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Financing & Cash flow are the biggest issues facing businesses today
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7 Park Avenue FinancIal
South Sheridan Executive Centre
2910 South Sheridan Way
Oakville, Ontario
L6J 7J8
Direct Line = 416 319 5769
Email = sprokop@7parkavenuefinancial.com
Maximize Your Return ON SR&ED Tax Credit Financing
' SRED ' Financing in Canada is all about using tax credit financing for the right reasons. Maximizing Canada's r&d program via a SR ED loan is all about reaping the program's final benefit - ' Cash ' Let's dig in!
It's important to view financing your SR&ED credit in the sr ed claim process as an option that's your choice as a business owner/financial manager. It's simply one more way to assist in both the R&D portion of your business as well as your business's general financial health. Simply speaking, being eligible for the program makes you eligible for the financing.
WHAT IS SR&ED / ‘SRED ‘ FINANCING
SR&ED Financing is your firm's ability to take advantage of the SR&ED (Scientific Research and Experimental Development) program to support research in Canada. This Canadian federal tax incentive program provides refundable tax credits to Canadian companies, with the program being administered by Canada Revenue Agency ( CRA) -
The program allows Canadian businesses to innovate and focus on business growth with the help of financial support for businesses that focus on R&D . The program requires that basic research done be in the areas of applied research and experimental development in any of Canada's industries - Common industries utilizing e program include technology, natural sciences, and engineering.
UNCOVER THE UNTAPPED POTENTIAL OF SR&ED TAX CREDIT FINANCING FOR INNOVATION
Sr&ed financing for small businesses includes larger corporations as well, and even non-profit organizations can participate and utilize these tax credits and cash refunds for their sr ed project that allows them to fund their businesses and pursue additional r&d activity. SR&ED financing solutions are a valuable alternative to companies having to consider raising more business capital because it is non-dilutive and allows owners to maintain current ownership. Many early-stage and pre-revenue companies use Sred financing to help increase current ownership valuation.
Sred is termed non-dilutive funding as the financing of your credits are short-term financing that does not dilute the ownership of your business. Financing is in the form of a bridge loan and does not require owners to give up additional ownership of the company at a critical stage when the full business potential has not been realized and the business owner wants to retain ownership of the company.
TAKING ADVANTAGE OF THE SR&ED TAX CREDIT HELPS REDUCE THE CASH BURN RATE AND OPTIMIZE CASH FLOW
Your company cash burn rate is the amount of cash your firm uses as well as the speed in which that cash is consumed - A large number of firms utilizing the SR&ED tax credit program spend significant dollars over a long period of time before positive cash flow and strong revenue are achieved. That negative cash flow is a concern for all business owners and is even more of a challenge when cash is limited and they can't access traditional capital. The ability of a company to achieve a trend to more positive cash flow is a key benefit of companies that utilize SR&ED loan financing! Your business model continues sustainable!
HOW DO SR&ED TAX CREDITS WORK - HOW SRED CREDITS CAN HELP FINANCE YOUR BUSINESS
The SR&ED program is formally called the Scientific Research and Experimental Development program and it provides tax incentives to Canadian firms doing r&d. Businesses claim credits for a portion of the qualified expenditures related to the r&d work they faced in technical challenges.
The tax credits are for items such as salaries/ wages and items such as materials of payments made to subcontractors under their research work as long as those contractors are at arm's length of the business. Provinces and the federal government combine these refundable tax credits which can vary based on the provincial portion of the claim.
Companies can claim Sred credits by filing at ear end under form T6661 from CRA - That form is filed with the firm's annual financial statements. The company must demonstrate the r&d done is technological in nature and is focused on the advancement of knowledge and capabilities around products and processes. Claims are accompanied by detailed reports about expenses and work done.
WHAT ARE SR&ED CONSULTANTS & WHAT ARE SRED CONSULTANTS?
SR&ED Consultants help businesses to successfully navigate the government Sr&ed program to allow a business to successfully claim investment tax credits for r&d. Do you need to use a sr&ed consultant? These consultants have the technical knowledge and help identify projects that are eligible for the sred program as well as actually prepare and file sr&ed claims on behalf of the company.
