What is R&D Funding?
R&D funding, also know as R&D finance, 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.
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.
- 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.
- 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.
- Answering additional questions –The R&D lending representatives will have a series of questions for you in order to verify your expenditures and claim.
- 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.
- 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
- 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.
- 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.
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 ownership details
- ASIC Company report – detailing ACN, directors, registered address and share structure
- Director solvency/bankruptcy history
- Executive Summary of business and products
- Access to Accounting Software Xero
- ATO Integrated Client Account – previous year
- Income tax returns – last 3 years
- Superannuation payments
- Cash flow forecast
- Existing debt arrangements
- Previous R&D Activity Registrations
- R&D Eligibility Letter from an R&D Tax Consultant
- Previous ATO and AusIndustry correspondence with regarding R&D eligibility.
- R&D Loan Request
- R&D finance timing (Quarterly or upfront)
- Security offered (normally just the R&D refund)
Costs and Terms
These are some guidance on R&D finance costs and terms:
- Application Fee – $0 – $1,00
- Establishment Fee – $500 – $1,000
- Advancement Rate – 80% of the calculated R&D refund
- Interest Rate – 10-15% (1.00-1.25% 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)
R&D funding lenders to consider for an R&D loan are:
- Rocking Horse – Giles Karhan on [email protected]
- Paddington St Finance – Ted Dow on [email protected]
- Fundsquire – Brendan Bennett on [email protected]
The providers of R&D Finance are firms which operate after achieving an Australian Financial Services License (AFSL).
Rewardle receives $290,000 to drive growth
Rewardle (RXH) has secured a $290,000 research and development financing facility to drive growth.
Rewardle has established a financing facility for its research and development activities. The software business has developed a ‘business to business to consumer’ software platform. Rewardle participates in the Australian Government’s R&D Tax Incentive scheme, however refunds are usually received between three and nine months post financial year.
The financing allows the company to “continue aggressively maximising” its fee to equity conversion opportunities, while still having enough working capital to support new growth.
Queensland Pacific Metals – $1,000,000
Queensland Pacific Metals received $1 million R&D Finance from Metamor Capital Partners to accelerate its ongoing technical work programs.
Queensland Pacific Metals Ltd (ASX:QPM), (formally Pure Minerals Ltd), is the 100% owner of the Townsville Energy Chemicals Hub (TECH Project). The TECH Project will be a modern and sustainable producer of a critical chemicals.
Pure Minerals – $600,000
Pure Minerals (PM1) received R&D fiance from Metamor Capital Partners.
Pure Minerals Limited is an Australian exploration company focused on the exploration and development of “next generation” battery metals, including manganese, lithium and tantalum. Its projects are located primarily in Western Australia.
Maximise your R&D
Having worked as an R&D consultant for a number of years, I have seen how companies can legitimately increase their R&D credit and how to get R&D advance funding.
Contact us for assistance with lodging your R&D claim.
What is R&D funding?
R&D funding is when a lender provides a loan against a company’s future R&D tax incentive credit.
Are R&D grants taxable?
R&D grants should be included in the accessible income of a company’s Income Tax Return.
How do R and D tax credits work?
An R and D tax credit is a rebate a company gets from the ATO for conducting eligible research and development activities.
How is R&D tax offset calculated?
The R&D tax offset is calculated by multiplying your R&D expenses by 43.5%.
See the R&D tax calculator for information.