Sr ed Financing Via Sred Loan Tax Credit Loans

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SR&ED FINANCING - GROW YOUR COMPANY TODAY - NOT LATER!

Tax credit loans, especially an SRED loan under Canada's SR&ED program are arguably one of the best uses (maybe 'the best'?) of the Canadian SR&ED program administered by Ottawa and the provinces.

SR ED Tax credits are a solid way to quickly recover your firm's R&D investment via cash tax refunds

SR&ED Financing of your sred claim after it has been filed, or advance funding prior to filing is still not as widely recognized as we at 7 Park Avenue Financial think it should be. It's a form of alternative finance that helps you maximize sr&ed refunds when it comes to what the sred program is all about - Cash! Let's dig in.

WHAT IS A SR&ED TAX CREDIT?

SRED Financing, ( ' sr&ed financing ' ) is alL about Canada's Scientific Research and Experimental Development (SR&ED) tax incentive program - It is a program that helps Canadian businesses to fund research and development ( r&d) - There is no larger program in Canada that helps fund r&d and in fact, along with the Government guaranteed loan program ( csbf ) it funds billions of dollars for thousands of companies each year.

Sometimes called a ' shred loan ' the sr&ed tax credit loan is a financing solution that cash flows your sr&ed tax refund, which is in effect a government account receivable ( once approved ) owing to your business. In financing your sred credit the collateral is the ' sred credit"! In that manner, sr&ed investment tax credits, ( itc's) become a source of cash flow that the business owner and financial manager can predict - That guaranteed predictability eliminates waiting for your claim to be approved, processed, and potentially audited.

So firm Canadian businesses spending money on r&d the ability to not have to wait until the company's year and who are now able to access cash for their sr&ed tax credit claim on their year-end financials it's all about a cash flow win!

Businesses looking at funding their sr&ed refund should be aware they can access funds in advance of the CRA filing date when considering a sr&ed tax credit loan. That alone eliminates many months of waiting for the cash refund. We can compare the whole process to cash flowing your claim via a sred factoring process - similar to invoice discounting.

By the way, since ' factoring ' places huge importance on the quality of the debtor who could be a better client than the Government of Canada - so firms qualifying for the SR&ED ITC should consider this reason for cash flowing your claim in advance,

Our view on SRED loans is pretty simple - it's a way to 'supercharge' your SR ED claim - generating an instant 'cashback'! The reality is that if you have filed an SR ED claim now you can immediately convert that claim into cash flow and working capital now for your business.

SR&ED TAX CREDIT ELIGIBILITY IS MORE EXCITING THAN THE HISTORY OF THE PENCIL!

To us that's even more exciting than say... the history of the pencil! (In the mid-16th century, a storm uprooted a tree in England's Lake District. Clinging to the tree's roots was a shiny black substance - graphite! We don't know how much truth there is to that story, but we do know that just a few decades later, the site had been transformed into the first commercial graphite mine.

WHO CAN QUALIFY FOR SR&ED INVESTMENT TAX CREDITS IN CANADA?

Any ' CCPC', i.e. Canadian controlled private corporations are eligible to file for and receive the refundable tax credit under the Sred program as long as they meet the rule under qualified expenditures.

The refund is actually a combination of federal and provincial credits that when combined, return to the company a substantial credit in the form of a cash refund - Public companies also use the program but those publicly listed firms do not get a cash refund - they receive a refund to be applied against taxes they might owe. companies, the ITC is 20%. This can be applied against other taxes payable and is non-refundable.

It's also not a secret why thousands of Canadian businesses utilize the program - it allows firms to stay competitive in today's ultra-competitive environment - it's no secret everyone’s going global as an example.

2 QUESTIONS ( AND 2 ANSWERS } ON SR ED GROWTH FUNDING

Your firm’s ability to utilize an SRED bridge loan to inject working capital into your business is clearly the key advantage. Remember also that financing your claim is not the process of taking on more debt; you are simply cash-flowing or monetizing that SR ED receivable now, in an effort to use that capital to continue and grow your business. Many firms we work with consider their SR ED claim as the largest receivable they will have that year.

We hear 'timing is everything'. If you have filed a first-time SR ED claims it certainly would not be out of line to say that you might have to wait close to a year for your funds. Remember of course those funds are non-repayable. So if you have cash coming a year from now, and it's non-repayable, why wouldn't you consider financing your claim and putting that cash to work now?

4 WAYS A COMPANY CAN USE SRED LOAN PROCEEDS

How do businesses typically use the proceeds of their SRED loans? Most common uses include, but are not limited to:

The reality is that it's company funds - use them as you would any other injection of working capital. AKA 'any general corporate purpose'!

THE SRED LOAN PROCESS

At 7 Park Avenue Financial, we make the whole ' lending process ' around sred loans easy. Consider your sr&ed loan applications as simple as any basic business financing application. We will identify a small handful of business basics around your business - that might be things like recent financial statements, articles of incorporation, and info on any secured creditors who might be claiming priority over the sred claim.

The goal is to quickly provide you with a term sheet that provides a loan-to-value ratio advance on your claim in the 75% range secured by the corporate tax refund surrounding your sr&ed filing. It always helps if you have filed successfully previously but a previous filing is not necessary! A copy of your sred filing or accrued sr ed that you intend to file is required, as well as info on who prepared the claim - ie the ' sred consultant'

Your sred loan approval confirmation will include repayment terms ( there are no payments due during the term of the loan ) , loan approval amount ( typically 75% ltv) and miscellaneous confirmation info around the business owner, etc

Final loan documents will allow your claim to be funded - it's as simple as that.

