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Financing SR&ED claims Is Business As Usual – How SRED Finance Works
Financing SRED R&D claims in Canada
YOU ARE LOOKING FOR FINANCING FOR YOUR SR&ED TAX CREDITS
FINANCING SR&ED TAX CREDITS CANADA
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FUNDING YOUR SR&ED TAX CREDITS
Canada’s sr&ed Tax credits are under attack in a number of different manners it always seems - We'll review some of those criticisms and prove to you that financing SR&ED claims is totally... business as usual! And easier than ever - Let's dig in
Canada's Scientific Research & Experimental Development (SR&ED) Tax Credit Program is one of the most generous and widely used federal programs in Canada to support innovation and Canadian commercialization of products and services under the auspices of Canada Revenue Agency / CRA - The funding of the program provides is over 3 Billion dollars annually and thousands of firms received funding every year for their work in research and development - Tax incentives are in the form of a refundable investment tax credit - Both small and larger businesses take advantage of the program and work is often done around the day to day activities of a business as the company attempts to solve technological problems in their business and industry.
One Canadian national headline story screamed 'flawed R&D scheme cost taxpayers billions'. First of all, it’s not a scheme... it’s a program. ( We're secretly hoping our old age pension is not a scheme) We're talking of course about the Canadian Scientific Research and Experimental Development Program - aka ‘SR ED', SR&ED'.
The program has gained even more significant traction over the years, especially in times of economic challenges - so it's not hard to understand why, when the essence of the program is that Canadian privately controlled firms are the recipients of billions of dollars of funding every year, in the form on a non-repayable, real money cheque for a large percentage of their research and development. Thousands of firms all across Canada apply every year as we have stated.
Did you know that you can fund your r&d claim in advance - Any firm that has accrued their qualified work under the program can obtain financing immediately under that accrued expenditure the firm can demonstrate - that applies for SR&ED, as well as grants which are eligible for financing.
WHEN CAN YOUR BUSINESS RECEIVE FUNDS UNDER A SR&ED FINANCING OR CASH ADVANCE?
At 7 Park Avenue Financial, we understand the challenges around timing cash inflows when you are a start-up, small, or even a medium-sized corporation - We focus on getting your firm's funds within a matter of weeks and our work in expediting applications is job #!
SOME KEY BENEFITS OF SR&ED FINANCING YOU MAY NOT HAVE KNOWN
Although most forms of traditional financing from financial institutions such as banks require good personal credit scores or documentation around personal net worth and outside collateral SR&ED financing is not dependent or focused on the personal credit history of the owners - in fact no personal guarantees or outside collateral are needed under the SR ED financing. Naturally, other secured creditors will be required to release any security they hold under the SR&ED receivable.
When it comes to repaying your loan it's important to understand no monthly payments are made during the term of the loan - You receivable approximately 75% of the sr&ed claim amount, and the final 25% is paid to your firm when the government approves the claim. So loan interest has accrued, and deducted from that final 25% - Simple as that! If your claim is audited for technical or financial reasons based on data you or your sr ed consultant have provided that simply means your loan will be outstanding for a longer period of time.
At its essence the program is clearly 'apple pie' and 'motherhood' - simply Canadian firms investing hard-earned dollars in research of products and processes to further their competitive positions here in Canada, and of course globally, where it counts.
Who would not agree as a taxpayer or a reasonable person that we would all prefer our tax dollars to be going to programs and things that work? That brings us around to our other core subject area - the financing of SR&ED tax credits.
What is an SR&ED Tax Credit Loan?
Canadian companies that qualify for SR&ED tax credits can receive funding for a large portion of their expenditures - which allows companies to better manage their operating funds these days the government is even more focused on reviewing and funding claims - even though in some cases an audit review of the claim can arise. The key benefit of the SR&ED tax credit loan is that firms can receive the funding due on their claim either in advance of filing in the tax year, or in most cases as their funds are spent already and are accruing.
The ability to receive your sred claim funding sooner, rather than later is what sr ed loans are about - allowing your business to better manage day-to-day operating funds needed to survive and grow.
Naturally, any financing you choose to do around your sr ed claim does not dilute owner equity - In many cases the ability to fund your sred credits allows you to defer other forms of debt financing which may come at a higher financing cost.
Firms in Canada have the option of either waiting for their cheque, which can take months to a year, or monetizing their claim immediately for cash flow and working capital. In many cases, this is the largest one-time amount of funds that many new and emerging companies receive. These cash refunds can help fuel the innovation in your firm and help support future r&d activities as well as help companies better manage their cash inflows and long-term funding goals.
SR&ED FUNDING IS EASIER THAN YOU THINK!
So why isn’t there a concern over SRED financing? That’s because it’s a common sense process based on the quality and size of your claim.
