YOUR COMPANY IS LOOKING FOR TAX CREDIT FINANCING!
UNLOCKING THE SECRETS OF NON DILUTIVE FUNDING - SR&ED TAX CREDIT FINANCING
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Maximizing Your R&D Budget: How SR&ED Tax Credit Financing Can Help Your Business Grow
"It's not the government's job to pick winners and losers. It's the government's job to create a level playing field for everyone." - Carly Fiorina
WHAT IS SR&ED FINANCING
SR&ED Financing in Canada is all about cash flowing/monetizing your SR&ED tax credit. It's not unusual for business owners and financial managers that access capital in this program to get the feeling their claim is on somewhat of a ' hiatus ' after they have filed their claim. Can things be ' speeded up ' a bit? They can! Let's dig in!
SR&ED is Canada’s federal tax incentive program revolving around ‘ Scientific Research and Experimental Development ‘- The program provides financial support in the encouragement of research and development in Canada - The program is structured around Canadian privately held corporations being able to take advantage of the refundable tax credit. Businesses in all sectors of the economy can participate in the program to take advantage of refunds on eligible expenditures as detailed under the program - allowing them to take their products and services to domestic and global markets.
Companies can choose to finance their sr&ed credits but use as collateral their sr&ed tax refund – allowing a company to secure additional non-dilutive funding – allowing the company to help fund day-to-day operations as well as, of course, to continue r&d activities. For many early-stage and start-up businesses, the sr&ed refund via the sr ed tax incentives provides access to much-needed financing and business capital.
SR&ED FINANCING OPTIONS FOR CANADIAN BUSINESS - WHO IS ELIGIBLE FOR SRED TAX CREDIT FINANCING
Your business can choose to finance the claim when you file the claim with Canada Revenue Agency/CRA – although many companies take advantage of the ability to fund their claim, based on their accrued work to date, prior to filing. Talk to the 7 Park Avenue Financial team about how this sr&ed accrual financing works – some companies consider it their ‘ sr&ed line of credit ‘ for their work in sr ed tax credits.
This program is by far one of the largest financial incentive programs in Canada, and Canadian businesses using the sr&ed tax credit program earn investment tax credits that often will amount to 35% of their r&d. The credits include expenditures on salaries, materials, third-party consultants - etc.
Canada’s single largest R&D incentive is the Scientific Research and Experimental Development (SR&ED) Tax Credit program. Canadian companies can earn an investment tax credit of 35% on the first $3 million in qualifying expenditures, including salaries, capital, consulting fees and materials. The tax credit stands at 15% for amounts above $3 million. For most companies, these credits take the form of a cash refund. Canadian provinces also participated in the program to combine credits with the federal program.
SRED FUNDING ALLOWS YOU TO ELIMINATE THE TIME GAP ON YOUR REFUND
While there might be some legitimate reasons for the actual time period from filing your sr ed claims regarding your tax credits to receiving your refund cheque from the government, that’s little consolation to your business - a significant amount of time has elapsed since you've spent those funds, and you're looking for ' cashback' with respect to this tax incentive program.
The program is formally called the Scientific Research and Experimental Development Program, sponsored by Canada Revenue Agency. It's Canada's best-known investment tax incentive program, and along with the CANADA SMALL BUSINESS FINANCING PROGRAM is one of 2 of the best forms of government financing assistance in Canada.
WHY ARE CLAIMS SLOW TO BE PROCESSED
What are some reasons a claim is delayed or slowed down based on time to final approval and refund? They might include things such as the financial or technical audits done on your business and the claim. It might also only be a ' backlog ' in the volume of claims processing inside the Canada Revenue Agency.
CHANGES IN SRED ?
It should be no secret by now that there have been some major changes in the program over the years. This includes a lot of scrutinies on those folks that prepare claims (aka ' SR&ED Consultants ‘) who created a feeding frenzy of sorts around the way they bill their fees on the processing of your claim. These fees typically were ' contingency fees, 'meaning that the consultant bore the risk around the time and ultimate success of the claim, and for that, charged a percentage of the final amount received.
WHY DO COMPANIES FINANCE SR ED TAX CLAIMS
SRED Financing allows your research and development credit claim to be cash-flowed, allowing you to purpose the funds for any general company purpose. This is even more critical to firms that are in the development or pre-revenue stages.
3 WAYS TO ACCELERATE THE FINANCING OF YOUR REFUNDABLE TAX CREDIT
A handful of common-sense strategies enhance both the final approval of your claim as well as its financing. They include:
1. Ensuring you are taking advantage of your positive SR&ED history - while claims for first-time filers can be financed, it goes without saying a track record in previous years sure helps the cause and speed of your approval
2. Ensuring your claim addresses some of the key ' proper requirements ' of a claim, such as your firm’s efforts to manage uncertainty, advancement in processes, etc
3. A copy of your SR ED claim is always a key part of the financing of the claim - remember that the claim itself is the key ' collateral ' for a SRED loan
SR&ED CONSULTANTS PREPARE CLAIMS - THE ROLE OF THE SR&ED CONSULTANT
The other parts of an SR&ED loan application are as essential as they can be - your financials, a list of any secured creditors, info on who prepared your claim, etc. SR&ED consultants assist with the sr ed claim process in a variety of ways in helping you document work done around 'scientific or technological uncertainty'. Canadian controlled private corporations use these specialized industry consultants to maximize their claim refund and document technical challenges undertaken.
