Guide to R&D advance funding

R&D advance funding can give you access to up to 80% of your future R&D tax credits up to 9 months before receiving the payment from HMRC. 

The R&D tax credit scheme is a lucrative government tax incentive, which can credit your business up to 27% of your R&D costs. However, there is a long waiting time between the initial moment you build your claim and the day you receive your tax relief from HMRC. Debt financing like R&D Advance Funding reduces this waiting time and gives you quick access to the funds you need.

R&D advance funding can prove helpful for many businesses. By getting your future R&D tax relief months in advance, you can unlock working capital and reduce the strain on cash flow. Thus, allowing you to plan and reinvest back into your business at crucial times in the year, helping you meet your objectives and avoid any bottlenecks or barriers.

To speed up the receipt of funds, you can take out a short-term loan on your future R&D tax credits. This is widely known as “R&D Advance Funding”. The advance can be against a future tax credit claim before you start the claiming process, or it can be a loan at the point the claim is submitted (effectively skipping the wait time at HMRC).

This type of debt financing is an excellent option for most businesses as it enables you to receive funds up to 6 months before your year-end, which is when you are required to file your R&D claim. Since it can take HMRC up to 3 months to release your tax credit payments after a claim is submitted, you could, in theory, have your future R&D tax relief up to 9 months in advance.

Once you have received your HMRC credits, you will be required to pay back the loan from the proceeds of your relief.

Not every R&D tax credit advisor offers advance funding in addition to their R&D tax credit claim service. Therefore, it’s a good idea to check with your provider to see if they offer this additional service before you go ahead and claim.

While you can apply for R&D advanced funding through external providers who just provide loans, securing your future loan through the advisor who’s managed your claim is the quickest and most advantageous option.

Why is it quickest through an advisor?

The due diligence process is quicker and more efficient as the advisor has all the relevant information from your claim document. Your R&D advisor would typically have developed a good relationship with their loan provider and a speedy process for passing on information about the claim.

Accelerate Growth

With advance funding, you can get your future R&D tax relief months in advance. This cash injection allows you to reinvest funds back into your business at speed and at crucial times.

With an advance, you can think strategically about how you invest. By unlocking working capital and reducing the strain on cash flow, you can hire the right people, reinvest back into R&D efforts or even get your new product to market before the competition. It gives you an extended cash runway, allowing you to move quickly, avoid bottlenecks, and reach your business objectives.

There are also providers out there that can organise a quarterly cycle or give higher funding access to help with cash flow.

Keep hold of equity

Many small to medium-sized businesses are cautious of debt funding, preferring to sell equity to acquire capital. However, R&D Advance Funding has been designed to help the likes of startups and scale-ups.

If your business is an SME investing heavily in research and development, Advance Funding is a great option. You can use your intellectual property, innovation to get growth funding and continue your R&D efforts.

It allows you to keep hold of your stakes without having to sell shares. You don’t have to wait for equity rounds to close, and you don’t have to experience the high costs linked with early equity sales. With advance funding, there is no waiting time, and you can access the funds throughout the financial year.

Pre-Agreed Fixed Cost

Most lenders are transparent about the cost of advance funding. They provide competitive interest rates and only require a one-off bullet payment when the business has received its HMRC credits at the end of the loan.

For most businesses, this is highly advantageous as you know precisely what you’ll be paying. You don’t have to pay monthly, which means you can plan, no resources leave the business, and it gives you the ability to reinvest your funds into the growth of your business.

Advance funding is designed to help businesses with their R&D efforts, which is why most providers know the obstacles and challenges that businesses face.