Funding R&D: Loans vs Grants

23rd Oct 2020
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Innovative R&D work is essential to a company’s survival, requiring comprehensive planning and investment. Find out more about R&D loans and grants.

Let us help you guide your clients

It’s no secret that running a business doesn’t come cheap. Even once established, additional growth and innovation costs will soon add up.

Research and development (R&D) is essential for long term business survival, and most companies will need to source some kind of outside funding at various points. Popular ways of achieving this funding is via a loan or grant (although there are many other funding types to be aware of too, including investors).

In this article we look at loans and grants specifically, and how they can support your client’s most innovative research and development projects.

Loan or grant? It depends on your client

Whether your client should choose a loan or a grant to fund their R&D activities depends on a large number of factors. What is their current financial situation, in terms of debt levels and capital? Are they likely to remain solvent long enough to pay any loans back? Will they likely be successful in gaining a grant?

As grants don’t need to be repaid they’re obviously an extremely attractive option. This is particularly the case for businesses that are already in debt or highly leveraged. However, for those going down this route, there are some key things clients need to be aware of.

Firstly, criteria can vary massively between lenders. Additionally, credit is likely to become harder to get in a post-coronavirus economy. Stricter terms and limits may well apply, and guarantors may be required when previously this wouldn’t have been necessary.

More than ever, lenders are focused on a company’s ability to repay the loan. Your client’s credit score and finances will be scrutinised thoroughly, with smaller businesses particularly likely to struggle.

So what about R&D grants?

R&D grants are an option that’s been around for a number of years, but still many companies haven’t heard of them. This is a real missed opportunity, as the huge benefit of R&D grants is that, like all grants, they don’t need to be paid back.

An R&D grant can be a vital tool in achieving the cash your clients need to get their innovative projects off the ground. Perhaps they’re looking to develop a brand new product line, or design something marketable from scratch. Alternatively they may have designed a new service or process, or simply be upgrading an existing one.

Grants may be available from local, regional, government and EU bodies as well as other organisations looking to support research and development. But finding suitable R&D grant funding can be difficult, so identifying the right one early is crucial (this is where the Myriad Associates team will work with you). Your clients will also need to understand the application process, and assess their chances of success. Again, this is where our expertise lies and we’re ready to help you help your clients.

What kind of activities can R&D grants fund?

R&D grants are usually offered to fund an innovative new product, process or service. New iterations of something that already exists may also be eligible, but minor incremental product updates are unlikely to be enough.

Any industry or sector can qualify for a grant, although some - such as manufacturing, technology and engineering companies - are the biggest claimants.

Grants will typically support:

  • Feasibility studies
  • Developing and testing prototypes
  • Collaboration with other businesses and academic institutions.

R&D grants will be awarded to fund a specific, time-limited project rather than an ongoing innovation plan. Projects normally last 6 to 36 months, and grants also usually cover 20%-50% of the eligible costs - not all of them.

More about R&D grants

The expert R&D funding team at Myriad Associates has put together a wealth of information around R&D grant funding on our website. See:

How COVID-19 support affects R&D claims

Over the course of this year, the UK government has unveiled a series of COVID-19 business supports to help organisations survive the pandemic.

The Bounce Back Loan Scheme (BBLS) and the Coronavirus Business Interruption Loan Scheme (CBILS) are both fully Notified State Aid (although Bounce Back Loans may come under the De Minimis exemption). However, there should not be any impact on a claim that is intended for general business support, not for a specific R&D project.

Furlough payments are also worth a mention at this point. These are not classified as State Aid, however they are likely to impact R&D claims. When calculating how much time an employee has spent on an R&D project, days they were on furlough (so clearly not working on R&D) need to be accounted for. This needs to be apportioned and displayed accurately - again, it’s something our specialists will be pleased to advise on.

There’s R&D Tax Credits too

Hopefully this article has made certain aspects of R&D funding a little clearer. But don’t forget that the Tax Cloud portal for accountants is also available too. It allows you to put a fully optimised and supported claim together for R&D Tax Credits, another vital source of R&D funding.

Before you start, take a look at our R&D Tax Credits page for more information about eligibility and how to put a claim together. Then log on to the Tax Cloud portal (it’s totally free to sign up) to make a fully guided claim on your client’s behalf. Plus, there’s nothing to pay until your client has successfully received the R&D tax relief they’re owed - a massive bonus in today’s tough economic climate.

Get in touch

The R&D tax specialists at Myriad Associates developed the Tax Cloud portal back in 2017. It’s a highly efficient, flexible way of putting together an accurate, HMRC-approved R&D tax relief claim and is outstanding value too.

Give your clients a more comprehensive service using the Tax Cloud portal, or of course you can speak to our team for advice on 0207 360 4437. Alternatively please feel free to use our contact page to send us a message.