YOUR COMPANY IS LOOKING FOR SRED ( SR&ED ) TAX CREDIT FINANCING!
FINANCING OUR SR ED CLAIM !
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The SRED Tax credit loan in Canada. Not all Canadian business owners and financial managers are aware of one of the greatest government programs still currently in existence at both the federal and provincial levels. The formal name for the program is the Scientific Research and Experimental Development program. Most people call it simply the SRED (SR &ED) program; we have also heard many people pronounce it as 'SHRED 'also!
SR&ED KNOWLEDGE - WHICH CATEGORY ARE YOU IN?
We put Canadian businesses into two categories when we discuss tax credits programs such as SRED - those that don't know about the program period, and those that know about the program but are not aware that their claims can be financed.
WHY SRED LOANS?
SR ED financing is an excellent source of short term cash flow and allows a company to reap the benefits, in cash or funds that they have put into research and development sr ed claims via the government refundable tax credits that are refundable in nature. While the government will process your claim eventually, usually within months if it is not audited your company accesses valuable cash flow.
HERE'S YOUR SR&ED GUIDE
It is probably useful to do a short overview - let's call it a 7 Park Avenue Financial SR&ED primer!
The SR ED program is administered at the federal and provincial levels of the Canadian government. It is very important to note that the SR ED grant (yes it's non-repayable) is for Canadian private firms only - it does not apply to public corporations the program is applicable literally to almost every type of firm and industry in Canada. A company files its red claim at the same time it files its year end tax return.
In our experience the majority, we feel almost 95%+ of claims are prepared by an independent third party. They have expertise, credibility, and have a strong knowledge of the program and the government requirements. We would further point out that if a claim is not prepared by a qualified third party then there may be an issue in financing the claim - not always, but sometimes.
PREPARING YOUR SRED CLAIM
Claims can be expensive to process and prepare, and in general, the industry has evolved into two types of costs associated with the claim. What are those two cost scenarios?
1. Customer pays a third party in full for the time and preparation involved in the claim. The customer reaps the full benefits of the claim when it is processed
2. Customer signs an agreement on a contingency basis, and pays the preparer of the SR ED a portion of the claim when it is approved - bottom line he has no cash outlay and the SR ED consultant is at risk regarding time and preparation involved in the claim.
FINANCING YOUR SR ED REFUND
Let's now focus on the financing of the claim. The financing of the claim is somewhat of a boutique industry in Canada and requires specialized knowledge around the quality and collateralization of the claim. The Canadian banks, as a rule, with only minor exceptions, do not make SR ED loans.
A SRED LOAN EXAMPLE
Claims are financed at approximated 70% of loan to value. What do we mean by that? We mean that loans on SR ED are made to 70% of their combined federal and provincial amount. Example - Customer files a claim for $ 300.000.00. The SR ED loan would be for 70% of that amount: = $210,000.00. That's cash flow funding you need today.
Claims can be financed relatively quickly when working with a qualified financing expert in this area. It certainly is possible to complete a transaction in a couple of weeks, from initial discussions.
DUE DILIGENCE
Naturally, some level of due diligence is required on the firm, and we point out that many firms are in fact total start-ups and are filing their claim for the first time. An additional financing note is that first-time claims are scrutinized more closely as the customer at that point does not have a track record in this area. Track records help the financing.
CONCLUSION
There are some other relevant aspects of SRED financing but our key takeaway points here are that the SR ED program is a very viable program and source of cash for Canadian business. Claims can be financed, and are a valuable source of working capital. Seek out and speak to a trusted, credible and experienced Canadian business financing advisor who can assist you with SR&ED financing needs.
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Stan Prokop
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