In many cases, they assist clients with any potential audit of the claim as well as provide ideas and advise on how to maximize the incentive provided under the program for work in scientific and technological uncertainty and in demonstrating how the company furthered technical knowledge. They will help demonstrate your hypothesis using consistent scientific methods including if your effort did involve formulating testing and modifying that hypothesis and if the adopted procedure was consistent.
Was a hypothesis formulated specifically to reduce or eliminate uncertainty? Was the procedure used consistent with the scientific method, including formulating, testing, and modifying the hypothesis?
Refundable SR&ED credits are of course for privately owned companies in Canada. They, along with their counterpart, film credits are administered by CRA - Canada Revenue Agency.
Financing your SRED claim is all about cash flowing your refund - many businesses that utilize the program are at various stages of what we can call their ' life cycle '. In fact, many firms that choose to monetize their claim are in a start-up or very early stages of development. It's at these times that cash flow and working capital are most important.
What then are the typical uses of cash when financing your R&D claim for Canadian controlled private corporations? Typically they include:
Funding additional research - many companies have an ongoing R&D program annually.
Utilizing the funding to move their R&D into new markets - aka Revenues!
General working capital needs - payroll, supplier commitments
Financing growth via new orders/contracts, etc
If you have those needs that is when you should use sred financing!
Some clients we meet often speak of the additional time commitment required to prepare the claim. Naturally, a lot of that time commitment can be eliminated by both having documentation in place, and even more importantly ' tying your horse ' to the right SR&ED consultant - it's these folks that prepare the claims for this industry. A good consultant will maximize your claim.
Utilizing the right consultant adds legitimacy to your claim - and categorically speeds up the process both in writing your claim and ensuring it moves through the govt processes at 'warp speed.' Businesses will appreciate that not all govt programs move at warp speed!!
By the way, if you're looking for proof of the benefits of the program you need only understand that thousands of firms just like yours (including your competitors) reap almost 3 Billion dollars a year in refunds for their work in overcoming technical challenges in their industry.
A SR ED loan is all about needing, and getting your money now. It's your chance to beat the ' waiting game ' as refunds can take anywhere from 3-12 months depending on the complexity, size and filing time of your refund claim. In fact, the entire finance process can take only a couple of weeks to receive funding when you're working with the right firm
EXAMPLE OF A SRED LOAN FINANCING
SRED Finance typically monetizes 75% of your total claim. For example, a 400k claim will net you 300 k in loan proceeds. That's how much you can borrow against SR&ED claims when you qualify for sr&ed financing.
Really the simple way to look at it is to view the SR ED claim tax refund as an account receivable of your business - and you're simply borrowing against that asset. By the way, the financing costs of an SR&ED loan are built into one final balloon payment at the end of the loan - this is a bridge loan with no monthly payments.Your loan is paid back when your company received the refund.
KEY POINT - Accrued sr ed claims can be financed before you file your year-end claim - Talk about accelerating cash flow financing! Many firms we work with choose to take advantage of ongoing regular financing as they spend on r&d in advance of filing - an example might be every quarter.
How long does it take to process a sr&ed financing claim - Spoiler alert - a couple of weeks!
KEY TAKEAWAY - CLAIMING AND FINANCING YOUR SR&ED TAX CREDIT
Businesses in Canada can file and claim for the Investment Tax Credit (ITC) for r&d they are performing under Canada's Scientific Research and Experimental Development (SR&ED) program.
Companies claiming the Sred credit must identify eligible activities and expenditures and be able to provide a detailed record of work and expenses via the approval process
Claims are filed on Revenue Canada's T6661 form which claims the refundable credit - Claims must include documentation that supports the claim such as receipts for material costs and records of payroll to employees or outside third-party contractors
Companies claiming SR&ED should understand claims may be audited and verified to determine claim eligibility around work and records
CONCLUSION - GET THE MONEY YOU DESERVE BY TAKING ADVANTAGE OF SR&ED
SR&ED Tax Credit Financing for small businesses is a great tool for financing research and development. Let 7 Park Avenue Financial help you in navigating the sr&ed tax credit finance process. Sred funding is a great tool to help fund startups. Government tax credit financing solutions for businesses allow you to monetize your refundable tax credit and maintain good cash management. No minimum filing history is required - first-time applicants are welcome!
