Short answer
The real cost of R&D tax credit finance is the arrangement fee, plus interest for the time the money is out, plus any minimum interest or exit fee. Because HMRC's timing is uncertain, compare lenders on the total cost for a realistic wait (say two, four and six months), not the headline monthly rate. Also check what happens if HMRC pays late or reduces the claim.
Key facts
- Cost = fee + (monthly rate × months outstanding) + any minimum interest or exit fee
- The longer HMRC takes, the more it costs
- Some lenders charge a minimum number of months' interest upfront
- Compare on total cost, not rate alone
The cost components
| Component | What to ask |
|---|---|
| Arrangement fee | What %? Deducted from the advance or paid separately? |
| Interest rate | Monthly or annual? Charged daily on the balance or by full month? |
| Minimum interest | Is there a minimum period you pay for, even if HMRC pays early? |
| Exit or redemption fee | Is there a fee when the loan is repaid? |
| Late payment | What happens, and what does it cost, if HMRC takes longer than the facility term? |
| Security | Debenture? Personal guarantee? |
Why time drives the cost
Interest accrues for as long as the advance is outstanding, and that depends on HMRC. A loan repaid in two months can cost half as much as one repaid in six. Model the cost at two, four and six months for each lender you compare. See how long HMRC takes to pay.
Options compared
| Option | Cash now? | Dilution | Monthly payments | Typical speed |
|---|---|---|---|---|
| R&D tax credit loan | Yes | None | None: repaid from HMRC | Days |
| Wait for HMRC | No | None | n/a | Weeks to months |
| Bank overdraft | If available | None | Yes | Depends on bank |
| Revenue-based finance | Yes | None | Yes, % of revenue | Days to weeks |
| Equity | Yes, once closed | Yes | None | Months |
Questions to ask any lender
- What is the total cost if HMRC pays in two, four and six months?
- Is there minimum interest or an exit fee?
- What happens if HMRC pays late, or reduces the claim?
- What security do you take? Do you need a personal guarantee?
- How quickly can you fund, and what do you need from me?
Related: R&D Advance →
Related questions
Is an R&D tax credit loan worth it?
It can be, if the cash funds growth worth more than the cost, or avoids a more expensive alternative such as an equity raise at a lower valuation.
Can I repay early?
Usually the loan is repaid automatically when HMRC pays. Check whether there is a minimum interest period.