How SMEs can fund R&D and investments in new technology

Small Business Funding – How SMEs can fund R&D and investments in new technology

SMEs can find it difficult to access funding from mainstream lenders, a situation that can be incredibly frustrating for them and can be a major anchor on their growth.

This problem has been around since long before the 2008 financial crisis, but has grown more acute since then. Fortunately, there are solutions; three of which are covered below.

R&D tax credits

The government offers tax credits to businesses that invest in research and development. The extent of the funding on offer does vary according to various criteria, however, as a rule of thumb, if a business is an SME and qualifies for the funding, it can claim up to £0.33 for every £1 it spends on R&D.

In spite of the name of the scheme, the funds are usually delivered in the form of a cash payment and a tax credit and may arrive in as little as six weeks.

Even if your company is still in the loss-making stage, you can still qualify for this scheme. The key point is that you need to be able to show that you are trying to find a new and better way of doing something. This something does not need to be in the field of information technology or even anything obviously “scientific” although achieving the aim should bring about some kind of practical benefit.

Rural development grants

If your business is based in a rural area, you may qualify for the RDPE Growth Programme instead of – or even as well as – R&D tax credits. For the 2019/2020 tax year, the minimum grant has been reduced from £35,000 to £20,000 to make it easier for the smallest businesses to access funding.

Funds have to be used in one of three agreed ways, the most important of which (in this context) is business development. This does not specifically have to mean R&D, it can mean basically anything, but the key point to remember is that the government is likely to favour applications that show that the funds will be a “gift which keeps on giving”. In other words, they really want to see evidence that the money will be used to create something that can be sustained over the long term without the need for continual grant-funding.

Crowdfunding platforms

There are various ways crowdfunding can work. At one extreme, you have what are essentially charitable donations, in other words, people are backing a company because they like it and believe in its mission rather than because they expect or even want to turn in a profit, although they may get some special perks such as limited editions of a product. At the other extreme, you have commercial investment, but from people who are more open-minded about SMEs than your average commercial lender (which, let’s be honest, isn’t usually that difficult).

The former approach generally requires the ability to leverage social media effectively and come up with perks that individuals or investors will find attractive but that allows you to pocket as much of the investment as possible. The latter is accessible even to companies which don’t have a big social-media following but the approach is different as business investors need to see a promise of future benefit.

What should be done

Rather than letting themselves be a soft target for cyber criminals, third-sector organisations have an obligation to protect the data of their supporters, partners and service users, and to keep financial details safe from prying eyes and sticky fingers.

Many of these organisations would benefit from specialist training so that they fully understand the issue. They may think they are too small to be targeted, but attackers do not necessarily agree, and protection must be in place if organisations are to remain secure. Recruiting a third-party organisation that specialises in cyber security is an effective measure, when specialist knowledge and skills are required.