Australia’s largest lender in this space is Radium Capital.
We caught up with Radium Capital co-founder David Brennan to find out what it’s all about and how companies can benefit from Research and Development Tax Incentive (R&DTI) Financing.
David Brennan has a long history of start-ups. In fact, Radium (https://radiumcapital.com.au/) is his fourth Fin-Tech business, having successfully exited the other three along the way. Having been recipients of the R&DTI in previous businesses, David, his father Tony and his lifelong friend, Radium CEO, David Weir, decided to build a platform to offer R&DTI financing to the masses.
In essence, R&D financing is an opportunity for innovators to get their hands on precious cash sooner by accessing advance funding of a company’s expected R&D Tax Incentive refund.
Over the last three years Radium Capital has been able to institutionalise the process of providing a loan against the R&DTI. Radium Capital’s platform is not a traditional finance product. It’s been specifically designed to respond to a need in the market. This has allowed an efficient and lower cost alternative to companies seeking to get finance against R&DTIs, which had previously been a bespoke (and more costly) exercise.
How does advance funding work? Money is advanced to the company before the refund is processed by the ATO
R&DTI is an asset that clients are building up within their balance sheet every time they spend money on qualifying R&D. However, the value of this asset is generally only unlocked once per year, when the ATO pays out the tax refund associated with R&D expenditure. For businesses that invest heavily in R&D, it’s a way to finance their business more effectively.
What are the benefits of advance funding?
A business can increase the speed at which they reinvest money and dive deeper into their R&D projects sooner. This can result in getting a better product to market in a shorter space of time. Those of you in this space will recognise the importance of demonstrable progress between funding rounds as you compete for those investment dollars.
As David commented, “The Government has been driving this incentive to foster innovation in Australia. It’s incredibly important for Australia to build sovereign capability and lead the way in technology and innovation, resulting in more work and more opportunities for more Australians.” At BridgePoint Group, we agree wholeheartedly with those sentiments.
What is the cost of advance funding?
There is a mix of opportunities in the market. Some lenders charge an upfront fee and an ongoing percentage of the loan. These upfront fees vary greatly, as does the interest rate charged. Like any lending process, you need to investigate terms, rates and costs from a variety of lenders to get the loan that is right for your business.
“Clients can borrow very short term but it’s more efficient to use it as a source of capital on an ongoing basis. We encourage companies to use it as a long-term part of their capital mix”. David shares.
Government Support for this type of financing?
Within AusIndustry and the ATO there is an awareness of R&DTI financing and the gap in the market it fulfils. In 2016 a report was compiled by the ATO and one of the key takeaways was that the R&DTI refunds should be paid out quarterly, rather than annually. Radium Capital was able to offer the quarterly advances of R&DTI refunds to businesses, which has had a flow-on effect of more investment in R&D, helping businesses manage their cash flow more smoothly. There are approximately 13,000 businesses who are claiming the R&DTI at present.
Head of BridgePoint Group’s Innovation Advisory team, Alan Baghdasarayan commented: “Part of our frustration is that there are companies not even utilising the R&DTI, despite doing R&D. It is such a lost opportunity. Way too many business owners are self-assessing their eligibility. It’s like Googling a health issue. We all do it but we all know we shouldn’t! Always ask the expert. BridgePoint Group will continue raising awareness of how companies can utilise the Government’s R&DTI scheme and where appropriate, gain early access to those funds”.
For more information about accessing the Government’s R&D Tax Incentive or R&D Financing contact email@example.com