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The Only Two Things You Need To Know About Sr&ed Finance
Information on sr&ed tax credit financing in Canada . Here's an overview of what you need to know about sred loans and how they maximize the cash flow potential of your refundable r&d capital tax credit
SR&ED Tax Credit Financing is somewhat misunderstood, or in fact not really considered by many Canadian business owners and financial managers in Canada. We use the word ‘considered ‘simply because many SRED claimants are not aware that their SR&ED claims can be financing as soon as they are filed – in some cases prior to filing!
So let’s return to our topic – what are the two things you need to know about financing your sred tax credit. We’ll keep it simple –
You have to have a Sr&Ed claim to obtain financing for the claim!
A sred financing claim is in fact similar to any business financing application – frankly it’s quite simpler and more focused!
Is that it? Yes, it’s as simple as that. SR&ED tax credit financing is one of the most unique ways to bring valuable cash flow and working capital back into your firm. Just the very nature of sred itself suggests that your firm relies heavily on the credit to recover the capital you have spent under the government’s quite generous non repayable grant.
So let’s return to our point # 1 – to finance a claim, you need a claim. The SRED program in Canada is the governments rebate; in effect it’s a grant, back to Canadian business for any investment you make in research and development. More and more information is coming out everyday from government and private sources which suggest that many firms who are eligible for the program either aren’t aware of it, or even more disappointing, don’t know how to go about preparing and filing a claim. We are often amazed when some clients infer that it’s ‘too much trouble ‘to prepare a sred claim.
A couple of points can be made on this subject. We have met a small handful, and we repeat small handful! Of clients over the years who prepare their own filings. This of course is possible, legal, and in some business owners minds ‘cost effective. The hard reality is that most firms don’t have the technical and financial know how to complete a claim on their own. (Apologies to the firms which successfully prepare a file their own claims – you know who you are!)
The majority of claims in the sred area are prepared by what is known as sred consultants. We tell clients that these consultants are high specialized, are up to date on current government sred and accounting matters, and in most cases work on contingency – meaning that they prepare the claim at their own risk and time, and charge a fee which is totally based on success of the final claim approval. If Canadian business owners and financial managers don’t choose to pay a contingency fee then they can play a flat rate based on the sred consultant’s time on the claim and filing. Naturally more often than not the sred fee has to be paid as soon as the claim is completed, even if you still have to wait several months to a year to get your funds.
More importantly, as it relates to the financing of the sred claim, a claim tends to be more financeable when it is prepared by a reputable consultant in this area. And in fact when you claim is financed, either at time of filing or prior, the sred consultant can also be paid in full or in part out of the financing.
So the bottom line on our point # 1 is simply – make yourself aware of the program if you are not, prepare a solid claim with the use of a reputable consultant, and be knowledgeable that the claim can be financed during preparation or at time of filing .
Let’s move on to point # 2- Clients ask, is it really that simple to finance a Sr&Ed tax credit. There is only one answer, which is of course yes. You should treat your sred tax credit financing just as any other basic financing. Because this area of Canadian business financing is somewhat of a boutique are you should ensure you are working with a credible, trusted, and experienced advisor in this area.
Let’s cover some of the very simple key basics around the financing of your claim. Most firms are eligible, under the program itself, to receive anywhere from 20-50% of your expenses in the R&D area. Your sred claim will ultimately have a final value, which is made up of the federal and provincial portions combined. Let’s assume its 200,000.00 as an example. You and your accountant have filed your year end financials, and included a sred claim of 200k. What happens now if you want to finance that claim. The reality is that you simply have to fill out a standard business financing application – just as if you were borrowing for any other matter. In our case the ‘collateral ‘, if we can call it that, it’s the sred claim. Important to note hear that you are not incurring debt or creating a ‘ loan ‘ on the sred – Your balance sheet stays intact, you are simply ‘ monetizing ‘ the sred claim in order to generate working capital and cash flow now . Generally you receive approximately 70% of the claim as an advance, with the 30% held back and payable to yourself in full when you final claim is audited, approved, and that cheque from the government is ‘in the mail ‘! The financing feels itself, associated with the tax credit financing are deducted from that final 30% holdback. You can generally create a sred loan for a period of a minimum of 60 days, but most sred financing generally last from 3-12 months, depending on the size of your claim, its eligibility with CRA, and whether you are a first time filer.
So whats our bottom line – it couldn’t be simpler:
- Make yourself aware of this great program – prepare a proper claim with someone who is experienced
- If you are focused on cash flow and working capital needs consider financing your claim and directly monetizing this great program.
7 Park Avenue Financial :
South Sheridan Executive Centre
2910 South Sheridan Way
Suite 301
Oakville, Ontario
L6J 7J8
Office = 905 829 2653
Business financing for Canadian Firms , specializing in working capital, cash flow, asset based financing , Equipment Leasing , franchise finance and Cdn. Tax Credit Finance . Founded 2004 - Completed in excess of 100 Million $ of financing for Canadian corporations .
' Canadian Business Financing With The Intelligent Use Of Experience '
Stan has had a successful career with some of the world’s largest and most successful corporations.
Prior to founding 7 Park Avenue Financial in 2004 his employers over the last 25 years were, ASHLAND OIL, ( 1977-1980) DIGITAL EQUIPMENT CORPORATION, ( 1980-1990) ) CABLE & WIRELESS PLC,( 1991 -1993) ) AND HEWLETT PACKARD ( 1994-2004 ) He is an expert in Canadian Business Financing.
Stan has over 40 years of business and finance executive experience. He has been recognized as a credit/financial executive for three of the largest technology companies in the world; Hewlett-Packard, Digital Equipment and Cable & Wireless. Stan has had in depth, hands on experience in assessing and evaluating thousands of companies that are seeking financing and expansion. He has been instrumental in helping many companies progress through every phase of financing, mergers & acquisitions, sales and marketing and human resources. Stan has worked with startups and public corporations and has many times established the financial wherewithal of organizations before approving millions of dollars of financing facilities and instruments on behalf of his employers.
Stan Prokop
