For decades bridging finance has been associated with the property market. That short-term loan to help buy your new home while you sell your old one. But for almost a decade R&D finance has been carving out a niche for itself as another type of bridging loan. Designed for innovation businesses with R&D programs, R&D financing in the form of Radium Advances allow eligible companies to access their R&D Tax Incentive (R&DTI) refunds early. And, since Radium Advances are unique with no restrictions on how frequently, or when you can borrow, they have become a funding go-to for businesses with R&D.
Economics and the innovation funding landscape
For more than a year, a perfect storm has been brewing for start-ups, scale-ups and other businesses with innovation. And it’s making it increasingly hard for these cutting-edge ventures to find the funding they need. Investor capital in Australia and around the world has become thin on the ground and more expensive in real terms. The net effect is that businesses are having to sign over more of their equity in return for a lower investment.
Inflation and interest rates on the rise
Twelve interest rate rises since May 2022 have lifted the nation’s cash rate to its highest level since April 2012. And while these basis point hikes have yet to rein in Australia’s inflation problem, they have successfully made debt finance more expensive for everyone, including innovators. Troublingly, inflation that’s stubbornly refusing to budge, the protracted war in Ukraine and elevated food and fuel prices have made the warnings of recession grow ever louder. Besides these macroeconomic factors, several microeconomic changes will cause businesses with R&D to feel the pinch in the months ahead. For example, the pandemic-era Instant Asset Write-Off scheme expiring on 30 June 2023 is likely to leave your company worse off, especially if you have capital-intensive R&D programs.
Innovation funding and bridging finance
EOFY is a popular time for businesses, either new to, or familiar with R&D financing, to get an R&D bridging loan to tide them over until their R&D refund arrives. Indeed it’s not uncommon for businesses to access R&D finance to address a short-term cash-flow gap around tax time. But more businesses are tapping into the wider potential of Radium Advances to serve as bridging finance at different times of year. So much so that today, there are five main ways your business could use our R&D financing as bridging capital if you’re eligible for the R&DTI refund. Whatever your business stage, sector or type of innovation, let’s look at what they are and how they can benefit your business and your R&D.
1. General capital and cash flow for your business
Although this might seem counterintuitive, applying for a Radium Advance after you’ve stopped or paused R&D can benefit your business greatly. While you won’t be able to reinvest your Radium Advances in more R&D and trigger more refunds as your innovation programs are complete, you will be able to use the funds elsewhere in your business.
Take Radium Capital alumnus, NeedleCalm, for example. With its R&D programs complete, the MedTech start-up used two Radium Advances to fine-tune its product and gear up for product launch.
NeedleCalm Founder and Managing Director Lauren Barber says, “Radium gave me a breathing-space. I could sleep at night and find a way forward for the business.”
Having Radium Advances on board had another unintended benefit of enhancing the outcome of NeedleCalm’s equity crowdfunding round with Birchal.
Read the NeedleCalm Radium Capital Case Study to see how this business leveraged the cash flow-boosting powers of Radium Advances.
2. Plugging a cash flow gap
Radium Advances are a fantastic way for your business to bridge a gap in your cash flow. Your R&D loan is your own money (your R&D tax refund early). So, it’s up to you whether you use the capital to reinvest in more R&D or for other areas of your business. Radium Capital’s client, and Green-energy start-up, Ground Source Systems needed to plug a cash-flow gap after pandemic pressures and larger than expected set-up costs for an R&D project left the business short on capital. Ground Source Systems Director Brad Donovan says, “Equity funding wasn’t an option, so we needed new capital sources to expedite our project.” Read the Radium Capital Case Study to learn how Ground Source Systems quickly and easily applied for a Radium Advance to bridge the gap in its cash flow, set up its new R&D and reinvest in more innovation.
3. Bolstering your company’s position before a funding round
Adding Radium Advances to the financial mix can help start-ups and scale-ups optimise their company’s position ahead of their next capital raise. After experiencing initial success, construction robotics pioneer FBR found itself in a quandary. Its next funding round was crucial for the company’s future. To attract the amount of funding it required and avoid giving away too much equity during its next funding round, FBR needed bridging capital for software and hardware upgrades to its Hadrian X® bricklaying robot.
A perfectly timed Radium Advance was the answer. FBR avoided the delays and distraction of trying to raise more capital on an interim basis to fund R&D to finesse its product. And it let FBR bolster its business and its R&D, so it could raise the capital it required as planned. FBR Chief Financial Officer, Aidan Flynn says, “A Radium Advance was a quick and easy way to get cash in the door and avoid the distraction of having to raise capital at a critical time.” Read the FBR Radium Capital Case Study to find out more.
4. Boosting your ASX-listed company’s capital position ahead of EOFY
If you have an ASX-listed business with R&D, you could use Radium Advances to boost your cash flow statement and balance sheet at the end of your company’s financial year. Whether that’s 30 June or another date in the calendar, having a stronger financial position can help support the share price of ASX-listed companies, helping them attract additional debt finance, equity funding or even shareholder support for key decisions.
5. Bridging capital for your R&D at tax time
By the final quarter of the financial year, many businesses with R&D are running low on capital and are hanging out for their R&DTI refunds to arrive. But pausing your R&D — even for a few weeks and months around tax time — means your innovation will lose a step. If you don’t have an R&D loan with a short bridging term, your competitors could pass you by. And if estimates by the Department of Industry, Science, and Resources are correct, more companies than ever before will submit R&DTI claims this financial year.[1] So don’t miss out and miss your chance to succeed. Apply for the R&DTI, then do what many of our clients do. Apply for a bridging loan in the form of a Radium Advance to access your expected R&DTI refund early and keep your R&D moving.
Bridging capital and your business
Regardless of the type of innovation you’re pursuing and your company’s stage and sector, there may be circumstances when you may choose to access a Radium Advance as bridging finance. While using your Radium Advances as bridging capital is a tactical short-term move, it can have long-term strategic impact on your innovation. And many businesses that use their first Radium Advance as tactical bridging capital, later incorporate successive Radium Advances into their company’s financial strategy.
“Now we’ve discovered Radium Advances, we intend to include them in our financial strategy to accelerate our future R&D.”
– Ground Source Systems Director Brad Donovan
Whether it’s your first Radium Advance or you’ve borrowed from us before, don’t let a lack of capital become a blocker to your R&D goals. Contact our expert R&D financing team about the different ways to use Radium Advances today.
[1] InnovationAus.com. 2023. Biggest RDTI spend this financial year: Industry dept. [ONLINE] Available at:https://www.innovationaus.com/biggest-rdti-spend-this-financial-year-industry-dept/.