YOUR COMPANY HAS CANADIAN SRED CREDITS AND WANTS TO EXPLORE THE FINANCING OF YOUR SR&ED CLAIM!
LET SR&ED FINANCING BE THE GROWTH FUNDING YOU ARE LOOKING FOR
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Financing & Cash flow are the biggest issues facing businesses today
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SRED FINANCING IN CANADA
Canadian business owners and financial managers who file for SRED credits are often not aware that these claims can be financed in order to generate working capital and cash flow out of the claim.
They are even more surprised to hear that it is actually possible under most conditions to obtain financing even prior to financing the claim.
WHAT IS SR&ED DEBT FINANCING
SR&ED debt financing solutions allow businesses to monetize their SRED refundable tax credit in advance of receibing their cash refund from the CANADA REVENUE AGENCY/CRA. The SR&ED credit is in effect an account receivable and the company can fund this receivable as it requires for working capital and cash flow needs. The term 'sred factoring' is similar to any commercial accounts receivable financing. The sred bridge loan advance against the receivable is repaid when the government tax refund is paid to the company.
The term sred is used by many business people instead of the formal name of the program, which is the Canadian Scientific Research and Experimental Development (SR&ED) program - which is in fact a tax incentive from the government - Another synonymous term used similarly is ' shred'
A the end of the day it's all SR&ED!
SR&ED TAX CREDIT FINANCING FOR R&D BUSINESSES IN CANADA
What could be a better working capital and cash flow strategy than getting immediate cash flow for a government grant that is non-repayable? We frankly can think of no other risk-free way to bring valuable cash funds into your company if you are utilizing this great government program.
HOW SR&ED FINANCING CAN FUEL YOUR R&D IN CANADA
Are you taking advantage of one of the two most successful government programs in Canada - The r&d tax incentive? Unbelievably there are still thousands of firms every year who either don't even know about the program, let alone use it! Talk to a sr&ed expert to determine if you are due for your share of the 3 Billion dollars + that is doled out by the government of Canada.
By the way - that other successful government program? It's the Canada Small Business Financing Program, which is a lump sum term loan government guaranteed financing in participation with numerous Canadian financial institutions such as Canadian banks and credit unions. Other programs offered by the government under grant financing are also available.
UNDERSTANDING SR&ED TAX CREDIT FINANCE
Let’s establish some bedrock around what we are talking about. The program's formal name of course is the Scientific Research and Experimental Development aka ‘SR&ED program' that is funded by the federal and provincial governments. Each SRED claim has a federal and provincial portion, and, combined, they provided you with a non-repayable tax credit for a significant amount of the funds you spend on qualifying R&D and business processes.
ELIGIBILITY FOR SR&ED FINANCING IN CANADA - WHAT THE BUSINESS OWNER NEEDS TO KNOW
Is your firm eligible for SRED Financing? CRA clearly outlines the criteria for the sr&ed tax incentives. It boils down to 3 key areas - your ability to demonstrate technological advancement with the purpose of enhancing technical knowledge. Secondly, there must be an element of technological uncertainty in your work and your company's ability to demonstrate your goal of overcoming that uncertainty and those technical challenges.
Finally, the firm must show the processes that have been taken to resolve uncertainty in their r&d.
THE ROLE OF THE SR&ED CONSULTANT
Many clients we work with have their claims prepared on a contingency basis – that simply is letting someone else, known as an SRED consultant, prepare your claim and let them absorb all ( yes all ) of the cost of that claim. When you finance an SRED claim you can actually arrange to have the SRED consultant paid at the same time also.
Sred consultants will work with you and your accountants to file the actual sr&ed claim under the year-end T6661 form which is the actual claim for sr&ed expenditures. A technical narrative of your claim should accompany the filing as well as detailed calculations and backup on sr&ed expenditures.
SRED claims continue to be on the rise in Canada, and when you couple the filing of those claims with a somewhat challenging financial environment for business financing you have a perfect storm, so to speak, for the consideration of financing your claim.
The financing of SRED claims is the ultimate ‘boutique' financing business in Canada. We urge clients to work with a business financing advisor who can ensure they are receivable maximum funds and market rates, terms and structures for the amount of the claim.
Clients want to know how ‘complex' SRED financing is. The reality is that you should view an SRED tax credit financing in exactly the same manner as any business financing, other than to understand perhaps that the main collateral on the SRED loan is really the claim itself. We use the word ‘SRED loan' but in reality, the SRED financing brings no debt to the balance sheet – you are simply monetizing your claim for cash flow and working capital now.
UNDERSTANDING THE SR&ED FINANCING PROCESS - HOW IT WORKS ( SPOILER ALERT- IT'S EASY!)
The essence of the entire process can be simply described under the following process
- SRED financing application
- due diligence
- legal/documentation
- Funding!!
It’s as simple as that, and we advise most clients the entire process can be completed within a few weeks, which is standard for most business financings anyways.
WHEN SHOULD YOU FINANCE YOUR SRED CLAIM?
You would only want to consider SRED financing if in fact, you don’t want to way from 1-12 months, (sometimes longer) for your grant cheque from the government. As a Canadian business that is growing, you probably have much better uses of those funds now, including reducing payables, investing in even more R&D, acquiring new business assets, etc. Accrued sr ed expenditures can be financed as you spend.
KEY TAKEAWAYS - SR&ED FUNDING
SR&ED Refundable tax credit incentives provide billions of dollars every year in non-repayable funds from CANADA REVENUE AGENCY / CRA for thousands of firms in Canada like yours who invest in r&d
SR&ED credits come in the form of a refundable tax credit, and for some firms such as public companies, there is an income tax deduction.
Different types of organizations can claim sr&ed credits - that includes, most commonly CCPC's - ie private companies, as well as individuals, foreign-controlled firms who do the r&d in Canada, as well as private individuals.
Sr&ed credits can be as much as 35% of total sr&ed expenditures.
CONCLUSION
Talk to the 7 Park Avenue Financial team about how our sr&ed tax credit financing solutions provide a solid alternative to cash flow needs for any business in Canada that utilizes Canada's sr&ed program. We're a trusted, credible and experienced Canadian business financing advisor for Canadian businesses. The business capital obtained by this method of financing is in the form of short-term debt financing in the form of a bridge loan that does not dilute equity ownership in the critical early stage of the growth of a business.
Your firm can fund your claim after it is filed, or if you choose, financing can be provided in regular installments as you spend on r&d under better cash management
Consider SRED tax credit financing as one more toolkit you have in your overall business strategy to access capital. Work with an expert and maximize the amount of your return and the overall most effective use of that essentially free cash flow and working capital via a sr ed loan.
FAQ FREQUENTLY ASKED QUESTIONS PEOPLE ALSO ASK MORE INFORMATION
WHAT IS THE CANADIAN SR&ED PROGRAM
Canada's Scientific Research and Experimental Development (SR&ED) program from the Canadian government is a tax incentive under Canada Revenue Agency that helps Canadian businesses fund research and development around work under scientific or technological uncertainty - It is often a major source of revenue and cash flow for many early-stage businesses who are working on products and processes for Canadian or global markets . Companies must ensure they are eligible and that expenses file under eligible expenditures.
Firms will typically use experience sr&ed consultants to ensure they are eligible for the tax incentive. SR&ED tax credit financing options are available for companies wishing to monetize their claims in advance of refunds under the sr ed claim process.
HOW MUCH FUNDING CAN BE CLAIMED UNDER SR&ED CREDITS
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