SR&ED Financing – Why Wait For Your Cheque – Finance Your Claim Now

SR&ED financing is an incredible way of maximizing the whole Canadian SR&ED process in Canada.Of course Canadian business owners and financial managers can wait for their refund – there is certainly nothing wrong with that.

However, if you choose to finance your claim now you can in effect continue to maximize the overall potential of this great Canadian program. Funds can be used for immediate purchase of equipment, allowing you to maintain your competitive market position - an excellent strategy might be to use a portion of the fund as a down payment on a lease or purchase of equipment, thereby reducing your overall borrowing cost.

When we meet with business owners and financial managers one of the key questions we are always asked is how much money can be financed under a claim. That answer is that, in general, you can get 70% of your overall claim, which is, of course, the combination of both the federal and the provincial claims as a total.

Since the claim you are financing is a cash grant, and non repayable the financing you receive under a SR&ED tax credit financing is yours for any corporate purpose. So typically the funds are used for working capital, purchase of new equipment, and even the repayment of any Canada Revenue Agency (CRA) arrears that you might have if you are in the unfortunate case of owing government super priority payments such as GST, Source deductions, etc.

If you are in a position of financing two years of claim, which is the allowable backdating under the program, you can of course get immediate financing (FOR THE 70%)of the total of the two years claims . That can be very significant dollars in some cases. So as an example, you have filed a SR&ED claim for two years, the current fiscal year and your previous fiscal timeframe. Let’s say those two claims total $450,000.00 as an example. So over the last two years you have expended 450k, (probably much more) on research and development. You have had your claim prepared by a competent SR&ED consultant , and are now waiting for you technical and financial audit , which are standard during the SR&ED process .

So what is the option? As we stated it is a case of waiting, in our estimate between 3-12 months for your cheque, or, as we suggest for consideration, financing that claim now. Under of 70% rule you immediately obtain cash flow and working capital in the amount of $ 315,000.00 to use for general corporate purposes. When the claim is processed, approved and paid by the government you of course receive the balance of the 30% of the claim less financing costs. Financing costs are higher than normal business financing might be via your chartered bank, as in essence you are factoring a receivable that is due to your firm.

In order to ensure a solid and easier financing of your claim we again re state the fact that it is good to have your claim prepared by an experienced person in this area – which in some cases, but certainly not always, be your accountant or C.A. firm. We say ‘ not always ‘ because SR&ED claims preparation and analysis is very industry specific and is notwhat we would call a ‘ core competency ‘of every C.A. in Canada , and that’s an understatement !

In summary, it should probably go without saying that every Canadian firm should consider filing for their non- repayable SR&ED refund. If you choose not to wait for your government refund chq consider financing that claim now and making use of that valuable working capital for your cash flow needs. Speak to an experienced, credible, advisor in this area to initiate your claim financing.

Stan Prokop is founder of 7 Park Avenue Financial - www.7parkavenuefinancial.com
Originating financing for Canadian companies,specializing in working capital, cash flow, and asset based financing , the 6 year old firm has completed in excess of 45 Million $ of financing for companies of all size . For info and free consultation on Canadian business financing and contact details see: http://www.7parkavenuefinancial.com/SR_ED_Financing_3.html

Wanting me Back and Me ..

Its sometimes the story heading that totally catches your eye, I wish I was as creative sometimes - BNET title said ’ Those companies that laid you off - they want you back ’ ..

http://www.bnet.com/2403-13070_23-408970.html?tag=landing-pad&promo=713&tag=nl.e713

I worked for 3 Mega corporations for 25 years, and after I founded my own firm in 2004 I always wonder if I would ever go back to corporate - like many of us I have a feeling that if we ’ went back ’ we could easily find ourselves in the same predicament again - From 1980-1990 I worked for Digital Equipment - just an unbelievable great company and business story - their ads for employment in newspapers always said ’ For a career that should last a lifetime ’ .. Anyway, you know how that worked out ...

Stan

Film Tax Credit Financing – Working Capital for Canadian Productions

Canadian film tax credit financing is an important aspect of financing for film, multimedia and gaming industry in Canada. The Canadian federal and provincial governments seem to be maintaining, if not increasing tax credits to the industry.

Whether firms have U.S. or Canadian origins Canadian tax credit financing is a very valuable source of capital for entertainment content that is produced in Canada.

The overall stable financial environment in Canada compared with other sovereign locations help to promote both productions and the resultant tax credit schemes as sponsored by federal and provincial governments.

The bottom line is that tax credits from an overall perspective are both improving and increasing in the Canadian environment.

The Canadian tax credit environment is somewhat different from U.S. and other European countries which focus on pre-production, future values of the production, and the ancillary revenues associated with DVC, cable, television, etc.

Therefore in Canada tax credit film financing is not necessarily related to the projects ability to repay any lender with future cash flows generated from success of the project.

In Canada, based on the current tax credit structure of federal and provincial governments the financing of tax credit sis not dependant on commercial success. Naturally the ability to predict ‘commercial success ‘is in fact impossible, as evidenced by thousands of productions in entertainment history.

So how do Canadian productions get assistance with working capital and cash for for productions that have uncertainty of success?

