A company doing business research and focusing on innovation has several potential funding sources. There is no way to do business research correctly without the right money and financing. A lack of financial support is a major reason why businesses do not pursue research and development (R&D) or have to pause research projects.
A part of your business research will have to be self-funded to some degree. The utilization of profits and revenues, however, poses a risk. If your research does not produce the expected result, you’ve just invested key profits into something that won’t provide a financial return. It is strongly recommended to find another way to fund your business research than strictly using your revenues or existing business resources.
Most businesses go to their banking partner when they need business research funding. A bank is willing to provide loans for a myriad of business activities. Be sure to consider the duration of the loan, flexibility of repayment, loan collateral, and rate of interest. Also, be aware of the risks involved and the worst-case scenario if the research does not go well. Being overly optimistic and unaware of the risks can end badly for any entrepreneur or a business owner.
In addition, there are other ways to fund your business research. Let’s learn the different methods you can use to cover your project costs and recurring expenses.
Government Grant Programs
There are many programs supplying loans and grants for business research. These grants may depend on your industry. However, if your business research is eligible, it’s worth looking into these programs. If there are loans and grants available to you, one would be silly not to apply. Some fairly big programs, including the Scientific Research & Experimental Development (SR&ED) program, with millions of dollars available.
The SR&ED tax credit is issued in various formats. It can be used on your corporate income tax in several ways. SR&ED tax credits can help cover the costs of salaries, wages, materials, third-party contracts, and corporate overhead. There is no maximum limit on SR&ED funding, and qualifying projects can get a major boost in financial support this way. SR&ED funding is also available for basic research, applied research, and experimental development.
Many parties in the venture capitalist category are looking for good ideas to invest in. By borrowing from a venture capitalist, you receive the funds you need to do R&D, but acquiring it often involves giving away equity or committing to a payment arrangement.
Depending on the arrangement, if your business research fails to produce a positive result, such an investment can sink your business and restrict its growth.
Companies or Organizations
There may be a benefit to partnering with another business or organization to fund a research project. If it’s within their interest and yours, dividing funding between multiple parties can reduce your funding requirement to get started. How you divide the back-end result of the research is up to you.
Still, you may be surprised at how effective a multi-business partnership can be at providing the needed funds to do R&D. Add to this further with a loan or grant program, and you’ve got a lot of financial support backing you.
Family Members or Friends
With family and friends, you may be able to raise enough money to launch a research project and do it under much more favorable repayment terms. If you do this, ensure there’s a contract and write it down.
Ensure you properly communicate the risks involved and provide them with regular updates on progress to ensure their investment is being put towards what they were promised. However, you can potentially risk the relationship if things go badly.
Crowdfunding is another way to raise funds to develop a product or process. The crowdfunding project criteria are much more relaxed than loans and grants. It also lets you gauge consumer interest should you intend to market and sell what you’re developing.
If you don’t reach your funding target, though, or cannot convince enough people of the value of developing a product or service, you won’t be able to reap the monies. It also bears saying that you must expose the hypothesis and intended result of an innovation or business research, allowing others to see it, which many business owners and entrepreneurs won’t want to do.