Alternative non-dilutive funding options for MedTech in the UK
MedTech SMEs and startups often look to equity financing and other traditional forms of capital for temporary funding to get through the initial stages of growth, and may end up disregarding debt lending.
Equity financing can be a good option for startups working in high-growth industries because it can help them scale rapidly. However, securing funding through traditional lenders or VCs in the early stages of developing a MedTech startup can be a complicated process. Equity financing can lead to equity dilution and loss of some decision-making control over your business, while bank loans can be hard to secure due to lack of a strong credit history and strict terms.
Fortunately, there are several non-dilutive debt funding options Medtech companies can access based on the stage of the growth they are in, when trying to secure financing for their business..
R&D tax credits
The UK government allows eligible companies to claim back expenses relating to research and development undertaken by innovative businesses. R&D tax credits are often the most accessible form of government funding for startups with a tech component. MedTech companies can access up to a percentage of what they’ve spent on eligible R&D activities as a repayment from HMRC.
R&D tax credit loans
MedTech companies eligible to receive R&D tax credit loans can access R&D finance or R&D tax credit loans earlier in the form of a secured loan. R&D funding works by advancing the refund your company is already due to receive.
This type of finance works best for R&D-heavy companies that are either pre-revenue or pre-profit and wouldn’t be attractive for banks or other alternative lenders because they lack profitability, large receivables, or assets like equipment and land. What these companies do have is a significant investment in research and development, and now they can use that as an asset. Because the R&D tax credit is a predictable source of cash for many UK companies, but very slow to materialize, lending against it makes sense. Here’s a guide on the how what and why of R&D tax credit finance.
P2P loans originate from P2P lending platforms that arrange loans between investors and borrowers. They are great for easy and quick access to a loan without visiting a bank or building an extensive track record. For startups that are already generating some revenue, P2P lending could be a great source of low-cost finance. with rates from 5-12% APR.
Many governments, agencies and non-profit organisations offer grants to businesses with distinct purposes or goals. SMEs can apply for development funding in the form of a grant that is not required to be repaid and has no interest rates. Thankfully, there are a huge number of top startup grants available in the UK. Eligible businesses may need to qualify for grants through specific business structures or goals, and grants are usually through matched-funding means alongside other forms of investment.
This includes Innovation grants that are available for many emerging areas of science and technology and most grant calls are sector-specific. The primary body that handles innovation grants is Innovate UK, but there are others available under the UKRI as well.
Grant Advance funding
There is more than £118 billion in cash grants available across several UK government grant programs. Companies that are leveraging government grant programs can access their future, eligible grant capital several months in advance. Also known as grant-based funding, this strategy allows businesses to complete their grant milestones, retain equity, and maintain project timelines.
Asset finance refers to the agreement of a financial loan by securing the current company assets as collateral. Typically, these assets are integral pieces of equipment or resources for the business. Asset finance is well-suited for businesses that have a short or poor credit history. And because the equipment is a physical investment with a long lifespan, it’s a more ‘secure’ version of business funding with increased flexibility in the loan terms.
Equipment finance works through the startup leasing a piece of machinery for an agreed period from alternative lenders. Loan installments are repaid over the lending period, and interest is added at a lower rate than traditional banks.
Non-bank lenders are financial institutions that typically don’t have a banking license but are still able to loan money to borrowers. Non-bank lenders usually have more options available for businesses and may be able to offer loans over a longer period. They’re also less restrictive and flexible for companies with shorter track records.
If you are a MedTech SME or startup looking for non-dilutive funding, Fundsquire specializes in growth finance through R&D Tax Credit Loans, Grant Advance funding and Revenue-Based Financing. To learn more about funding opportunities that are right for your MedTech business, speak to the team today.
Partnerships Manager for Fundsquire