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The SR&ED Bridge Loan – Your Guide To Sred Financing In Canada
SR&ED (SRED) Finance is… Alive and Kicking!

 

YOUR COMPANY IS LOOKING FOR AN SR&ED BRIDGE LOAN!

          Information and Guide To Sr&ed Financing Loans

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sred bridge loan financing for sr&ed refundable tax credits

 

SR&ED DEBT FINANCE 101

 

The SR&ED bridge loan in Canada. ? Fear not as SR&ED advance funding loans are here to stay for those refundable tax credits under the program.

 

In any business the owner's ability to access and manage cash is one of the keys to business success - Accessing working capital at a time when your company needs it most is a key to ongoing growth and success - Business owners know the value of debt financing when balanced against the high cost of equity at a time when the business is growing and hasn't achieved optimal valuation.

 

The real secret of SRED loans in Canada is that they were available for your tax credit prior to the current budget, and, guess what?... They remain in place today for your tax credit financing strategy!

 

Most Canadian business owners who utilize the SR&ED program in Canada were keenly aware that the very existence of the tax credit and the sr ed claim seemed in doubt in recent years - That concern is long since gone!!! ... and the Canadian government via Canada Revenue Agency/CRA seems as committed to the program as ever.

 

DOES YOUR BUSINESS QUALIFY FOR THE SR&ED TAX CREDIT REFUND?

 

Your ability to satisfy basic criteria under the program is the key to achieving eligibility under the program - You or your sr&ed consultant must be able to demonstrate technological advancement in your field of interest, as well as demonstrate you have technical uncertainty in your r&d efforts. That, and your ability to detail your work on those technical content challenges is the key to claim approvals.

 

Thousands of Canadian businesses received billions of dollars every year under the program funding, the formal name, of course, being Scientific Research & Experimental Development. Hence SR&ED.  Your firm’s ability to demonstrate you have improved a process or processes, or come up with new technology or software qualified you for SRED.

 

 

 

HOW DO BUSINESSES USE THEIR SR&ED REFUND  

 

Many firms simply continue to invest in their work in their r&d efforts  Funds basically can be used for any general corporate purpose - that includes new employees and salary commitments, of marketing and sales efforts around your products and services  . More r&d  successfully completed will almost always translate to a higher valuation as the firm continues to raise more capital.

 

THE ROLE OF THE SR&ED CONSULTANT

 

Many companies want to know if they do in fact need a sr&ed consultant - While utilizing one is not required most people in the sr&ed industry do believe that they have stronger chances of qualifying for the tax refund as these consultants usually have industry pertinent experienced and have an excellent track record of qualifying your firm's eligibility, Most sred consultants also tend to work on a contingency basis, eliminating the risk to the applicant for time and work spent on the sr ed claim.

 

We’re not (fortunately?) accountants, we're financiers, so we'll let you talk to your SRED consultant or advisor on the various rate changes that took place in sr&ed over the years, some up, some down, under the program.

 

We would note that the biggest change seems to be the fact that capital expenditures no longer qualify under the program, but salaries and materials and portions of your overhead still qualify. In SRED it's all about a qualified expenditure as approved by Canada Revenue Agency.

 

We'd love to take a poll one day on how many Canadian firms know that SRED Tax Credit Financing exists in Canada. We'd venture to say is clearly the majority, not the minority.  So if we had to reveal that 'hushed secret' on this major Canadian tax credit incentive it's simply "Hey, you've got options on your SR&ED tax credit... You can wait for months, or much longer for your refund cheque" OR... "you can finance your claim".

 

HOW DOES THE SR&ED BRIDGE LOAN WORK?

 

SR ED Bridge finance loans offer a very high loan to value around the financing of your claim. So borrowing against your sr&ed will qualify you for 75% advances of the total claim.

If you do have a claim that's prepared by an experienced and credible SRED consultant that claim can easily be financed. The basic rules around that are as follows - The SR ED bridge loan gives you approximately 75% of the face value of your claim.

 

No payments are made during the loan period!  Your loan is repaid only when your refund is approved and received from the government. The actual Sred tax credit itself is the collateral for the claim.

 

On final approval and payment of your claim by Ottawa and the province, you receive your remaining 30%, less financing costs.

 

 A simple application and your ability to provide the SRED tax credit as collateral is all that’s required.

 

 

CAN SR&ED CLAIMS BE FINANCED PRIOR TO FILING FOR YOUR REFUND? SPOILER ALERT - THE ANSWER IS YES! 

