25/06/2020

R&D loan scheme – applications now open

Callaghan have released more information regarding the R&D loan scheme (link follows).  Applications are now open (stage 1) and will be open until 31 March 2021, but it is a limited fund so we recommend applying as early as you can.  It will be necessary to complete the stage 1 application form even if you have previously filed an expression of interest and even though much of the information requested is duplicated.

https://www.callaghaninnovation.govt.nz/grants/rd-loan-scheme

Summary
As a reminder the loan is available to businesses with R&D activities they are struggling to fund due to the impact of COVID-19.  In summary the scheme operates as follows.

  • The maximum amount available under the scheme is for a loan of up to $400,000 to support planned R&D activity, subject to other forms of government R&D support.
  • Interest applies at 3% from the start of the loan; interest is waived if the loan is repaid within the first year.
  • Repayment instalments are not compulsory for the first three years; the maximum loan period is 10 years.
  • Expectation is for the loan to be paid out in line with Callaghan Innovation’s standard fortnightly payment schedule starting mid-July 2020.
  • To be eligible, businesses must:

–  be a legal New Zealand entity
–  have been in a financially solvent position as at 31 December 2019
–  be able to show that their ability to fund their R&D activity is impacted by COVID-19
–  have had an R&D programme or plan in place before 26 March 2020 and plan to spend at least
$50,000 on R&D.

There is an eligibility tool on the Callaghan website (link above).

Application Process
The Application process is undertaken in two stages.

Stage 1 – providing initial details, and you will be required to estimate the amount you would like to borrow.  There is a form to complete: here.
The details requested are mainly about who you are, what category of R&D activity you’re undertaking and who you’re employing.

Stage 2 – providing detailed information about your R&D plans; more information and guidance to come but Callaghan will contact the applicant after stage 1 to progress (expected timeframe 2 weeks).

For more information see the FAQs below. We anticipate opening Stage 2 within the next two weeks.

Please contact your usual VCFO adviser to discuss your options.

Callaghan has prepared FAQ, duplicated below, or we can contact Callaghan on your behalf if you have a query not covered by these or the information released on the website.

FAQs

1.    How is this R&D Loan Scheme relevant to the COVID-19 response?
The R&D Loan Scheme is part of the COVID Response and Recovery Fund.  R&D is a key to creating jobs and growing the economy, but during tough economic times this can often be diverted or cancelled in favour of other spending. The loans provide an immediate source of finance for businesses conducting R&D activity to enable them to maintain existing programmes and secure the jobs they create.

2.    Why will this help businesses responding to COVID-19?
The R&D Loan Scheme will provide much-needed cashflow for businesses conducting R&D activity, allowing businesses to continue projects and keep employing staff on those projects. For many startups this is an essential component of their business.

3.    How is this different from other COVID-19 and loan support?
R&D activities are high value-add activities, not classified as business as usual. They involve complex science, technology and engineering expertise and are generally seen as riskier investments. However, they have greater payback for the economy, transforming current industries into higher-value sectors with high-skill jobs.

4.    How much can businesses borrow in the R&D Loan Scheme?
Businesses can apply for up to $400,000 depending on their R&D spend and other current R&D support calculations, to help fund their R&D expenditure.

5.    When will businesses start to receive this loan payment?
Depending on demand, filing of the appropriate documentation and payment schedules, loan payouts may begin from mid-July. If you are successful, we will let you know when your loan is about to be paid out.

6.    What are the interest and repayment terms?
The loans will be charged at 3% interest from the start of the loan, but the interest will be waived if the loan is repaid within the first year. To ensure businesses can manage repayments, instalments are not compulsory for the first three years and businesses have up to 10 years to repay the loan completely. Businesses may repay sooner than this if they wish.

7.    What is the time period for businesses to apply for this loan?
The end date for applications to the scheme is 31 March 2021. However, we expect to see strong demand for the scheme, and it is awarded on a non-discretionary basis for businesses that meet the criteria. Businesses are encouraged to apply early to have the best chance of their application being accepted.

8.    Can businesses apply for an R&D Loan if it is already receiving a Project Grant, Growth Grant or the R&D Tax Incentive (RDTI)?
Yes, you can. The government will support up to 80% of total R&D spend. This means the amount you can borrow takes into account other forms of government support – such as R&D Project Grants, R&D Growth Grants or the R&D Tax Incentive.

9.    If I am accepted for the R&D Loan, will I be approved for other R&D grants/services or the R&D Tax Incentive (RDTI)?
Pre-approval for the R&D Loan does not provide approval for other grants or the RDTI. Businesses will need to go through the regular application process for other support.

10.    What are the contract details?
We will publish the standard loan agreement shortly, ahead of Stage 2.

11.    What information needs to be retained for reporting and audit purposes?
You must retain all records concerning your expenditure on R&D activities using the loan funding. This includes pay slips, time sheets, invoices, purchase orders, lease details and any other records that show how you spent the funds.

12.    What is a legal NZ entity?

  • A Company registered under the Companies Act 1993; or
  • A Limited Partnership registered under the Limited Partnerships Act 2008; or
  • A Māori incorporation or a trust established under Te Ture Whenua Māori Act 1993, a trust established on behalf of Māori claimants to receive and manage assets as part of the settlement of a claim under the Treaty of Waitangi, a Māori statutory body, or a business that is controlled by one or more of these types of Māori entities.

The loans are not available to Government entities such as CRIs, SOEs, Councils, or an entity that is 50 per cent or more owned by one of these types of entities. These exclusions are outlined in the Stage 1 form.

13.    What do I need to provide to demonstrate I had an R&D programme in the pipeline?
Businesses that aren’t undertaking R&D will need to show they had begun planning their R&D before 26 March. For example they may have been in the process of applying for funding, or have started engaging a research provider before 26 March.

14.    What is eligible R&D?
Research and Development (R&D) under the scheme are defined as follows:

  • Research is original and planned investigation undertaken with the prospect of gaining new scientific or technical knowledge and understanding.
  • Development is the application of research findings or other knowledge to a plan or design for the production of new or substantially improved materials, devices, products, processes, systems or services before the start of commercial production or use.

R&D activity is distinguished from other activity by the presence or absence of an appreciable element of innovation. If the activity departs from routine and breaks new ground it is normally R&D activity; if it follows an established pattern it is normally not R&D activity.

R&D Guidance will be published shortly ahead of Stage 2 of the application process.

15.    What checks and balances are in place to make sure the loans are taken up in the correct way?
Callaghan Innovation has measures in place to ensure the scheme is used for the intended purposes. As well as statutory declarations, businesses will need to report back after the first year and there will be an audit programme in place.