As a small or medium-sized business (SME) owner, you know how important it is to stay ahead of the competition and keep driving innovation. However, there’s one constant challenge: access to capital. Traditional funding methods like equity investment and business loans can give you the cash you need to grow, but they come with their own considerations. Equity investment means having to give up (at least some) control of your business. And loans are only accessible with the right assets or invoices – things that aren’t always a given for SMEs.
But what if you didn’t have to choose between innovation and control? What if there was a way to access the capital you need without giving away equity or risking financial strain?
The good news is that non-dilutive funding options – such as R&D tax credit loans and innovation grant advances – are making it possible for SMEs to grow, innovate, and scale on their own terms.
In this article, we’ll explain how non-dilutive funding works, the benefits it offers, and how your business can use it to fuel growth and innovation.
What is non-dilutive funding and why is it crucial for SMEs?
Non-dilutive funding is any form of financial support that allows businesses to raise capital without giving up ownership or control. Unlike equity financing, which requires giving away a percentage of your business in exchange for investment, non-dilutive funding enables you to retain full control over your company.
There’s no denying that equity financing like venture capital can accelerate your growth. But there are also trade offs, so it’s crucial to weigh the pros and cons. Every round of fundraising means losing a little slice of your business. There’s added pressure to scale on someone else’s schedule and a smaller share of the profits.
That’s why having access to non-dilutive funding options is so crucial for SMEs. This kind of funding allows you to grow and scale at your own pace, without the pressure of meeting the demands of investors or watering down your ownership stake.
Here are some examples of the kinds of non-dilutive funding available:
- R&D Tax Credits (accessed sooner with R&D tax credit loans)
- Innovation grants (accessed sooner with grant advance funding)
- Venture debt
- Business loans
- Revenue-based finance
- Invoice Finance
- Asset Finance
At Rocking Horse, we specialise in R&D tax credit loans and innovation grant advances. These tools provide SMEs with the financial support they need to innovate, meet milestones, and manage cash flow – without the stress of losing ownership or control.
The R&D tax credit: a hidden gem for SMEs
The R&D tax credit is a government-backed incentive designed to reward businesses for investing in research and development. If your business is developing new products, processes, or technologies, you may be eligible to claim a tax credit.
However, the process of claiming an R&D tax credit can be time-consuming. Companies often have to wait months for HMRC to process their claim and disburse the funds. This delay can create cash flow issues, particularly for startups and small businesses that are already operating on tight budgets.
That’s where R&D tax credit loans come in. With an R&D tax credit loan, you can access up to 80% of your anticipated tax credit up to six months in advance. This means that instead of waiting for the funds to be processed by HMRC, you can unlock the cash you need to continue driving innovation and covering operational expenses.
By leveraging R&D tax credit loans, your business can benefit from quicker access to funds, allowing you to continue your R&D work without the pressure of waiting for government disbursements. This is particularly beneficial for businesses that rely on continuous investment in R&D to stay competitive in their industry.
Here are some of the ways you can use an R&D tax credit loan to your advantage:
- Improve cash flow to invest in ongoing projects and stay ahead of the competition.
- Scale your business without giving up any equity.
- Reinvest in R&D, boosting your claim for the current year.
Another way to think about R&D tax credit loans is as a special kind of business loan, only accessible to you as an innovative business. You may not necessarily be feeling a cash flow squeeze between claiming and actually receiving your payment. But perhaps you could use a cash injection to upgrade equipment, launch a new product, or jump on a new opportunity.
Where a bank or other kind of lender may see your business as lacking in the necessary collateral to secure a loan, we recognise that you’re expecting a payment from HMRC. And that’s all the collateral we need to give you instant access to funds.
Innovation grants: accelerating growth without dilution
Innovation grants are another valuable source of non-dilutive funding for SMEs. These grants are typically provided by government bodies or private institutions to support businesses working on innovative projects, particularly in areas like technology, energy, and sustainability.
Here are some of the most common innovation grant providers for UK businesses:
- Innovate UK
- Horizon Europe
- Small Business Research Initiative (SBRI)
- BEIS Energy Innovation Programme
- European Space Agency
One challenge that many SMEs face with innovation grants is the payment structure. Often, grants are awarded in instalments, with the first instalment arriving only after significant milestones have been met. However, businesses often need funding to reach those milestones in the first place, creating a gap between when the work begins and when the funds are actually received.
At Rocking Horse, we offer grant advance funding to bridge this gap. With grant advance funding, you can immediately access the next two grant instalments you’re expecting. Simply rinse and repeat every quarter, and you can access up to 80% of your government-backed funding up to 6 months early.
Here are some of the benefits of an innovation grant advance:
- Access funding for your next milestone, even before completing the current one.
- Strengthen your position for the next round of grants by demonstrating available capital.
- Bridge the gap between achieving milestones and receiving grant payments to ease cash flow pressure.
- Get the working capital you need, without giving up any ownership or assets.
- Enjoy the simplicity of a single repayment when the grant payment comes through.
With an innovation grant advance, you can access fast, flexible funding to keep moving forward at speed. And without losing control of your business.
Overcoming common funding challenges for SMEs
SMEs face a number of challenges when it comes to securing funding. Traditional options, like business loans, can be hard to access for startups or early-stage businesses. Especially if you’re throwing all of your energy into innovation – rather than consistent revenue generation. With a shorter trading history, fewer assets, and unpredictable revenue, satisfying rigid eligibility criteria can be tough.
Similarly, if your business is doing something game-changing, you’re likely to be using equipment that falls outside the norm. This very fact could rule your business out for asset finance (a popular choice for many SMEs). Although your equipment is probably expensive, it may not be of much interest to asset finance providers. This is because their risk model relies on being able to resell your equipment if you default on a loan.
So it’s not surprising that so many businesses rely on venture capital. Investors are often less risk-averse than banks and lenders. They see your vision and buy into the dream. They’re confident in the ability of your business to make money – for you and for them. But, as we’ve discussed already, you may not want to give away a piece of the dream that you’re building.
The beauty of non-dilutive funding is that it removes many of these obstacles. By using these non-dilutive funding options, you can:
- Preserve ownership: Unlike equity investment, non-dilutive funding doesn’t require you to give up shares in your business. This means that you maintain full control over your company’s future.
- Access funds quickly: Non-dilutive funding options like R&D tax credit loans and grant advances provide fast access to capital, meaning you don’t have to wait months to receive the financial support you need.
- Grow at your own pace: With non-dilutive funding, there’s no pressure to scale quickly in order to satisfy investors. You can focus on innovation and meeting your milestones, without being beholden to outside stakeholders.
The road ahead: what’s next for SMEs seeking funding?
As the funding landscape continues to evolve, more and more SMEs are turning to non-dilutive funding as a way to fuel growth without giving up ownership. With the increasing demand for innovation and new technologies, these financial tools are becoming an essential part of the SME growth journey.
At Rocking Horse, we understand the unique challenges that SMEs face, and we’re committed to helping you innovate at your own pace and scale on your own terms.
Are you looking for fast, flexible funding without the equity dilution? Get in touch today.