 

For the majority of companies working on sred claims the need for cash is constant, and in many cases, if not all, there is a significant time gap from actual r&d to claim submission to ..... waiting for approval and refund!    Cash flow management around your sred claims can even be managed and funded on a routine basis - quarterly for example.

 

If you are eligible for a refund your firm has the ability to draw down on funds in one disbursement or arrange funding similar to a line of credit facility - in fact at 7 Park Avenue Financial we call that a SR&ED Line of Credit

 

Safe to say that using that method of funding your claim also lowers overall financing costs, as you are only having costs associated with what you have drawn down under your claim.

 

So is SRED dead?  It looks like it isn’t. We can hear the sigh of relief among all those SR&ED consultants who provide the majority of the writes ups on claims in Canada.

 

And, don’t forget. SRED tax credit financing loans are here today, they were here yesterday, and they will be here tomorrow for cash management benefits.

 

 

GRANT FINANCING 

 

While many firms in Canada use Sr&ed financing as a method to access capital  some firms also pursue grant financing under various federal and provincial programs in Canada

 

The good news? Grant financing for grant programs is also available for many programs offered in Canada.  Funding is available under most matching programs allowing firms to continue to maximize the development of their products and services under various research programs.

 

Using programs such as IRAP in Canada will also allow to access grant financing under the program.

 

Canadian government grant funding is available for many small businesses in Canada - these are both federal and provincial as well as local grants available to small businesses and large companies- When companies qualify funds can be utilized for business expansion, business leases, acquiring assets  or furthering efforts in r&d in your industry,

 

KEY TAKEAWAY - THE BENEFITS OF SRED FINANCING CASH ADVANCE SOLUTIONS

 

By now you have realized many of the benefits of a sr&ed bridge loan on a finalized or partial credit of your refundable tax credit. That access to capital alleviates other aspects of your business requiring cash, such as funding day-to-day operations, payroll, etc.

Investing in sales and marketing is always a key priority and r&d  cash flows can help you to achieve that goal. Many earlier stage firms do not have any access to traditional financial institutions such as banks, re-enforcing the importance of sred cash flow financing,

Taking on short-term sred debt at competitive rates versus the challenge of obtaining additional equity and equity dilution makes common sense for your business.

 

 
CONCLUSION - SR&ED FINANCING 

 

 

Financing your sr&ed claim tax credit is a great way to avoid equity dilution in your business at critical stages in your growth and valuation -  The majority of small and medium-sized companies in Canada have a cash flow challenge at some point - your ability to unlock the value in your claim eliminates the wait involved for government approval and funding of your claim. Your new goal - grow your business!

Venture debt financing via sr&ed credits and a sr ed loan will increase your access to cash and help your growth capital needs.

 

 

The SR&ED Financing program could not be more simple and easy - after your firm and your SR&ED Consultant has completed your filing a simple business application is completed, along with the appropriate info on your claim, amount, etc. After basic due diligence that would be required on any business loan your company receives your funds - No payments are made for the duration of the loan and the key collateral on the loan is of course your SR&ED claim and the government funds owing to you under the refundable tax credit program in Canada.

 

Speak to 7 Park Avenue Financial , a trusted, credible and experienced Canadian business financing advisor on help for SR&ED BRIDGE LOANS   and funding those tax incentives for working capital and cash flow for your Canadian firm.

 

FAQ FREQUENTLY ASKED QUESTIONS PEOPLE ALSO ASK MORE INFORMATION

 

What is SR&ED   financing?

Sr ed tax credit financing solutions allow a business to access Scientific Research and Experimental Development refundable tax credits either as the claim accrues or on final completion and filing of a claim. Businesses use the capital in Sred bridge financing loans to run and grow their businesses, which are often early-stage firms in technology-type industries. Companies fund their tax credits for operating expenses related to their r&d efforts under the sr ed investment tax credit program for government funding of refundable tax credits. That tax incentive allows a company to claim tax refunds and then finance their claim if they choose via sr&ed bridge loans.

 

How long does it take to process my SR&ED claim?

Canadian businesses typically are required to file for their sred refund at their fiscal year-end tax filing - Claims can be filed up to an 18-month period after that.  Claims can be approved within a period of 2-12 months, although that time may be lengthened if additional information is required or if a technical or financial audit is done on the claim by CRA.

 

How much can you get from SR&ED?

 

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' 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