R&D Finance

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What is R&D Finance?

R&D finance, also know as R&D funding, is advance funding based on your future R&D Tax Incentive rebate.

 

How do I pay it back?

R&D finance is basically a loan that you can get get for conducting the R&D tax incentive. You repay it, with interest when you actually receive the R&D rebate.

 

Why would you need R&D Financing?

The R&D Tax Incentive can return up to 43.5% of money spent on R&D activities.

The core part of the claim, however, is that you have to spend the money first.

Companies who are in financially dire situations or who cannot wait up to 12 months to see the rebate on funds can engage a third party for an immediate credit.

In order to keep R&D activities going, some companies often resort to a number of different options for R&D forward funding.

R&D finance allows you to continue development without having to compromise the development.

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R&D Finance

 

Benefits

The benefits of R&D Finance are:

  • Early accessing to R&D funding – You won’t have to wait till the end of the financial year to receive the grants you were entitled to and can access funds immediately. This will allow you to continue development, unlock better growth prospects and develop the business further.
  • Funding management – R&D Finance is not always released in one go. Often, it will be staggered and planned for slow release over the course of the year’s development. This can allow businesses to better milestone their projects and manage funding trajectory, rather than dealing with yearly lump sums.
  • Retain control of the company – In attempting to raise funding or gather investment interest to secure development money, some companies will turn to capital raising and the selling of equity. This can dilute control and disperse the eventual profits while a company is still in crucial development stages. R&D Finance allows companies to retain control of the company and its profits.
  • Focus on company growth – Since raising capital is no longer a problem for your business, you can now dedicate your entire focus upon the growing and widening the scope of your business to gain more profits.
  • Technology decay – Small businesses often have to spend a large amount to deploy technologies in order to carry out better research; however, the longer a company waits to deploy these technologies, the more it costs their business, in an effect which is called “technology decay”. R&D Finance can eliminate this by allowing for uninhibited development.

 

What is the process for accessing R&D Finance?

The process for accessing R&D Finance is fairly simple, and most companies will have a defined checklist.

  1. Introduction – Try and speak to some of the R&D lending representatives in order to get yourself acquainted with the process you will be following, as well as the people you would be working with.
  2. Submission of Documents – The R&D lending firm would hand over a due diligence checklist to you, which contains a list of documents you are required to submit. As soon as you submit the required documents, work on your demand will commence.
  3. Answering additional questions –The R&D lending representatives will have a series of questions for you in order to verify your expenditures and claim.
  4. Dispatch of a Letter of Comfort – As soon as the representatives are satisfied, they would dislodge a letter of comfort, which will point out the R&D rebate expected as well as forecast the additional R&D to be spent for the year.
  5. Dispatch of R&D Loan Documents – The documents containing details about the R&D loan you are going to receive will be formed and then handed over to you
  6. Changing the bank details for tax return – Now that you have exchanged your tax credits with an R&D loan, bank details on the company’s tax return would be changed so that the R&D lending firm would now receive the R&D rebate. A relevant tax representative would confirm the changes.
  7. Funds released – And that’s it. You would now receive the funds that you were entitled to. The entire process takes around 48 hours, which is considerably faster when compared to the twelve-month waiting period accompanied by a tax credit.

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R&D Finance

R&D Funding Information Request

You will be asked to supply information to your financier for an R&D tax credit loan, such as:

Company Information

  1. Company ownership details
  2. ASIC Company report – detailing ACN, directors, registered address and share structure
  3. Director solvency/bankruptcy history
  4. Executive Summary of business and products

Tax Information

  1. Access to Accounting Software Xero
  2. ATO Integrated Client Account – previous year
  3. Income tax returns – last 3 years
  4. Superannuation payments

Finance Information

  1. Cash flow forecast
  2. Existing debt arrangements

R&D Information

  1. Previous R&D Activity Registrations
  2. R&D Eligibility Letter from an R&D Tax Consultant
  3. Previous ATO and AusIndustry correspondence with regarding R&D eligibility.

Loan/Finance Information

  1. R&D Loan Request
  2. R&D finance timing (Quarterly or upfront)
  3. Security offered (normally just the R&D refund)

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R&D Finance

 

Costs and Terms

These are some guidance on R&D finance costs and terms:

  • Application Fee – $500 – $1,00
  • Advancement Rate – 80% of the calculated R&D refund
  • Interest Rate – 1.33% per month
  • Funding Frequency – Quarterly or Upfront
  • Security required  – R&D rebate
  • Guarantee (<$100k) – Director’s guarantee
  • Guarantee (<$1M) – First Ranking over R&D refund
  • Guarantee (>$1M) – Featherweight or General Security Agreement (ie other business asset)

The providers of R&D Finance are firms which operate after achieving an Australian Financial Services License (AFSL).

