SR&ED Tax Credit Financing - 2 Things You Must Know

Many of our clients can be easily forgiven for being confused and mis-informed on CanadasSR&ED program, aka‘ SRED ‘, as most people callit . They can be even more forgiven for not know the basics about SRED finance .

We try and simplify that discussion into two very basic things you need to know :

-If you have a sred claim its financeable for cash and working capital now

-To finance a claim you need to have filed a claim, but not always!!

Your ability to monetize or cash flow a claim is in fact a superior way of generating additional working capital and cash flow now based on the value of your filing . We will add one technical point here, in that claims are generally financed at70% LTV . LTV means ‘ loan to value ‘ , so we are simply saying that for everyone hundred thousand dollars of sred claim filing you can generateseventy thousand dollars via a short term sred loan .We can expand on that point a bit to ensure you arewell informed . After filing a claim it is clear you are in a‘waiting mode ‘ for your claim to be analyzed, potentially audited , and then of course waiting for the proverbial government cheque – we are of course all familiar with the expression ‘ it’s in the mail ‘ – With Ottawa backing your non repayable cheque you of course have the assurance funds will come, but you just don’t know when !

We recommend that if you have filed a claim that you investigate the ability to finance that claim now . If the cheque under the program is a non payable grant( other than paying tax on the income that’s as close to free money as we can get in Canada from the government !)Why wouldn’t you consider a financing option to accelerate cash flow and start using those funds now?

Uses of funds under SR&ED financing are totally within your control. We see clients utilize sred financing to further invest in even more R&D, i.e. next years claim! or you can choose to reduce payables, invest in additional equipment or business assets, etc .

In a small handful of cases we meet with firms who have a tax liability to Ottawa or the province re source deductions, GST/PST back remittances, etc. If you work with a trusted, credible, and experienced sred financing Sr&Ed consultant you can structure your financing to ensure that you’re past due remittances are taken care of during the sred financing process. No firm wants to be in the governments bad books re past due government super priority issues.

The actual SR&ED financing process should be treated by yourself as any other business financing – we try and actually make the case its easier in some cases, because the actual asset behind the sred loan is the sred claim itself, so even if you think your firm might not qualify for financing for other forms of traditional borrowing your probably qualify for the sred – why?? Because you have a sred claim as an asset that’s verifiable!

Ensure you are aware of this great program within Canada that generates billions of dollars in working capital and cash for Canadian corporations .Yes you can wait for funds, which may take a couple months or the better part of a year – if you cant wait consider financing your Sr&Ed claim via a short term sred loan which is collateralized against your filing. We strongly recommend you have a professional filing prepared, by your accountant or sred consultant (there are many) – this will significantly positively impact your ability to finance your claim.

It’s a great cash flow and working capital strategy, and no debt is on your balance sheet, as it is offset by your sred asset that is in fact a monetizable account receivable.