8 common misconceptions about Research & Development support

Research & Development (R&D) financing is a strategic and safe way for start ups and companies to boost their cash flow and capital. Research & Development financing is a loan that is borrowed against the receipt of a yearly R&D tax return. The loan allows companies to access the funds they are expecting to receive as part of their R&D tax incentive early.

Using Research & Development financing as a funding option is not as well known as other forms of financing like traditional loans or business investors. Sadly, this means myths about R&D financing are circulating, leading many to form untrue beliefs about how R&D financing works. Almost daily, clients come to us with worries about R&D financing based on myths

Research & Development (R&D) financing is a strategic and safe way for start ups and companies to boost their cash flow and capital. Research & Development financing is a loan that is borrowed against the receipt of a yearly R&D tax return. The loan allows companies to access the funds they are expecting to receive as part of their R&D tax incentive early.

Using R&D financing as a funding option is not as well known as other forms of financing like traditional loans or business investors. Unfortunately, this means myths about R&D financing are circulating, leading many to form untrue beliefs about how R&D financing works.

What are the most common myths on R&D?

Clients come to us with worries about R&D financing based on myths. R&D financing is a helpful funding option for firms and this false information holds many organisations back.

In this guide I debunk the most common myths about R&D financing;

Myth 1: R&D finance should be your last option

Many people believe that R&D finance is the last option of funding, after exploring bank loans or investors. The opposite of this is true. R&D financing should be your first option since it is non-dilutive, meaning you maintain full control of your business operations. Also, most R&D finance lenders will lend at a fixed cost and with flexibility in months to repay back.

Myth 2: R&D finance is guaranteed against your business assets

Research & Development finance is secured against your expected Research & Development tax return, not your business assets. This means your company’s assets won’t be at risk if your project takes longer to get to the market or to make a profit then you planned.

Myth 3: R&D must be your main activity

This myth stems from firms being unaware of the eligibility criteria for claiming the R&D tax incentive. People think that to qualify for the return they need to be doing scientific testing everyday in white lab coats. In actual fact, as long as you are improving a product or service, or creating a new one from scratch, you will likely be eligible for the R&D tax incentive.

Your firm only needs to be doing one R&D activity to be eligible for the incentive. Activities that support your Research & Development activities also qualify. This means, R&D specialists will provide you with an R&D finance loan, as long as you qualify for the R&D tax incentive.

Myth 4: R&D financing is always a one off injection

Most Research & Development (R&D) finance lenders will help you tailor a funding plan that suits your business needs. This might mean a one off cash injection. But usually it will mean feeding funds into your organisation slowly in a way that suits your goals and activities.

It’s usually best to bring forward your R&D cash advance as much as possible. The more you can invest in Research & Development (R&D) and supporting activities, the more you can claim back each year. This means you could access more funds to kickstart your project, either making a better performing product or getting it to the market in a shorter time frame.

Myth 5: Your R&D needs to be successful

This is another myth that comes from a lack of education about the eligibility criteria for R&D tax incentives. To qualify for an R&D return your research does not need to be successful.

The purpose of research is to gain new information in order to make improvements to a product or service. The Gov’t genuinely wants you to make a better product and the R&D rax incentive criteria reflects this. Your research doesn’t need to give you the results you expected to be eligible. This means that you can access Research & Development financing without having any certainty about your research outcome or the success of your project.

Myth 6: R&D finance is expensive and complicated

When compared to traditional funding options R&D finance is a similar price or cheaper. Plus, the application process with most lenders is simple. Your R&D tax return will cover your R&D loan, including fees and interest. This means it’s a safe way of getting funds at low a cost.

The application process for R&D finance is often straightforward. Your advisor will let you know what your R&D tax incentive return will be, and you can tailor your loan accordingly.

Myth 7: You need to be a big business

One of the eligibility criteria for the Research & Development tax incentive is for the business to have an aggregated turnover of less than $20m per year. The minimum investment amount is $20,000 per year. Start ups and smaller firms are surprised when we tell them that they easily qualify for the R&D tax incentive, and for R&D financing. One of my personal passions is helping startups get off the ground, so this a myth I am very pleased to debunk.

Myth 8: Your R&D finance will equal the entirety of your R&D return

Using Research & Development (R&D) finance doesn’t mean that you need to be left with a R&D tax refund of zero. Your R&D finance should be specifically tailored for your needs and will usually leave you with at least 20% of your refund to use as you please.

What can R&D finance do for your project?

Research & Development (R&D) finance can provide a strategic and safe funding option for your project. Access Research & Development (R&D) finance as a way to make the most out of your expected R&D return, without waiting for the end of the financial year.

Jason Hood founded BourkeHood R&D firm after working in the R&D sector in the UK. BourkeHood partners with Caves Capital who is an R&D Advanced lender. Jason was naturally drawn towards working in R&D and is passionate about helping startups see the best chance of success.