Loan repayment ? During the time the loan is outstanding no payments are made - your firm received that balance of the claim, less financing fees when Canada Revenue Agency/CRA funds your claim.

How are claims financed? The process, with an expert in tow, is simple. It involves a basic business application, the usual due diligence around any type of financing (info on your company, owners, etc.) and the documentation that collateralized the SR ED into an asset to be financed.

To say that SRED financing is a boutique and niche industry would be an understatement. Would you consider entering into a new business without the benefit of working with an expert? We don't think so, so seek out a trusted, credible and experienced advisor in your area to maximize your SR ED loan.

Finance loan amounts are typically in the 70% range of your total federal and provincial claim. Sr Ed is a national program and your SRED claims can be financed in any province in Canada.

Take advantage of your share of sr&ed tax incentives along with the 20k+ firms that apply successfully every year for their share of the 3B in disbursements every year - and yes that's a Billion with a B!

KEY TAKEAWAYS - SRED FUNDING

Canada's Scientific Research and Experimental Development r&d program provides a cash tax incentive to help fund r&d in Canada

Expenses related to r&d that are eligible can be claimed

Many businesses choose sr&ed financing that accelerates the key benefit of the program - cash flow!

SRED tax credit loans bring additional liquidity into companies that are often early stage, startup or growing quickly

Traditional financing in Canada via banks etc do not provide SR&ED financing - other forms of business financing such as short-term working capital loans ensure loans are very expensive - Sred financing is quick and accessible and typically can be achieved in weeks - The SME sector in Canada is painfully aware of the time it takes to secure any financing, BOTH traditional or alternative

At 7 Park Avenue Financial we have often met business owners who spend the majority of their time raising capital or attempting to access short-term of permanent financing - The sr&ed loan process is fast and efficient - and provides optimal capital to your r&d efforts.

Advance funding of sr&ed claims allows businesses to access cash as they spend on r&d and continue the development of their products and services

Companies can predictably plan their cash flow needs around their r&d efforts when they consider sred loans

Financing r&d efforts in the sr&ed loan process eliminate the need to consider further equity financing, which brings ownership dilution - Business finance experts confirm that debt is always cheaper than equity

SR&ED loans rank behind other secured creditors and interest rates are low and competitive - businesses often investing in r&d consider

The ability to continually reinvest processes from sred accrual financing creates a ramp to constant cash flow and doesn't change the optimal finance structure of your business

Many firms consider grant financing - talk to 7 Park Avenue Financial about grant financing and how grant payments owed to your company can be monetized

CONCLUSION - SR&ED FUNDING / SRED FINANCING

In summary, business owners should avail themselves of the SR ED program. They should also consider financing their claim which allows them to inject working capital immediately into their firm. Speak to 7 Park Avenue Financial, an experienced credible Canadian business financing advisor in the area and maximize the benefits of this great Canadian program.

FAQ: FREQUENTLY ASKED QUESTIONS /PEOPLE ALSO ASK /MORE INFORMATION

What is a SR&ED tax credit loan?

SRED loans are the financing of the sr&ed investment tax credit program that Canadian companies can use to finance their r&e efforts under the sr ed claim process - Financing sr&ed tax credit cra refunds is an effective cash management tool for the funding of eligible expenditures around the technical challenges in their r&d process - The ability to access capital enable sc companies to further fund r&d and also helps cover day to day funding of operations. The sr&ed tax credit is taxable income after it is received. The actual claims are typically written by sr ed experts known as sred consultants who specialize in the technical content aspect of applications. The collateral for sr&ed loans is the actual sr&ed tax credit refund itself - no additional collateral or personal guarantee is required in this form of tax credit financing.

WHAT IS A SR&ED TAX CREDIT

The sr&ed tax credit is under Canada Revenue Agency's “Scientific Research and Experimental Development” program - It provides a tax incentive to Canadian businesses investing in r&d and compensates firms for eligible expenses such as salaries and subcontractor fees and materials. This refundable tax credit is a combination of federal and provincial compensation of investment tax credits and is used by all types of businesses in the Canadian economy, although technology and software companies are popular users of the program. Firms that are working in r&d for their products and services and processes benefit from the program - Even foreign-owned firms that do r&d work in Canada can qualify.

What are eligible expenditures for the SR&ED ITC?

Typical costs claimed in the SR&ED process include salaries, materials purchased, and overheads attributable to the project - that includes payments to third parties, for example, software contractors. Innovation must be clearly demonstrated in the technical content of the claim and must demonstrate technological innovation versus pre-existing processes.

Who qualifies for SR&ED Financing

Private companies and firms that operate as proprietorships and partnerships and trusts qualify for sr&ed refundable tax credits - The actual guidelines for the program are under section 248(1) of Canada's income tax act which identifies key requirements as well as the type of eligible work Sr&ed credit accounting can often be complex but key points are that sr&ed credit is taxable but they achieve a favourable tax treatment around regular income of the firm.

' Canadian Business Financing With The Intelligent Use Of Experience '

ABOUT THE AUTHOR: 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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