HOW DOES A SR&ED LOAN WORK - SRED LOAN EXAMPLE
SR&ED loans are structured uniquely. They typically are set up as a loan with no payments made during the term. Funds are advanced at 75% loan to value - for instance; a filed 200k claim would be eligible for a collateral loan of $150,000.00. Naturally, when the claim is approved by CRA and funded, you receive the balance of 30%, less financing costs.
Stop Waiting for Your Tax Refund: How SR&ED Tax Credit Financing Can Get You Cash Now
CONCLUSION: SR&ED FINANCING IS EFFECTIVE CASH MANAGEMENT
Tax credits under the sr ed program are a valuable source of cash for many companies, particularly those in the early stages of growth. The research and development tax incentive is by far the most popular refundable tax credit program in Canada given that sr&ed credit returns valuable r&d capital back to your firm.
Banks in Canada don't really finance a SR&ED loan. So if you want to ' sidestep ' the waiting line for cash flowing your R&D claim, Speak to 7 Park Avenue Financial, a trusted, credible and experienced Canadian business financing advisor who can help you monetize your research and development / r&d tax credit Canada.
FAQ FREQUENTLY ASKED QUESTIONS PEOPLE ALSO ASK MORE INFORMATION
What is SR&ED tax credit financing and how does it work?
SR&ED tax credit financing is a type of business funding that allows businesses to receive cash in advance of their expected SR&ED tax credit refund from the Canadian government via Canada's SRED Program, Businesses can use this financing to support their research and development activities without having to wait for their tax refund. SR&ED tax credit financing providers such as 7 Park Avenue Financial offer financing options that will typically advance a large percentage of the expected SR&ED refund to the business in exchange for a fee or competitive interest rate. The amount that can be advanced varies depending on the provider, and the financing is typically repaid once the SR&ED tax credit refund is received and the government approves and advances the refund.
How can SR&ED tax credit financing benefit my business, and what types of businesses are eligible for it?
SR&ED tax credit financing can provide numerous benefits to businesses, including immediate cash flow that allows a company to fund operations while providing increased working capital, and reduced financing costs compared to traditional financing options. Businesses that conduct qualifying r&d activities in Canada and that are eligible for the SR&ED tax credit program are typically also always eligible for SR&ED tax credit financing. This includes businesses of all sizes and in all sectors, including startups, small businesses, and large corporations that are privately owned.
Are there any risks or challenges associated with SR&ED tax credit financing, and how can I mitigate them?
One potential risk of SR&ED tax credit finance is that the business may not receive the expected SR&ED tax credit refund, which could result in a shortfall that must be repaid to the firm financing the sr&ED, To mitigate this risk, businesses should work with reputable financing providers as well as sr&ed consultants to ensure that they fully understand the terms and conditions of the financing agreement before signing. Many of the sr&ed technical consultants are happy to work on a contingency basis, which transfers the risk of sr&ed claim approval. Other potential challenges include the application process, which can be complex, and the fact that not all SR&ED tax credit financing providers are created equal, with some charging higher rates for the financing.
How do I apply for SR&ED tax credit financing, and what documents do I need to provide to qualify?
To apply for SR&ED tax credit financing, a business will typically need to provide proper documentation that demonstrates their eligibility for the SR&ED tax credit program and their anticipated refund amount. This may include technical reports, financial statements, and other supporting documents, as well as potentially undergoing an audit of the sr&ed claim - not to be confused with an audit of the business. The application process can vary depending on the financing provider, but typically involves a review of the business's eligibility and an assessment of the anticipated SR&ED tax credit refund can be managed within a couple of weeks.
What are the differences between SR&ED tax credit financing and traditional financing options, and which one is better for my business?
When comparing sr&ed tax credit financing vs. traditional financing options business owners must understand that a sred finance solutions simply monetize the sred government receivable and does not bring any debt to the balance sheet - Other forms of financing such as short-term working capital loans and merchant cash advances are very expensive - SRED funding rates are competitive, and the majority of firms working on r&d find it a challenge to access traditional bank financing due to the stage of development of the business - which in some cases is pre-revenue.
What is Grant Financing
Canadian businesses have the ability to collaborate with other research institutions and entities on specific research projects. The Canadian NSERC council provides a full range of programs that contribute to a significant portion of research under eligible programs. Many universities participate in the program and can help fund part of the project with matching or in-kind contributions. Grant financing is also available for approved grants that require matching funds.
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