The answer is simply to finance film, multimedia, digital and gaming tax credits via an independent third party, which in Canada’s case is either a Chartered bank or and independent finance firm .
All productions in Canada, in each of our aforementioned entertainment categories are financing in a limited number of ways - Owner equity, debt, financing tax credits, and actual government grants.
The whole area of why government is involved in such an area is for another discussion, but clearly appears to be because of the potential for employment.

If a production is able to obtain ‘Gap financing ‘then that is an alternative to tax credit financing. Simply explain Gap financing is a cash flow or mezzanine loan on territories and rights.
Film tax credit financing in Canada is a very valuable cash flow and working capital component of the industry. The financing is very ‘boutique’ in nature, with a limited number of players. We recommend you discuss or consult your film tax credit financing needs with an experienced advisor in this area.

Private Equity and Me ..

Interesting article today in the Financial Post - ’ Private Equity has its Place ’

The gist of the article is that contrary to popular belief Private Equity is alive and well -

My firm has worked with some private equity firms on transactions and would totally agree that these guys know what they are doing - they often have vertical markets and niches which they know exceptionally well and are very accurate at understanding value and potential .

My biggest problem with private equity in Canada is that medium sized firms in Canada are often considered too small for such investments, and many great companies cant get the financing they might need to grow their firms.

Stan

The Recovery, and me ..

Yesterdays big news story in busienss revolved around findings by third parties that the government stimulus money did little to aid the recovery . Most Canadian small, medium, and probably somelarge business owners also knew this all along . I think I saw numbers saying that when the current govt came into power they had a 10B surplus and now its a 50B dollar defecit, so we will be crawling out of this one for another ten years I would think . Unlike purchasing something , paying for it, and now owning it somehow I dont feel I got what I paid for .

Most business owners probably agree .

See Fianncial Post - STIMULUS DID LITTLE TO AID RECOVERY STUDY FINDS' BY John Morrissy.

http://www.nationalpost.com/news/story.html?id=2718674


Stan

RATINGS AGENCIES and me ..

I haven't railed against much recently and got my adrenaline going today - article on BNET.COM about rating agencies, a la Moody's, S&P, etc ..



The article is below - it somehow got lost in the shuffle but the whole world wide debt/liquidity crisis has in part been attributed to the ratings agencies who failed to call our fiascos that were underlying to all the stuff they were recommending and rating as ' investment grade ' - So the world implodes, partly because of them, and then they now issue a downgrade on the world .. or U.S. - or whatever ..

Bottom line, what a joke, dont get me started ..

STAN


Asleep During Debt Crisis, Moody's Wakes Up and Threatens to Downgrade U.S. Rating

Moody’s, which was asleep at the switch when the U.S. debt crisis was brewing, seems to have finally woken up. And the debt that it’s sounding a warning on, unfortunately for us, is that of the United States government. The U.S., Germany, Britain, France and Spain are all “substantially” closer to losing their top-notch debt ratings, a Moody’s report warned recently.

Until 2007, Moody’s, along with fellow debt-rating agency, Standard & Poor’s, was guilty of - at the very least - monumental stupidity. The two firms routinely rated packages of sub-prime mortgages “Triple A” when they should have been called worthless. Or toxic. Or worse than junk.

It was the debt market’s misplaced reliance on their flawed ratings that caused AIG and others to buy trillions of dollars of the stuff. This brought down the giant insurer, helped send the country into a recession and now, according to Moody’s, could threaten the bond rating of the entire country. That, in turn, means U.S. debt would cost taxpayers more to service, in the form of higher interest rates.

Moody’s and Standard & Poors have expressed regret for their role in the creation of the financial crisis, but they continue to conduct business the same way: In effect, they are are paid by the companies whose products they evaluate. As Michael Lewis, author of The Big Short, put it on 60 Minutes, the rating agencies were “incentivized” not to see the looming problems. Only a few debt raters, such as Egan-Jones, rely on investors rather than companies to pay them.

Insurers, who were badly burned during the debt crisis, have gone outside the rating agencies purview and are having Pimco rate many of their mortgage bonds in a move approved by the National Council of Insurance Commissioners. With a giant portfolio of bonds, Pimco is not conflict-free, but it’s a step in the right direction, because it’s not beholden to the debt issuers.

No one can deny that U.S. debt is burgeoning. The Congressional Budget Office estimates the national debt will be $13.8 trillion by the end of this year, or close to 90% of GDP. Moody’s, in fact, could be right this time: growth alone won’t get the U.S., or any of the other developed nations, out of their long-term debt problems.

But it’s still galling to hear the bad news from this particular messenger.

Where's the Funding, and Me ..

Globe and Mail, March 13 - a great article about equity and private equity financing in Canada - one of the bylines of the article is ' Wheres the Funding ' - Some great info on the tech / dot com meltdown, and the current state of VC Capital and private equity in Canada . We work with some private equity firms and more often than not the U.S firms exhibit a more aggressive attitude in funding Canadian deals .

Private equity deals in Canada seem much more rate, and of course smaller . Once again the Americans have us beat, so let's catch up, with or without the help of the government . ( The article highlights Canadian equity capital players wanting more government involvement .

Stan