Dilutive Funding vs Non-dilutive Funding

The difference between dilutive and non-dilutive funding

Companies need funding – and early-stage companies need this even more. However, it can be a challenge to get hold of the right level of funding, especially as many traditional banks are wary of extending credit to new companies or those that are going through challenging times. Where traditional banks are not an option, dilutive and non-dilutive funding can help to fill the gap – but what’s the difference?

Dilutive funding

Also known as equity finance, dilutive funding is funding in return for giving away some ownership and/or control over the company. This is a situation that is far from ideal for many businesses. The advantage of dilutive funding is that there may be no need to repay the money you receive (although most investors will be looking for a return), but the loss of control and ownership can be a heavy price to pay.

Non-dilutive funding

Because of the problems with control and ownership that tend to come with dilutive funding, non-dilutive funding is a preferable option for many organisations. It is essentially a debt financing solution that requires repayment – but there is no impact on the company’s ownership, and there will be no change in control and ownership when you opt for non-dilutive funding. So, what does that look like in practice?

  • Small business loans – If your enterprise is small or medium-sized, you might be eligible for small business loans. These work slightly differently from personal loans, as they are based on the balance sheet and income of the business. Most loans of this type will have a relatively long life, which can be important in cash flow terms, and they are a convenient form of non-dilutive funding. Plus, interest payments can be chalked up as liabilities when doing your tax.
  • Tax credits – If your business invests in innovation, something like R&D tax credits can be a great form of non-dilutive funding. Depending on your business type and situation, you may be able to make a claim that, if successful, is returned to you as either a one-off payment or an amount that can be set off against your tax bill. Either way, there is a cash flow benefit that can free up more funds to divert into key resources.
  • If your business is eligible for a grant, this is a great option as non-dilutive funding because there is no obligation to repay. However, for this reason, grants are often in high demand, and they can be very competitive. Grants are typically government funding, and you can start your search for a grant by looking at those that are offered to businesses of your specific size or in your industry.
  • Other options – Venture debt, royalty licensing and bonds and vouchers can also be attractive as non-dilutive funding options.

The key difference between dilutive and non-dilutive funding options is the repayment structure – and how this type of funding impacts ownership and control of your business.

Receive non-dilutive funding through SPRK Capital’s R&D tax credit loans

With SPRK Capital’s R&D tax credit loans, you can get advance funding on your R&D tax claim. SPRK Advances are an alternative, non-dilutive source of capital for those businesses. SPRK delivers this by positioning itself as the hub between R&D companies seeking capital, third-party data providers and expert R&D advisers.

Apply Here.

 

More recent posts:

  • R&D Tax Credits

    Where to Start with Your R&D Tax Credit Application

    The difference between dilutive and non-dilutive funding Companies need funding - and early-stage companies need this even more. However, it can be a challenge to get hold of the right level of funding, especially as many traditional banks are wary
    Read more
  • Innovation Term Loans

    Is Venture Debt Appropriate for Innovation Funding?

    Venture debt is a specialised form of debt financing geared towards venture-backed companies that may not yet be profitable but show high growth potential. It's typically provided by specialised banks or non-bank lenders and is structured as a term loan or revolving credit facility.

    Read more
  • R&D Tax Credits

    Leveraging R&D Advance Funding for Better Cash Flow

    Maintaining a robust cash flow is as challenging as it is critical, especially when venturing into the territories of research and development (R&D). R&D advance funding is a strategic financial tool designed to alleviate the pressure on your cash reserves and fuel your innovative projects.

    Read more
  • Information

    From Tax Reliefs to Tech Reforms: Our Analysis of R&D Changes in 2023

    As the innovation space continuously evolves, Research and Development (R&D) tax reliefs in the UK have been a consistent ally for companies pushing the boundaries of innovation. The year 2023 has held significant shifts in these reliefs, marking a pivotal moment for businesses involved in R&D activities.

    Read more
  • R&D Tax Credits

    R&D Tax Claims: Insider Tips to Maximise Your Claim

    Businesses making an R&D tax claim have the potential to receive transformative funding. However, it’s not always an easy process. The application can be complex and requires precision, and HMRC has recently cracked down on those R&D tax claims that contain ineligible projects, even by mistake.

    Read more