Best providers for R&D Finance

We have two providers that we can recommend to help you with your financing but don’t recommend Radium Capital.

It is funny how this is the part that everyone reads.

Shoot Ben an email to ben@bulletpoint.com.au if you want good R&D financing.

 

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R&D Finance

News

About Dimerix

Dimerix, an ambitious Australian biotech, has set its sights on tackling kidney disease. Much like the trailblazing Neuren Pharmaceuticals, Dimerix is navigating the path from drug development to commercialisation, weathering the storms and surges that often characterise this challenging journey.

The Breakthrough Kidney Drug

Dimerix’s leading candidate is DMX200, currently in Phase III trials. This drug targets an orphan kidney disease, a rare condition that offers a significant unmet need in the global medical landscape.

Neuren: The Gold Standard

Neuren Pharmaceuticals provides a tangible, successful example of the potential path for Dimerix. With its drug Trofinetide (now Daybue), developed for the rare neurological disease Rett Syndrome, Neuren achieved resounding success. Its market capitalization catapulted from $220m pre-Phase III results to a staggering $1.6bn post-FDA approval. Dimerix is eyeing this trajectory with hopeful anticipation.

The Funding Journey

Dimerix hasn’t had the smoothest ride in the market recently. Its shares have halved over the last year amid a challenging investment climate. However, Dimerix has actively sought to bolster its financial position through a $12m equity raising, consisting of a rights offer, options, and convertible notes.

In the lead-up to this move, Dimerix also secured significant R&D finance. It received an advance of 80% ($2.84m) of its expected R&D tax incentive for the period from June to December 2022, providing a timely boost to its R&D efforts.

Looking Ahead

Despite the current stock market performance, the company’s potential rests in its advancing drug candidate and the prospect of following in Neuren’s successful footsteps. Dimerix’s Chief, Dr Nina Webster, expresses confidence in the company’s potential. The question remains: are Dimerix shares an undervalued opportunity, or are investors expressing concern? Only time will tell.

As Dimerix continues to work tirelessly on its groundbreaking R&D, we will watch with interest as this biotech journey unfolds.

Source

Frequently Asked Questions

It’s an advance funding solution based on your anticipated R&D Tax Incentive rebate.

R&D Finance is specifically designed around the R&D Tax Incentive, and you repay it using the rebate you receive from this incentive.

When they need immediate funds to continue R&D activities and can’t wait for the annual rebate.

Absolutely! Startups can use this to maintain cash flow during the research phase before any revenue is generated.

Typically, once approved, funds can be accessed within 48 hours, much quicker than waiting for the annual tax rebate.

Terms vary, but generally, they include an 80% advancement rate on the calculated R&D refund and interest rates between 10-15%.

Yes, providers usually hold an Australian Financial Services License (AFSL), ensuring they meet certain financial service standards.

Each agreement might vary, but usually, the loan amount is adjusted according to the actual rebate received.

The process involves an introduction, document submission, Q&A with representatives, and, upon approval, a Letter of Comfort and loan documents are dispatched.

Typical requirements include company details, tax information, R&D specifics, and financial details, among others.

R&D funding is a loan based on expected rebates, while grants are non-repayable funds given to companies for specific projects.

One major advantage is that businesses can retain full equity since they’re not selling shares to raise funds.

There might be application or establishment fees, but they generally range from $0 to $1,000.

The anticipated R&D tax credit (or rebate) is the basis for the loan amount in R&D Finance.

Yes, typically the bank details on the company’s tax return are changed so the R&D rebate directly reaches the R&D lending firm.

While prior claims might simplify the process, first-timers can still apply, provided they have eligible R&D activities.

It shouldn’t, but it’s best to discuss with a financial advisor to understand any potential implications.

The amount varies based on expected rebates and the lending firm, but it’s tailored to the company’s needs.

Myths and Misconceptions

It’s a common belief that R&D financing is exclusively for large corporations with extensive R&D programs. However, R&D finance is accessible to businesses of all sizes, including startups and SMEs, that are conducting eligible R&D activities.

Some businesses assume R&D finance is prohibitively costly due to high-interest rates. While there are costs involved, the benefit of receiving funds upfront can outweigh the interest payments, especially when it enables continuous R&D efforts.

There’s a misconception that applying for R&D finance is a complicated and lengthy process. In reality, the application can be straightforward with the right guidance, and decisions can often be made quickly once all necessary information is provided.

Many worry about the risk of borrowing against a rebate that is yet to be received. However, R&D finance providers are experienced in assessing the eligibility of R&D claims and often work closely with R&D tax consultants to mitigate this risk.

  • Some businesses mistakenly believe that opting for R&D finance could negatively impact their R&D tax incentive claim. The truth is, R&D finance simply provides an advance on the expected rebate and does not influence the claim’s validity or amount as assessed by the government. Social media

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