Does a Bank's First Charge Block R&D Finance?

By Alex Knight, Founder and CEO, Advanced

Founders ask us this on almost every call. Our bank already holds a general security agreement over the company. Does that rule out R&D finance before we've even started?

It doesn't. But the assumption is understandable, and it's the single biggest reason Australian founders talk themselves out of applying before they've asked the question.

What your bank's first charge actually covers

A general security agreement, or GSA, is standard practice for any business with a bank facility, whether that's a term loan, an overdraft, or a line of credit. The bank registers the GSA on the Personal Property Securities Register, or PPSR, and that registration gives them first priority over the company's assets if things go wrong.

That sounds absolute. In practice, it's broader than it needs to be. A GSA typically captures everything the company owns or will own, including receivables that didn't exist when the agreement was signed. Your R&D Tax Incentive refund is a receivable. So on paper, your bank's charge extends to it, even though the facility was never priced or approved with that refund in mind.

This is where founders stop. They read the GSA, see the word "all assets," and conclude the door is shut.

Why the door isn't actually shut

A first charge tells you who gets paid first if a company defaults. It doesn't say a second financier can never take security over a specific asset. Those are different questions, and the second one has a clear answer: yes, with the bank's consent.

That consent comes in the form of a deed of priority.

What a deed of priority does

A deed of priority is a short legal agreement between your bank and your R&D financier. It doesn't touch, alter, or subordinate the bank's position on anything except the one asset named in the deed. In our case, that's the ATO's R&D Tax Incentive refund.

The mechanics are simple. The bank agrees that, on this one receivable only, the R&D financier sits ahead of them. Everything else the bank has security over, including the rest of the company's assets, its cash flow, its other receivables, stays exactly where it was. Nothing is renegotiated. Nothing is stripped out. The bank isn't asked to release any part of its existing security.

This is why the document itself is short. It carves out one asset, defines the priority on that asset, and leaves the rest of the security landscape untouched.

Why banks sign these routinely

Deeds of priority aren't a workaround or a grey area. They're a known instrument that Australian banks, including the major four, sign as a matter of course. Business bankers see them regularly enough that most relationship managers can turn one around without escalating internally.

The reason it's routine rather than contentious comes down to what the bank is actually giving up. They aren't giving up security over the business. They're agreeing that one refund, tied to R&D spend the company has already incurred and already substantiated with the ATO, sits behind a second financier instead of the bank. The refund isn't collateral the bank was counting on when it priced the facility. It's not part of the trading assets the loan covenants are built around. Signing the deed costs the bank nothing it was relying on.

What this means for how you approach R&D finance

If you're holding off on R&D finance because you assume your bank's security position rules it out, the fix isn't finding a lender who asks for no security at all. Those lenders exist, but the trade-off usually shows up elsewhere, in a lower loan-to-value ratio, a slower approval, or pricing that reflects the extra risk they're taking on without any security. If you're weighing that trade-off against other funding routes, our comparison of R&D finance against venture debt breaks down where each structure costs you more.

The better move is to ask the question early. Tell your R&D financier about the existing facility at the start of the process, not after terms have been agreed. A deed of priority takes days to put in place when everyone knows it's needed from the outset, and it becomes a delay only when it's raised late.

At Advanced, this is a conversation we have on nearly every deal, because most founders with an operating business already have some form of bank facility in place. We offer an advance rate that leads the market, well above the 80 to 85% most competitors offer, and a deed of priority sits alongside that without disturbing your existing banking relationship. The refund gets advanced against, your bank facility stays exactly as it was, and you haven't given up any equity to get there.

That's the broader point behind non-dilutive capital. The R&D Tax Incentive is a receivable your company has already earned through eligible spend. Advancing it early, without touching your cap table and without unwinding an existing facility, means faster access to a refund that was coming anyway. It's one part of a wider cashflow strategy that treats the RDTI refund as working capital rather than something you wait ten months for.

How the process actually runs

Once your bank is told a deed of priority is needed, the sequence is predictable. Your R&D financier drafts the deed and sends it to the bank's business banking or credit team. The bank reviews it, usually confirming that their position on all other assets is unaffected, and signs. Most banks can turn this around within a week when the request is clear and the deed is limited to the single receivable, which is standard practice.

Nothing about your existing facility changes during this process. Your covenants stay the same. Your limits stay the same. The only new document in existence is the deed itself, sitting alongside your existing security arrangements rather than replacing any part of them.