Leveraging the R&D refund to extend the capital runway

7 October 2025

Towards the end of June and into July and August, we were very busy helping our smaller and early-stage clients prepare R&D tax incentive claims for the 30 June 2025 income year, in order to get the R&D cash refund into the business as soon as possible. Cashflow management, always important, is a matter of survival for start-ups and early-stage businesses. 

As the financial year progresses, such businesses draw down on their cash reserves while undertaking the R&D that will ultimately bring about their growth. At a certain point in the year, some businesses may be contemplating how to address cash shortfalls through to the next capital injection, the next R&D refund or the first serious customer revenue. One way in which some of our clients have done so is by accessing finance against their next R&D cash refund. There are a number of specialists offering this type of finance, some of which work in specific fields, such as IT or biotech, and which have different risk and funding appetites. 

Advantages

R&D financing offers a way to extend a business’s capital runway that might not otherwise be possible. Early-stage businesses may not necessarily be able to borrow from a bank, and other forms of finance may also be either unsuitable or unavailable. The business may not yet be ready for additional equity, or it may only be available with high levels of dilution commensurate with a pre-commercial business. Depending on the amount sought and its source, obtaining additional equity can also be time consuming and expensive. Thus R&D financing offers funding that, depending on circumstances, can be: 

• Non-dilutive
• Relatively quick and straightforward to obtain 
• Potentially relatively flexible. 

Costs and risks 

Different financiers have different fee models. All charge interest that reflects the higher risk profile and shorter term of this type of funding, but rates do vary. In addition to variation in interest rates, fees vary. The optimal mix of fees and interest rates for an individual business will depend on the borrower’s profile, including loan term, amount and loan to value ratio (LVR). Financiers will usually require borrowers to commit to lodging the R&D application form and the income tax return within a specified timeframe. 

There are a number of risks attached to R&D finance but the biggest risk for both the borrower and the lender is a delay in issuance of the R&D refund. Such a delay can be caused by: 

• The Department of Industry, Science and Resources’ (DISR) workload – during peak periods, notices of registration can be delayed by weeks or even months. However, DISR typically issues notices of registration quickly for applications lodged in the first few months of the financial year. 
• The timing of Australian Taxation Office’s refund payment – this can vary, though in the majority of cases, the refund is issued 4-6 weeks after income tax return lodgment. 
• Regulatory review – if either the R&D application form or the income tax return are selected for a pre-refund review, a delay of months is likely. If the claim is denied, this can create an extremely challenging situation. 

The process  

Financiers’ processes vary, particularly depending on the specific niche served. Our experience is that financiers will expect borrowers to provide, among other things, financial statements and tax statements. Additionally, financiers usually require borrowers to provide a letter from their R&D tax agents, in which the R&D tax agent provides an opinion on the eligibility of the business for an R&D cash refund, and the amount the business can expect to receive. The time to complete the process varies, but our experience is that the average is around two weeks. 

In summary

R&D finance offers a convenient way in which early-stage businesses can access finance, which might not otherwise be available. It is, however, accompanied by risks, which businesses should consider carefully before proceeding; notably, the risk of the refund taking longer than expected to arrive. There are several specialist financiers offering R&D finance and potential borrowers should consider which of them is best suited to their needs. The process to obtain R&D finance will vary between financiers but will usually involve a letter from the R&D tax agent.