company does eligible R&D work, you can claim a tax offset that turns into a cash refund. For smaller companies, that refund is calculated at your company tax rate plus an extra 18.5 percentage points. It’s a meaningful amount.
However, there’s a long wait between spending money on R&D and actually receiving that refund, often 12 to 18 months or more.
That’s where R&D finance comes in. Instead of waiting until you lodge your tax return and get your refund, you can get a loan based on the eligible R&D spending you’ve already done this financial year. An R&D lender advances you a portion of your expected refund now, so you can keep building without slowing down.
Understanding the Tax Incentive Behind This Funding Option
Before we go further, let’s quickly cover the basics of the R&DTI program:
What qualifies?
You need to be doing systematic experimental work that’s trying to solve technical problems or create new knowledge. This could be developing new products, improving processes, or creating new technology. It’s not just any innovation; it needs to involve genuine experimentation and technical uncertainty.
How much do you need to spend?
The minimum is $20,000 in eligible R&D expenditure per year (unless you’re using a Registered Research Service Provider).
What’s the timeline?
You register your R&D activities with AusIndustry within 10 months of your financial year ending, then include your R&D claim when you lodge your tax return. The ATO processes it and sends you the refund.
The key point
This isn’t a grant you’re applying for, it’s a tax offset you’re claiming based on eligible work you’ve actually done. If you meet the criteria, you’re entitled to it.
The Cash Flow Problem Every Early Stage Start-Up Faces
Let’s say your financial year ends on 30 June 2025. You’ve spent $200,000 on eligible R&D during that year. You could be looking at a refund of $50,000+ (depending on the specifics), but you won’t see that money until mid-to-late 2026 at the earliest.
For a start-up with limited runway, that’s a problem. You’ve already spent the cash. The refund is coming, but it’s trapped in the future. Meanwhile, you need to keep paying staff, building your product, and reaching customers.
R&D finance solves this timing mismatch. It gives you access to capital now, based on work you’ve already completed, so you don’t have to slow down while waiting for the government’s payment to arrive.
Why Your Start-Up Business Should Move Fast While Competitors Pause
Remember how we started? Most companies are pulling back on spending right now, even though interest rates have dropped. The RBA data confirms it: business investment intentions are subdued, and many firms are taking a “wait and see” approach.
For ambitious founders, this is actually good news. Here’s why:
Your competitors are slowing down
While they’re cutting budgets, delaying hires, and stretching project timelines, you have an opportunity to accelerate. In many markets, the first company to ship a working product, sign customers, or solve a key problem gains advantages that are hard to overcome.
First-mover benefits compound
Getting to market three or six months earlier doesn’t just mean three or six months of extra revenue. It means earlier customer feedback, faster product iteration, stronger brand recognition, and better positioning for your next funding round. Time is a multiplier in start-ups.
Non-dilutive funding preserves your upside
Every dollar you raise through R&D finance is a dollar you don’t have to give away in equity. The government’s own funding guidance highlights this trade-off: debt financing means you keep ownership and control; equity financing means sharing both.
Here’s what R&D finance enables in practical terms:
Fund critical development milestones now
Whether you’re building prototypes, running clinical trials, conducting field tests, or developing compliance systems, these activities often qualify as R&D. Instead of phasing work across multiple quarters to conserve cash, you can fund it immediately and maintain momentum.
Keep your team intact and productive
The most expensive delay in any start-up business is people-related, losing a critical engineer, postponing a key hire, or having team members distracted by cash flow concerns. R&D finance can stabilise payroll for technical staff working on eligible activities.
Reach revenue or traction faster
The sooner you can get your product into customers’ hands, the sooner you can generate actual revenue, validate your business model, and prove traction. This makes everything else easier, from hiring to fundraising to strategic partnerships.
Strengthen your position for equity rounds
When you eventually do raise equity capital, you want to do it from a position of strength. Having more runway means you can wait for better valuations. Having traction means you can command higher valuations. R&D finance helps you reach those inflection points without diluting prematurely, especially valuable when you need a large amount of capital later.
Understanding the R&DTI Timeline
Let’s map out the full R&DTI cycle so you can see exactly where R&D finance plugs in:
Step 1: You spend money on eligible R&D (during your financial year)
This might include salaries for engineers and scientists, materials consumed in experiments, fees to contractors doing R&D work, and related costs. The key is keeping good records of what you spent and why it qualifies as R&D.
