It’s crunch time, and you need to choose an R&D financier for your company. Maybe you decided your business needs R&D finance. Maybe your R&D tax consultant recommended R&D financing as part of your financial strategy. Either way, the clock is ticking. Whether you’re facing a cash flow crisis or aiming to stretch your R&D budget to outpace your competitors, you may not have the luxury of time to make a decision. But you do need to ensure you make the best choice for your business. And to help you do just that, we’ve assembled the seven crucial areas you need to ask any R&D financier before you engage their services.
1. How much does it cost?
Understanding the costs involved is a great starting point if you’re considering R&D financing. Expenses to look out for include any set-up fees and service charges you could incur throughout your R&D loan. Check whether these are fixed or variable. At Radium Capital, for example, all our fees and rates are fixed, so you know where you stand from day one. We have a fixed establishment fee of $699 ex GST to set up the loan and only lend on a fixed-interest rate basis. For first-time loans, the rate is 15% per annum (pa). For repeat loans, it’s 14% pa.
Try to get a handle on the annual interest rates, plus any break fees any R&D finance provider will charge. Several R&D financiers, including Radium Capital, don’t charge break fees at all. That means if you exit your R&D financing early, you won’t be penalised. However, some lenders do apply break penalties. So it’s important to have this on your radar. Equally, while no one expects to find themselves in default, unforeseen events can overtake any business. It’s a good idea to know what the default fees are before you sign up in case something unanticipated happens. Different lenders charge different default rates. At Radium Capital, in the event of a default, our charges are on the lower end of the market.
Transparency
Ask yourself this. How easy is it to get interest rates and charges for every R&D lender on your shortlist? Is the cost information available on the R&D financier’s website, as it is with Radium Capital? Or do you have to book a call or meeting with a sales representative to find out? Is the information they provide about R&D finance easy to digest, or does it leave you scratching your head and asking questions? Transparency around costs is important for two reasons. Firstly, it makes your busy life easier because the basic information about R&D finance is just a few mouse clicks away. Secondly, transparency builds trust. Trust is a must for any relationship. And the new one you’re looking to establish with an R&D financier is no exception. So take note if it’s lacking.
Timing
When do you have to repay the capital and make interest or fee payments on your loan? This is another important consideration. The reason is that it can significantly impact your cash flow. Each R&D lender has its schedule and approach to payments. But at Radium, our approach is to make your R&D finance as cost-effective and cash-flow friendly as possible. So our policy is to have no upfront payments or fees for clients.
There are different loan-to-value options for R&D finance. With Radium, our maximum loan-to-value ratio is 80%. The full cost of the loan from Radium (principal, interest and establishment fee) is repaid once a client’s R&D refund arrives, and this more than covers the total cost of the R&D finance. But if you select a lender that doesn’t defer repayment until after your tax refund arrives, you’ll need to cover the amounts that fall due before your Australian Tax Office (ATO) payment appears.
2. How quickly can my business access R&D financing?
You have all your ducks in a row. Your documentation is ready to go. So how long will it take to apply, get approval and then receive your R&D funding? This can vary depending on which R&D financier you choose. It could be a few business days or take several weeks.
Approvals and funding
At Radium Capital, we have our pioneering fintech platform and pool of capital that’s guaranteed and ready to go. So we have a 2+3 policy for approvals and funding. We’ll approve your loan application within two business days, and you’ll receive funding three business days after you sign your loan documents. We were the first Australian R&D financier to create a fintech platform. And we also have capital on tap for our clients, so we never have to go to the financial markets to raise money. For both of these reasons, we remain the fastest R&D financier in the market to this day.
After your ATO refund arrives
With any R&D lender, it’s important to consider what happens after your R&D tax refund arrives. At Radium, we have a streamlined approach to repayments. When we receive your R&D refund, we pay out your loan. And even after your R&D loan has been repaid, we continue our commitment to a prompt and seamless service by ensuring the remainder of your R&D refund reaches you three days after settlement.
3. How easy is it to apply for and access R&D finance?
Tax matters and grant applications can conjure up images of sky-high piles of paperwork and oodles of red tape. While that can be the case with traditional R&D lenders, it’s certainly not true of fintech lenders. At Radium, we have a streamlined online process. Your business only has to meet one eligibility criterion (to be eligible for the R&DTI refund) in order to apply for a Radium Advance. After you’ve ticked that box, we will need six documents* to complete your loan application:
- A comfort letter to confirm your R&D.
- A comfort letter to confirm your tax position.
- The AusIndustry registration letter for your business.
- Your company’s previous financial year’s tax return.
- Your Business Activity Statement (BAS) — Income Tax 001 (previously known as the BAS Tax Income Account).
- Your Business Activity Statement — Activity Statement 002 (previously called the BAS Integrated Client Account).
Once our R&D finance experts receive your documentation, we will provide you with access to our customer portal where you can finalise your application in just 15 minutes. And if you apply for additional advances during the same financial year, the process is even more streamlined. We only need the R&D comfort letter and your two BAS statements for approval.
