Why cashflow certainty matters now
Revenues are less predictable, supply chains still show volatility, and banks remain cautious about lending against intangible assets. For scale-ups and ambitious SMEs, these pressures translate into tighter runway and higher fundraising risk. That makes predictable, non-dilutive options attractive. Innovation funding gives finance teams an alternative to immediate equity raises, enabling companies to hit technical milestones without ceding control or accepting a down round.
What we mean by innovation funding
Innovation funding covers a range of public and quasi-public instruments designed to support R&D and commercialisation, including:
R&D tax relief that returns a portion of qualifying spend as cash or a payable credit.
Innovate UK Innovation Loans and other repayable instruments that fund late-stage development.
Grant programmes targeted at feasibility, industrial research and demonstration projects.
Regional support and capital allowances that reduce the effective cost of equipment and facilities.
Used together, these tools form a toolkit that CFOs can sequence to preserve cash and manage dilution. The strategic use of innovation funding is not about avoiding private capital. It is about timing it so that equity is sold at stronger valuations.
How innovation funding buys certainty
Preserve equity when valuation is weak
Raising venture equity in a soft market can lock in poor terms. A well timed Innovate UK loan or a planned R&D tax repayment can fund the next 12 to 24 months of execution and restore negotiating leverage.Reduce timing risk
Grants and loans can be staggered to match project gates. This phasing reduces the need for a single large fundraising round and limits dilution risk.Improve forecast accuracy
R&D tax relief and repayable awards are typically quantifiable. When included in cashflow forecasts, they raise forecast certainty and support covenant or treasury planning.Signal credibility
Winning competitive grants or securing a repayable loan is a third-party endorsement. It can improve lender and investor confidence when you do go to market.
Choosing the right mix - practical guidance for CFOs
There is no single right answer. The choice depends on technical risk, timing and balance-sheet capacity.
Use grants early when uncertainty is high and public funding supports feasibility and consortium building. Grants do not need to be repaid but often limit eligible costs.
Use innovation loans late when commercial milestones are visible and a structured drawdown reduces funding friction. Loans can be cheaper than equity in cash terms and avoid dilution.
Use R&D tax relief continuously as an evergreen cashflow tool. It is particularly effective when evidence and cost traceability are good.
Avoid double counting. Map costs to each funding source carefully and document allocations to remain compliant.
A finance-led decision framework should evaluate cost of capital, dilution, timetable to revenue and administrative burden. CFOs should model downside scenarios so covenants and repayment profiles remain comfortable.
CFO playbook - five immediate actions
Build a funding map. Line up grants, loans and tax relief across the next 24 months and overlay project gates.
Prioritise evidence capture. For R&D tax and grant success, contemporaneous technical logs and named time records matter.
Stage spend to gates. Pepper projects with testable milestones to match phased funding drawdowns.
Stress-test repayment. If taking a loan, model liquidity under delayed revenue cases and ensure covenant headroom.
Communicate to stakeholders. Present a single funding narrative to the Board and investors showing how innovation funding reduces dilution and de-risks commercial milestones.
The bigger picture
Innovation funding is not a substitute for commercial rigour. It works best when finance and R&D teams plan together, cost lines are reconciled to payroll and suppliers, and milestones are tightly defined. For many businesses, a hybrid model that mixes grants, loans and tax credits will be the most resilient route to scale.
If you want practical tools to map and sequence innovation funding, explore FI Group’s guide to finding innovation funding today or contact a specialist to build a non-dilutive funding plan that fits your portfolio.