If you're looking to ' think differently ' on your SR&ED refund and want to consider the benefits of financing that claim today speak to 7 Park Avenue Financial, a trusted, credible and experienced Canadian business financing advisor who can assist you with your cash flow needs. We'll show you how Sred finance solutions are achieved in a fast, flexible, and low cost manner!
FAQ: FREQUENTLY ASKED QUESTIONS /PEOPLE ALSO ASK?MORE INFORMATION
How much Can You Get From Sred?
The actual amount a company can claim under the SR&ED program will vary depending on each
business's project and the refundable tax credit is a combination of federal and provincial tax
incentives around the eligible expenses under the program. Depending on the province where the r&d is done different credits are applied - any investment tax credit under the program can be claimed by a private Canadian-controlled corporation, known as a CCPC.
Is Sred a government grant?
The Scientific Research and Experimental Development (SR&ED) program is not grant per se, it is a tax incentive via an investment tax credit - The program allows Canadian businesses to invest in R&D in every aspect of the Canadian economy - small businesses and even large corporations can access the program to get financial assistance to conduct research and development in Canada. The key benefit of the program is it allows businesses to claim a refund for a portion of r&d that has been spent under eligible guidelines.
IS SRED AN INVESTMENT TAX CREDIT
The SR&ED) program is an investment tax credit and allows companies in every part of the Canadian economy to conduct r&d and claim tax credits for a large portion of expenses related to the research and development they conduct.
This incentive allows a company to reduce taxes and recoup a large portion of items such as wages and salaries and materials and other expenses related to the research. The percentage claim varies but can typically be in the 35% range. Software development is a large part of Sr ed claims.
Qualifying expenditures also include payments to third-party contractors and overhead costs related to the research in scientific or technological advancement. Companies are required to maintain complete details around the r&d, utilizing manuals as an example. Typically sr&ed consultants that the company engages to prepare a claim will ensure expenses incurred that are not eligible will not be submitted with the claim.
What is the digital media tax credit?
Canadian game developers are eligible for the digital media tax credit in Canada. The program provides tax incentives to businesses developing and producing digital media - examples include video games, mobile applications and animation. The government's goal is to encourage the development of innovation in entertainment while allowing businesses to offset costs in the development of these products - Similar to SR&ED the Canada Revenue Agency administers these tax credits.
What is equity financing?
Equity financing allows a company to raise business capital via the issuance of shares of ownership in the business. Shareholders receiving ownership participate in the success of the company which is proportional to their share of ownership.
Financing equity can be achieved through a variety of sources including initial public offerings, known as IPO's. New equity financing dilutes the ownership of existing shareholders of the business and allows new shareholders to have a say in the business decisions and direction of the company. SR ED funding is an example of non-dilutive financing and monetizing federal credit.
What are Government Funded Programs
Government-funded programs in Canada include the Canada Small Business Financing Program which helps businesses access term loans and working capital and asset financing. This program, along with the SR&ED program are the two most popular government-funded programs for business.
What technology grants are available?
Numerous technology grants are available to Canadian businesses, including the Scientific Research and Experimental Development (SR&ED) Tax Credit -
The IRAP program, formally known as the Industrial Research Assistance Program is another popular program used by businesses to develop and commercialize the technology in areas such as clean tech. The IRAP program is a good example of non-dilutive financing as grants are non-repayable in a firm's efforts to develop and commercialize the technology.
The NSERC (Natural Sciences and Engineering Research Council) program funds research in science and engineering
What is alternative lending?
Alternative lending is a form of financing that is an alternative to traditional banking. Different type of financing is available to Canadian businesses, including factoring, short-term working capital loans, asset-based lending solutions, and financing refundable tax credits.
Alternative financing solutions are a viable option for many businesses including smaller firms and startup businesses. Borrowers must consider the terms and requirements for different alternative finance solutions.
How much money is in the ERC program
The ERC program is the acronym for ' EXCELLENT RESEARCH CANADA ' - The program provides early funding to early career researchers from provincial governments in Canada. Applicants must submit research proposals to secure funding and in order to determine if eligibility criteria are met under the program.
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