Certainty
In an uncertain world, in the uncertain field of R&D, having finance you can count on is vital. Some R&D financiers don’t have the money on hand to lend to businesses doing R&D. Instead, they go to the financial markets to raise the funds their clients require. While this approach is usually reliable, it’s not foolproof. Recent world events have demonstrated how sensitive financial markets are to economic shocks, the impacts of natural disasters and war. For that reason, R&D financing that’s sourced from financial markets can experience unexpected delays and other hiccups during the application and funding journey.
At Radium Capital, we’re committed to ensuring entrepreneurs have access to capital they can count on. That’s why we have ensured all of our loan capital is ready to go. We never raise money from the financial markets. Instead, we have a pool of capital from our parent company, a $2 billion New York City hedge fund. This capital backing enables us to fund our clients promptly and with certainty.
4. How flexible is R&D finance?
R&D financing, by nature, is a short-term loan. It lets your business access your tax incentive early and is repaid when your R&D refund arrives from the ATO. The changing nature of innovation and the short-term nature of R&D finance make it doubly important for you to check the terms and conditions of any R&D loan. Will your R&D financier apply additional fees or charges if you make changes to your loan? How many R&D advances can you have with them? Look into break fees, plus any charges hiding in the small print. At Radium Capital, if your circumstances change, there are no break fees, and our cost structure is completely transparent. There is nothing to pay until your R&D refund arrives from the ATO.
Unlike some R&D financiers, there is no minimum term for a Radium Advance. While most of our clients have their Radium Advances for three to nine months, we can offer shorter-term bridging finance too. Often, R&D finance is offered as a one-off burst of capital that brings forward your R&D refund for the financial year. But our platform, fast approvals and funding capabilities mean we can offer clients multiple advances throughout the year. With Radium Advances, you can have as many as you need to smooth business cash flow and optimise your R&D programs.
5. How scalable is R&D finance?
It’s important to scope out whether your shortlisted R&D financiers have any borrowing limits or barriers that could prevent your business from accessing R&D finance. Some lenders have a minimum loan amount, for example, $50,000. At the other end of the spectrum, most R&D financiers have a lending ceiling.
At Radium Capital, we don’t have minimum or maximum amounts for our Radium Advances. We’re client-driven so whether your business is big or small or the loan amount is for a few thousand dollars or several million, we can help. For that reason, we get referrals from R&D tax consultants, accountants and even other R&D financiers to help their clients. We have many clients that prefer to have regular smaller loans over one large loan because it’s better for their R&D and cash flow. The flexibility and scalability of our service allow us to easily accommodate them. The upside of having multiple loans is that it triggers additional R&D tax refunds, so it’s an easy way to add to your R&D budget without having to find more capital.
6. What security do I need to provide?
R&D financing is a secured loan that usually uses your company’s upcoming R&D tax refund as collateral. But that’s not always the case. So it’s absolutely crucial to understand what security is required for your R&D loan. Consider if the security required is restrictive, in particular how it might affect your company’s ability to borrow from other lenders or raise investor capital. Many R&D financiers — Radium included — register R&D loans on a Personal Property Securities Register (PPSR) in case a client defaults. But watch out for lenders that leave the PPSR in place even once the R&D loan has been repaid. This can be problematic. It means if you wish to switch to a different R&D financier you will need to contact your previous lender to have the PPSR removed, which is not ideal. So enquire how an R&D financier handles PPSRs before you sign up for a loan.
Redefining security
At Radium, we don’t think like a bank, and we see security differently. Our mission is to help businesses grow and thrive, so we’ve minimised the security for Radium Advances as much as possible. For smaller loans of under $100,000, we require a Signed Director Guarantee. For Radium Advances between $100,000 and $1 million, we look for a first ranking charge over your R&D refund only. Then for exposures over $1 million, we require either a Featherweight Security Agreement or a General Security Agreement. But as soon as your Radium Advance is repaid, we remove any PPSRs. That’s integral to our process.
We also ensure that having Radium Advances compliments rather than hinders your ability to borrow from other lenders or raise money from Angel Investors or Venture Capitalists. We’re passionate about this point because we understand that a solid capital stack is usually diverse. Your financial mix will work best when it’s tailored to optimise your company’s capital, cash flow and circumstances. Time and time again, we’ve seen how having the right capital stack can make the difference between your R&D leaping forward or fizzling out.
7. Is the R&D financier an expert?
Any debt is a big commitment, and if you’re in an R&D-intensive sector, your R&D financing could run to hundreds of thousands or even several million dollars. So it’s important to know the credentials, quantifiable track record and reputation of any R&D finance provider you’re considering. At Radium Capital, R&D financing is all we do. We’re experts in the field and Australia’s market leader. We started out as innovators with an R&D-driven enterprise so our service and expertise are grounded in a deep understanding of R&D, innovation, and the processes and challenges that surround it.
Since launching in 2017, we’ve successfully processed more than 1000 loans for hundreds of Australian businesses, with a 100% recovery rate to date. The fact that 50% of our loans are referrals underscores our reputation for expertise and the trust that R&D tax consultants, accountants, Radium clients and other industry stakeholders place in us. So if you’re considering R&D finance as a funding option, feel free to browse our website for more information and download any factsheets or case studies you need. And if you have questions or want to discuss your options, contact one of our R&D finance specialists. We’re here to help you and your business grow and thrive.
*For Radium Advances of over $3 million, we may require additional documentation.
**Information correct at time of publishing – April 2022.