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?
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.
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.
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