R&D Funding & Bridging Loans

It’s a tough time for businesses of all kinds right now. With the UK’s economy on a pilot light until further notice, it’s more important than ever that you take every funding opportunity seriously.

The trouble is, when the going’s uncertain, many of the traditional lenders and investors you’d be looking at start getting cold feet. With the money drying up all around, businesses are looking beyond their normal financing comfort zones – and it turns out there’s still quite a lot to find out there.

Innovation requires research and development, along with a real breadth of vision. Unfortunately, when your eyes are set on the horizon it’s easy to miss what’s right under your nose. Innovative businesses in urgent need of funding are too often losing out on their tax relief claims – or, worse still, never making those claims at all.  Fortunately, there are a number of routes to consider for additional R&D funding.

What Is A Bridging Loan?

An R&D bridging loan is designed to ease the pressure of waiting for an R&D Tax Credits claim to be paid. Depending on the lender, you might find yourself able to access funds worth a set percentage of your claim’s value (typically 70-80%) or a specific cash amount (generally £100,000 or more).

The loan can cover the period between making your R&D claim and receiving your tax relief. If your other go-to funding options are slamming their doors – or even just not rolling out the welcome mats they way they used to – then bridging loans can be an excellent option for keeping the cash flowing through your business. An R&D claim can’t be used keep a business afloat if it’s already fatally holed below the waterline. However, getting early access to an R&D Tax Credits pay out could prove a significant boost in terms of:

• Pushing an existing R&D project over the finish line.
• Freeing up your cash flow while your claim’s being processed.
• Getting earlier access to vital funds for ongoing R&D projects or other areas of your business.

The Benefits of Bridging Loans?

Although bridging loans are a relatively new service in the world of R&D tax credits, thousands of businesses have successfully utilised them. Some of the key benefits of bridging loans are:

• Quick access to cash - A bridging loan is an ideal solution for businesses who are looking to gain quick access to capital, usually with up to 80% of your claims value being paid upfront.
• Flexible lending - Ordinarily when lending through a bank, there are strict rules to what you repay and when. Bridging lenders tend to be more flexible and have greater understanding to the needs and nature of your business, allowing you to give input to when and how you set out your repayments.
• Easier than alternative funding options - With many hoops and hurdles which businesses are required to jump through to see even a small investment, R&D bridging loans tend to be a much more straight forward alternative.

Investment Options

“Unprecedented” is a scary word to many in the investment game, and it’s one we’ve been hearing a lot lately. Investors have to make tough decisions at the best of times, and a global pandemic will tend to dampen anyone’s enthusiasm to start throwing cash around on unproven, risky innovation.

That’s why it’s more important than ever to ensure that your business is “investment ready”. That means having a strong pitch and a clear roadmap toward your goals. You need to know your business and figures inside and out, with clear plans that show both short-term objectives and long-term ambitions.

Younger firms might look at the Enterprise Investment Scheme (EIS) or Seed Enterprise Investment Scheme (SEIS). SEIS offers benefits including 50% Income Tax relief and 50% Capital Gains Tax write-off against the investment amount, for instance. Innovative start-ups often struggle with their “high-risk” image when looking for investors, so incentives like these can be a major boost. EIS alone raised almost £2 billion for close to 4,000 companies in 2017-18, raising the total investment generated since 1994 to over £20 billion.

If your investors are starting to wobble, don’t leave them waiting. Accepting a lower investment now could be a much smarter move, if the alternative is losing it altogether. There are times to go for the long shots and big dreams - but this isn’t one of them and investors know it.

Use the SEIS/EIS incentives to best advantage. The option for investors to backdate claims to previous tax years can be a serious draw. Meanwhile, drawing in as many investors as possible, even at lower levels, is a good way to reduce your own risk when people are starting to pull their money out all over the economy. Better to cast a wider net than to pin all your hopes on landing a single whale.

How Does Grant Funding Work?

For businesses founded on innovation (and the investment it requires), the COVID-19 crisis is a serious threat. Honestly, it’s hard to fault investors for cutting the risks they’re exposing themselves to, whether by reducing the amounts they’re putting up or cutting the number of investments they’re making. To compensate, government schemes like the Small Business Grant Fund (SBGF) and Future Fund are looking to help firms weather the pandemic and meet their essential costs.

The SBGF is a one-shot cash injection of up to £10,000, while the Future Fund is set to provide loans of between £125,000 and £5 million to innovative businesses facing an uncertain future because of the virus.

Grant funding can be great option if you fit the criteria for it, although it often comes with strings attached. Funders will generally be looking to support specific types of businesses, with contracts and specific terms to stick to. Meanwhile, firms in the early stages of their development often look into equity funding, sacrificing a stake in the company for faster, surer growth. Your overall vision will often inform your choices here as much as your raw financial circumstances. Just like any other business decision, it’s all about going in with your eyes open.

The government, banks and other organisations have launched a number of funding schemes over the years, but it’s important to find the ones that are a good fit for your business. UK Research and innovation (UKRI) is inviting businesses to present proposals for shorter-term projects addressing COVID-19’s health, economic and social impacts, and has a broad palette of funding opportunities for innovative individuals and groups.

Meanwhile, the Industrial Strategy Challenge Fund is looking to support innovative projects ranging from disease detection and digital security to industrial carbonisation and sustainable plastics. Again, it’s a matter of matching the investment on offer to the needs and capabilities of your business.

The Benefits of Grant Funding?

Grant funding is an increasingly popular option for business who are looking for a cash injection. Although there can be quite a few hurdles businesses have to navigate through before they see any money, there are some great benefits, which include:

• No repayment - Unlike loans, grants do not need to be repaid, which makes them an appealing funding route to businesses of all sizes.
• Provides a cash injection you wouldn't otherwise have - Ideal for businesses who are moving fast, particularly in the world of R&D.
• Help gain credibility - Grants look great to investors and potential clients. Winning a grant sends a strong signal that a business has proof of concept to receive financial backing.

Locking down funding is always a struggle in small business, and uncertain times only multiply the difficulties. With investors in virtually every sector getting nervous, now’s the time to explore every funding option available to you.

RIFT has forged invaluable connections with trusted partners for over two decades. Talk us through your plans and goals, and we’ll put you in touch with the right organisations to reach them. At the same time, we’ll make sure you always get the very best from your R&D tax credits claims. Even in the most challenging times, RIFT R&D will always fight the corner of innovative businesses with big ideas and the drive to see them through. Get in touch to see how we can help.