Step 2: You register your activities (within 10 months of year-end)
After your financial year ends, you have 10 months to register your R&D activities with AusIndustry. This registration is mandatory before you can claim the tax incentive, and the deadline is strict. Miss it and you forfeit your claim for that year.
Step 3: You lodge your tax return with the R&DTI claim
When you prepare your company tax return, you include a schedule showing your eligible R&D expenditure and calculate your tax offset. For eligible smaller entities, this results in a refundable offset, meaning you get cash back, not just a reduction in tax owed.
Step 4: You receive your refund (weeks to months after lodging)
The ATO processes your return and issues the refund. Timing varies depending on complexity and whether your claim gets selected for review.
Total time from spending to refund: 12–18+ months
Now, here’s where R&D finance changes the picture:
Instead of waiting until Step 4, you can secure an R&D loan during or after Step 1, based on the eligible spending you’ve already done in the current financial year. The lender evaluates your R&D expenditure, calculates the likely refund, and advances you funds now. When your actual refund arrives from the ATO (many months later), it repays the loan.
This means you get the benefit of your R&D spending immediately, rather than operating cash-constrained for 12–18 months while waiting for the government payment.
How Start-Ups Deploy R&D Finance
R&D finance isn’t right for every start-up, but it’s surprisingly versatile for companies doing genuine research and development. Here are the most common scenarios:
Bridging Payroll for Technical Teams
For many tech, biotech, and deep-tech start-ups, the biggest R&D cost is people. Your engineers, researchers, and technical staff are doing the work that creates intellectual property and drives your business forward. An R&D loan can cover these payroll costs, giving you breathing room to operate without constantly worrying about your runway.
Accelerating Prototype Development
Building prototypes, running experiments, and iterating on designs all cost money, and they all typically qualify as eligible R&D. By financing this work, you can compress your development timeline. Instead of building one prototype per quarter due to budget constraints, you might build three, learning faster and getting to market sooner.
Funding Clinical and Regulatory Milestones
For life sciences start-ups, clinical trials and regulatory approvals are both cash-intensive and time-sensitive. R&D finance can fund these critical stages without forcing you to raise dilutive capital before you have proof of efficacy or regulatory approval, milestones that dramatically improve your valuation.
Investing in Infrastructure and Security
As you scale, investments in technical infrastructure, security systems, and compliance tooling become essential. Many of these projects involve systematic problem-solving and experimentation that qualify as R&D. Having capital to invest in these areas de-risks your business and makes you more attractive to customers and investors.
Enabling Early Go-to-Market Activities
Launching to your first customers often reveals technical challenges that require R&D work to solve. Having access to capital lets you respond quickly to customer feedback, adapt your product, and prove traction, all before seeking larger amounts of equity funding.
Important note: While R&D finance gives you flexibility in deploying capital across your business, you still need to maintain proper documentation of your eligible R&D activities. The loan doesn’t replace the R&DTI program; it works alongside it by giving you earlier access to funds you’ll eventually receive anyway.
How R&D Finance Positions You Competitively
Beyond the immediate cash flow benefit, using R&D finance strategically can create competitive advantages that compound over time:
Better Investor Conversations
When you approach investors with a longer runway and demonstrated progress, you negotiate from strength. You’re not desperately seeking capital to survive the next few months; you’re raising growth capital to accelerate from a position of momentum. This typically leads to better terms and less dilution.
Out-Innovating Slower Competitors
In a cautious market, most players are cutting costs and slowing development. By maintaining or increasing your R&D pace, you can out-ship rivals, capture market share earlier, and establish customer relationships that become harder to displace over time. Speed creates its own advantages.
Attracting and Retaining Top Talent
Uncertainty about the runway makes it harder to recruit excellent people. When you can demonstrate you’ve secured funding to continue operations, even non-dilutive funding, you reduce perceived risk for potential hires and keep existing team members focused on building rather than worrying.
Maintaining Strategic Flexibility
Having access to multiple funding types gives you options. You might use R&D finance to extend your runway while you negotiate better equity terms. Or combine it with angel investment to reach a specific milestone. Or pair it with government grants to maximise non-dilutive capital. Optionality is valuable.
The key insight is that timing often matters as much as the total amount of capital. A well-timed injection of $100,000 that lets you hire a critical role, complete a key experiment, or launch to customers can be worth far more than a larger round that arrives six months too late.