Typical financing involves a straightforward business application, with copies of your technical claim and tax filing showing the SR&ED tax credit has been filed. We spoke of the SRED consultants that have proliferated the industry - the reality is that your claim is finance based on its having been prepared by a credible consultant with an industry reputation and experience. Even CRA, formerly Revenue Canada noted that 'the vast majority of claims are compliant.
When you're financing claims, the dollars count. The program itself allows for approximately 35% of your total R&D expenses as a total claim, as validated by yourself or your consultant. When you finance your claim you receive approximately 75% of your total claim as a bridge loan - that balance is held back as a buffer and remitted back to yourself minus financing costs.
GRANT FINANCING
Canadian businesses should be aware that they are many federal and provincial grant programs in Canada - providing non-repayable funds for a large number of business activities in Canada. Sizes of grans vary, as are requirements around eligibility.
Many of the programs revolve around creating jobs in Canada, as well as stimulating overall growth in the economy - The recent focus on the environment as well as Canadian scientific and technology advancements are the most common focus of grants.
The challenge around grants, including determining your eligibility, of course, is the fact that some of the most popular and available grant programs are matching programs requiring your own partial investment. When you do qualify as a grant recipient grants are for the most part financeable when they are part of that ' matching process.
CONCLUSION
Is there a bottom line? We sure think there is. Take advantage of a legitimate and great government program (not a scheme!). Prepare your claim with the aid of a reputable expert sr&ed consultant with credentials and expertise in your industry and field of endeavour.
If you wish to finance your claim speak to 7 Park Avenue Financial, a trusted, credible and experienced Canadian business financing advisor who will efficiently guide you through the financing process - straight to cash flow in the bank!
FAQ:FREQUENTLY ASKED QUESTIONS / PEOPLE ALSO ASK / MORE INFORMATION
What is SR&ED funding?
The Scientific Research and Experimental Development Program, known as " SR&ED " is Canada's largest federal government support program for Canadian-controlled private corporations for a sr ed project to encourage Canadian business to undertake r&d. The refundable investment tax credit under your sr ed claim allows Canadian businesses to benefit from the sr ed program in the form of sr ed tax incentives as firms focus on r&d around sr ed projects around scientific or technological uncertainty.
The sr ed tax credit claim allows businesses to qualify for the refundable tax credit for eligible expenditures under the program. The refundable tax credit becomes an account receivable owed to the company by the federal government. Refundable tax credits can be monetized under sr ed financing programs.
The Canadian government allows the program to help companies achieve technological advancement and increase scientific knowledge.
Companies file for their sr ed credit for items such as eligible salaries and subcontractor fees. Any Canadian-controlled private corporation that files an sr ed tax credit claim meets the eligibility criteria for SR&ED funding as well as sr&ed loan eligibility. In some cases, CRA may choose to perform a technical sr ed audit after that Tax year's filing.
SR ED consultants are typically the persons preparing claims under the incentive tax refund based on eligible expenses, These consultants are familiar with basic research techniques around the sr ed credit.
The Sred program has provided approx 3 billion dollars annually to thousands of claimants which can be corporations or proprietorships and partnerships as well. Research must be conducted in Canada and allows firms to be competitive both in Canada and globally.
How do SR&ED tax credits work under the sr ed claim process?
Businesses should understand that not all of their efforts to conduct research in the r&d area are eligible expenditures for the refundable tax credit. Primarily the efforts around scientific or technological uncertainty or scientific or technological advancement qualify for the basic research sr ed expenditures via an income tax deduction ot tax incentive tax refund .
Examples of r&d sr ed credit work that doesn't qualify includes marketing research or sales promotions. Quality control generally doesnt qualify as well. To review what is sr ed eligible companies should contact CRA or a qualified and experienced sr&ed consultant.
The key areas that do qualify in SRED is work done around collecting data, mathematical analysis and software development - ultimately research will fall under advancing scientific knowledge into practical applications as well as creating new products or processes. For sr&ed credits accounting treatment companies should review with their external accountant re: the sr&ed tax credit calculation.
Is SR&ED an income?
A SR&ED investment tax credit refund is considered as taxable income in the year the refund occurs and must be claimed as income
Click here for the business finance track record of 7 Park Avenue Financial
' Canadian Business Financing With The Intelligent Use Of Experience '
STAN PROKOP
7 Park Avenue Financial/Copyright/2024
Stan Prokop is the founder of 7 Park Avenue Financial and a recognized expert on Canadian Business Financing. Since 2004 Stan has helped hundreds of small, medium and large organizations achieve the financing they need to survive and grow. He has decades of credit and lending experience working for firms such as Hewlett Packard / Cable & Wireless / Ashland Oil
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