An innovator’s guide to the R&DTI and R&D financing – what every start-up and scale-up should know!

Did you know there were 344,472 new startups in Australia in 2020, but only 12,330 businesses are registered to claim the Federal Government’s R&D Tax Incentive (R&DTI)?

Could you and your business be eligible and missing out on funding for your innovation?

Let’s take a look at the R&DTI, R&D financing and how Radium Capital can help you grow your business.

Firstly, what is the R&D Tax Incentive?

The R&DTI is a Federal Government incentive designed to encourage Australian businesses to undertake R&D that they might not otherwise have conducted. It was first introduced in 2011, and since its launch has undergone several reforms.

The R&DTI has two different incentive streams. Since 1 July 2021, eligible companies with eligible R&D and an aggregated annual turnover of less than $20 million can claim a tax refund equal to the rate of company tax they’re paying, plus an 18.5 percentage point premium. This works out as a cash refund of 43.5 cents for every R&D dollar they spend.

If your company is eligible for the R&DTI and has an aggregated annual turnover of more than $20 million, your business won’t receive a tax refund but will get a non-refundable tax offset instead. The offset amount depends on which rate of company tax your business pays and how much you spend on R&D as a percentage of total expenses.

Many organisations don’t have the R&DTI on their radar because they mistakenly think their innovation must be blue-sky or relentlessly pushing back the boundaries of science.

Could your business and your R&D be eligible?

Working out what qualifies as R&D activities can trip up many businesses. Some organisations don’t have the R&DTI on their radar because they mistakenly think their R&D must be fundamental research without an immediate real-world application. By contrast, other companies think they can apply minor tweaks to their business-as-usual projects, and they’ll qualify as R&

D ones. In reality, both blue-sky research and R&D to improve existing products and services can qualify if they tick the right boxes.

To qualify for the R&DTI, your business must have at least one core R&D activity. Any supporting R&D activities you register as part of your claim must be specified and directly support your core R&D.

The R&DTI is a self-assessment incentive, but we recommend seeking expert advice from an R&D Tax Consultant.

What is R&D financing?

In a nutshell, R&D financing is a simple loan that gives your business early access to your R&DTI refund from the Australian Tax Office (ATO). Start-ups, scale-ups or any businesses with innovation activities that are eligible for the Federal Government’s R&D Tax Incentive (R&DTI) refund can use R&D finance. R&D financing enables companies to access their R&D tax refund early, so they have capital when their innovation programs need it most.

R&D financing is becoming increasingly popular – here’s why:

• Quick

Speed to market is everything if you’re in the innovation game, and R&D financing is fast finance. Rather than waiting months for your annual R&D refund, some lenders can approve and advance your R&D funding in weeks.

• Easy

Loan applications can be processed online using platform-based systems, which creates a seamless funding experience from start to finish and is a major factor in the growing popularity of R&D financing.

• Non-dilutive

You don’t need to exchange a share of your business for R&D financing. That means you stay in control of your company and on track to benefit from the future success of your innovation. And you can leave open the possibility of raising equity from investors in future.

• Accessible

Many start-ups and businesses doing research find it hard to fund their innovation.

Their companies or research programs often don’t generate revenue, and they can lack assets for loan collateral. So, it’s almost impossible for them to access loans from traditional financiers such as banks. That’s where R&D financing comes in. It’s a form of alternative finance. It doesn’t have the strict eligibility and security rules banks do, which makes it a great option for start-ups, scaleups and businesses doing R&D.

Smart capital for smart businesses

“We were claiming the R&D tax incentive, so R&D financing seemed like a great option to avoid pausing out R&D to search for funding.” Kent Opie, CEO iCommand.

At Radium Capital, we believe business with R&D should have access to capital when they need it. That’s why we created the Radium Advance to enable businesses to unlock their tax refunds sooner and when they need it. Access your own money from your R&D refund early, as a one-off burst or multiple times a year, and smooth your cash flow all year round.

Radium Advances are available as a one-off cash injection, or can be used strategically multiple times throughout the year to smooth cash flow. The more you use Radium Advances the more your R&D benefits. Under a quarterly model, for the same expenditure, you can:

• boost your R&D spend by 50% or reduce your outlay by 33%
• reinvest up to 150% of R&D expenditure back into R&D

“Radium Advances almost doubled our cash flow and enabled us to keep investing in R&D when capital raising and bank loans were not an option.” Artur Daylidonis, Co-Founder ApyApp.