What You’ll Need To Apply
If R&D finance sounds relevant to your situation, here’s how to prepare:
Get Your R&D Costs Documented
Don’t wait until tax time to track your R&D expenditure. Start now. Identify which staff members work on eligible activities, what portion of their time qualifies, what materials and contractors are involved, and related overheads. Good records make both the loan application and your eventual R&DTI claim much smoother.
Understand What Qualifies as R&D
Not all innovation qualifies under the tax incentive. The program has specific definitions around systematic experimentation, technical uncertainty, and generating new knowledge. Before applying for R&D finance, you should have reasonable confidence that your activities meet these criteria. Many start-ups work with R&D tax specialists or advisors to assess eligibility; it’s money well spent.
Plan Your Registration Timeline
Remember the 10-month deadline for registering with AusIndustry. Lenders will want to know you’re on track to complete this step and ultimately claim the incentive that secures their loan. Having a clear timeline demonstrates you understand the process.
Know Your Use of Funds
Be ready to explain how you’ll deploy the loan proceeds, when you expect to receive your R&DTI refund, and how the loan fits into your overall financial plan. The more transparent you are, the smoother the process.
Consider Debt vs. Equity Fit
Think about whether debt makes sense for your situation. The government’s funding guidance notes that debt funding works well when you need capital for specific purposes and have a path to repayment, while equity funding suits high-risk, high-growth ventures where investors bring more than just money. R&D finance occupies an interesting middle ground; it’s debt, but it’s secured against a government refund, making it more accessible for early-stage companies.
Common Questions About R&D Finance
Do I need to complete my R&DTI claim before I can get an R&D loan?
No. R&D finance is specifically designed to advance your funds against eligible spending you’ve done during the current financial year, well before you complete registration and lodge your tax return. However, you will need to follow through with the full R&DTI process later, since the loan is repaid from that eventual refund.
How much can I borrow relative to my expected refund?
This depends on your documented eligible expenditure, your industry, your stage, and the lender’s assessment process. Because every start-up’s situation is different, it’s best to discuss specific numbers directly with R&D lenders rather than making assumptions based on general figures.
Can I use the loan proceeds for any business purpose?
Loan terms vary by lender, but generally, you have flexibility in deploying the capital across your business. The key requirement is that your underlying R&D activities must meet the R&DTI eligibility criteria, and you must maintain proper documentation for your eventual tax claim.
How do I know if my work qualifies as R&D?
The R&D Tax Incentive defines core R&D activities as systematic experimental work generating new knowledge, plus supporting activities directly related to that core work. Many start-ups engage R&D tax specialists to assess eligibility and structure their claims properly. This is particularly important before pursuing R&D finance, since the loan depends on your ultimately claiming the incentive.
What happens if my R&D claim is rejected or reduced?
This is why proper documentation and eligibility assessment matter upfront. Reputable R&D lenders will evaluate your activities carefully before advancing funds. If you’re working with experienced R&D tax advisors and keeping good records, the risk of significant claim adjustments is relatively low.
Why R&D Finance Matters in 2025
Let’s bring it back to where we started: financing a start-up business in 2025 means navigating a selective funding environment where capital is available but harder to secure, and where many established players are slowing down their investment despite lower interest rates.
For Australian start-ups conducting eligible research and development, R&D finance offers a way to maintain momentum without giving away equity or waiting months for traditional funding. It’s not the right fit for every company, but for those doing genuine R&D work, it can be a strategic tool that creates meaningful advantages.
The window to gain competitive ground is open now. While others pause, you can build. While others stretch timelines, you can compress them. While others wait for certainty, you can capture opportunity.
R&D finance doesn’t replace other funding sources; you’ll likely still need some combination of equity, loans, grants, or revenue as you grow. But as a non-dilutive option that leverages a government program you’re already entitled to, it deserves a place in your funding strategy conversation.
At Rocking Horse, we specialise in R&D finance for innovative Australian businesses. We work exclusively with eligible R&D expenditure you’ve incurred in the current financial year, and we keep the process transparent and straightforward. We’re not tax advisors; we’re a financial partner who understands the R&DTI program and can help you access your refund value sooner.
If you want to understand how R&D finance might fit your situation, explore how we support start-ups, learn more about how R&D financing works, or read our comprehensive guide to proven strategies for securing start-up business funding.
The question isn’t whether to invest in building your business; it’s how to fund that investment smartly. For many Australian start-ups in 2025, R&D finance is part of the answer.