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Financing Your SR &ED Tax Credit in Canada – Can you get a SR ED loan? Yes you can! - By Stan Prokop - 7 Park Avenue Financial
Not everyone Canadian business owner or financial manager takes advantage of the Canadian Governments SR & ED (Scientific Research & Experimental Development) tax credit program. It’s clearly in our opinion of the best and truly legitimate and valuable programs that a government provides for its business entrepreneurs in Canada .
Many, when they hear of the program for the first, are amazed that they can receive significant funds, that are non – repayable (yes that’s non –repayable!) for their ongoing investment in research, product development, business processes, etc.
And, those that do take advantage of the program dutifully wait many months, in some cases a year or so or more for their cheques from the provincial and federal government.
Why not borrow against these funds and utilize those funds for much needed working capital and cash flow to further fuel the growth of your firm.
SR & ED financing is still relatively unknown in Canada – it is clearly a very specialized type of financing, somewhat ‘boutique’ let us say, in nature.
The government, via the program, wants to provide funds to Canadian business so they can continue to further their research and development and provide Canadian firms with a lead in technology and business.
So lets get back to the financing of the SR ED , aka ‘ SHRED ‘ , aka 'SR &ED'. SR ED Loans are typically for approximately 70% of your combined federal and provincial claim. The claim can be financed as soon as you have formally filed the claim with the government, which is at the same time you do your year end tax filing.
SR ED applications can be filed for the last two years, so on occasion your firm might in fact have a significant receivable generated by virtue of that filing you have done. Our observation is that some companies actually book that receivable in their financial statements for the full amount of the claim. Some companies take the conservative approach and only record the cash coming in when it is received from the government.
So, you as a business owner or financial manager of a Canadian company are asking yourself the obviously – if I book the SR ED as an account receivable, will my bank provide financing for it. Our experience is generally ‘no ‘they will not. Canadian chartered banks, being somewhat more conservative in nature, recognize the SR ED claim may or may not be approved. So if there is any risk in your financial structure as viewed by the bank they will not advance funds.
The private sector of Canadian finance is in fact doing the SR ED financing. Claims are financed on the basis of your firms overall financial status, although we add that even pre revenue companies or companies that are losing money can still obtain SR ED financing .
Every Canadian firm that files a SR ED claim should consider financing the claim if they feel the additional cash flow and working capital will assist their company in continued growth and success. Talk to an expert and use this alternative financing as a great way to boost cash flow.
Does your company have a research and development program? Or do you have a SR ED program planned in the future?
Let us guide you through the process of getting the most out of the Ontario SR ED Tax Credit in Toronto. Whether you have an ongoing program or are just looking into starting one, we can help guide you through the process and ensure you get the maximum return on your SR ED program.
How Can My Canadian Company Get a SR & ED Tax Credit Loan - Can SR ED's Be Financed?
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 level. The formal name for the program is 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!
We put Canadian businesses into two categories when we discuss the program - 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.
SR ED financing is an excellent source of short term cash flow, and allows a company to reap the benefits, in cash of funds that they have put into R&D.
It is probably useful to do a short overview - let's call it a SR ED primer!
The 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 it's claim at the same time it files it's 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.
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 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 re time and preparation involved in the claim.
Let's now focus on 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.
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.
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.
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.
In a future article we will discuss further relevant aspects of SR ED financing. Our key take away 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 for many Canadian firms.
We can help guide you through the often complex legalities of the Ontario SR ED Tax credit program in Toronto. Our goal is to help your company grow.
We have a customer-centric approach that you will appreciate, and we can guarantee that we’ll do our best to provide you with the right solutions for your business.
We care about our success, and we stake our integrity on providing your company with a personalized solution that fits your business like a glove. Why not call us today?
Phone: 905 829 2653
Email: sprokop@7parkavenuefinancial.com
Toronto Ontario SR ED Tax Credit Financing
Financing Your SR ED Tax Grant in Canada – Your SR&ED Financing Solution - By Stan Prokop - 7 Park Avenue Financial
Did you as a Canadian business owner or financial manager file SR ED claims on an annual basis? First of all, if you are eligible and you have not, you should be! But that is a conversation and discussion for another day.
For Canadian firms who file SR ED claims the claim can be financed .Why finance your SR ED claim. Obviously if your firm has a heavy investment in research and development, and you are in fact taking advantage of the Canadian governments most popular program ( Over one and half billion dollars are awarded annually to Canadian firms ) then why not consider monetizing that investment into much needed working capital and cash flow . Many companies that we have worked with count on the SR ED claim as one of their largest sources of revenue and cash during the year, particularly if your firm is a smaller firm or a firm considered to be in ‘ start up ‘ business phase.
If you are looking for a SR ED financing solution, commonly also know as a ‘ SR ED LOAN ‘ , then here are the basic facts that you should be aware of .
The SRED is the acronym for the Canadian governments SCIENTIFIC RESEARCH & EXPERIMENTAL DEVELOPMENT program. The program is sponsored by the federal and provincial government and allocates well over a billion dollars a year per annum to Canadian firms who are going through some form of research and development process.
So now that you have filed your SR ED , probably with the assistance of a qualified firm or consultant you begin the ‘waiting process ‘ as the federal government reviews your claim, prepares to potentially audit your claim, and then , yes, you know what is next – ‘ the cheques is in the mail !”
Depending on the size of the claim, whether you are a first time filing firm for your SR ED grant, or if your claim is perhaps somewhat very technical in nature you may wait for up to a year for your funds. Why wait for your funds when you can monetize the claim today and re – invest that cash flow and working capital into your company today – into more r &d, and general working capital purposes.
Claims in general are not financed by Canadian banks – by virtue of the very nature of the program your claim could be partially disallowed, and in much rarer cases, totally disallowed.
You should therefore enlists the services of a firm who is knowledgeable in SR ED tax credit financing and ensure you can quickly, ( usually within two weeks ) obtain financing for your claim .
Let’s discuss some of those financing basics: They are as follows - claims are generally financed at 70% of the value of the claim you have filed. Rates are quite higher than normal bank financing rates, but let’s remember this is a non repayable grant from the government – if you can finance your claim, take those non repayable funds and continue to grow your company, well, it seems to us that’s a good thing! Right?
Once your claim is submitted, as well as standard application form data – (comapny history, your current financial situation, any other extra ordinary events around your firm, etc) the claim is financed and cash remitted to your firm.
Use your SR ED tax credit as a valuable alternative financing method in the challenging financial environment we find ourselves currently in. S R ED and cash flow coming in let your firm benefit also!
Toronto Ontario SR ED tax credit financing
