Maximizing SR&ED Tax Credits For Financing Research & Development In Canada
Tired Of Waiting For Your SR&ED Refund? Financing Innovation & Monetizing Your SRED Tax Credits
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ALTERNATIVE FINANCING OPTIONS FOR YOUR R&D
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HOW SR&ED TAX CREDIT FINANCE SOLUTIONS CAN ACCELERATE YOUR BUSINESS GROWTH AND DEVELOPMENT
Canadian business owners and financial managers don’t find waiting productive.
Government has a role to play in helping us overcome market failures that otherwise prevent private financing from reaching its potential." - Barack Obama
FINANCING CANADIAN INNOVATION - YOUR SR&ED TAX CREDIT GUIDE
While not Canadian we think Mr. Obama had it right - Government has a great ability to provide support in areas where commercial financing may not be enough to achieve optimal success - That is what we think Canada's sr ed program does!
.So why should you have to wait to finance (in effect it’s a financing/factoring or discounting) your SR ED claim? You shouldn’t have to and we will show you how.
WHAT IS SR&ED?
If your business is involved in r&d you know that "sr&ed" stands for SR&ED stands for Scientific Research and Experimental Development - it's the Canadian government program that helps businesses with their investment in research and development - And SR&ED tax credit financing solutions are an option available to a business to help fund their sr&ed activities via specialized financing of the claim, which is a refundable tax credit under the program.
BENEFITS OF USING SR&ED TAX CREDITS FOR R&D FINANCING
The ability of a company to take advantage of this federal tax incentive allows Canadian companies to finance r&d in their ongoing research efforts under a sr ed loan. The innovative financing options under sr&ed credits allow businesses to help offset r&d costs and accelerate cash and manage cash flows in the business. Let 7 Park Avenue Financial assist you with this specialized form of funding under the program.
SRED tax credits loans use the collateral of your future sr&ed refund to create a short-term bridge loan - This type of financing becomes a predictable source of cash/working capital that otherwise might be part of a long waiting game for the government sred refund to materialize based on claim filing criteria around year-end financial statements and the risk of further delay via a technical audit by Canada Revenue Agency/CRA.
The ability to eliminate waiting for the refund and accessing cash before year-end filings, preparation of the technical aspects of the claim and then waiting for the CRA refund is clearly the key benefit of a sr&ed bridge loan.
Companies that choose to use the advance funding capability of sr&ed financing solutions can access capital as they need it - We can in effect describe the process as ' factoring' of the government receivable - aka your sred claim!
UNLOCKING CAPITAL - HOW TO MONETIZE YOUR SR&ED TAX CREDITS
To be able to finance an SR ED claim you of course have to have an SR&ED claim. That makes common sense. Canadian business owners know when they have a significant investment in their research and development and commercialization projects. That is more than intuitive because they are spending real dollars, often considerable sums, to maintain their competitive edge in products, services, and processes.
That’s of course why your firm should be finalizing a claim and filing it as soon as you can in conjunction with your fiscal year-end. Naturally, once you have filed the claim you can wait anywhere from 3- 12 months for the refund cheque to arrive from Toronto or your provincial component from your province's capital city.
Do you have to wait to recover those funds? Of course, you can if you choose, but your claim is financeable if you seek out and talk to a trusted, credible expert in this area. Why not finance your claim, recover those funds now, and continue your investment in leading-edge research den processes to maintain your competitive stance within your industry and product or service sector?
SR&ED PROGRAM ELIGIBILITY CRITERIA FOR FINANCING TAX CREDIT CLAIMS
So what are the basics of financing that claim? Let’s review them in detail and ensure you have the underpinnings of a successful SR ED financing strategy.
As we mentioned you have to have filed your claim to begin financing it - but not in all cases! Businesses can also access funding for r&d prior to actually filing a claim - That's cash management 101! We can almost call this your ' sr&ed line of credit '
THE 7 PARK AVENUE FINANCIAL SR&ED LOAN PROCESS
Let our team walk you through the application process to a quick and easy application process - Basic information about your firm is required - information such as your financial statements and a copy of your sr&ed claim or accrued calculations to date. Typical financing timelines will be in the 14-day timeframe from a viewpoint of basic due diligence and a term sheet issued to the borrowing outlining payment terms -
No monthly payments are made for the duration of the loan and no personal guarantees are required - Your actual CRA SR&ED refund terminates loan as repayment.
In our experience the whole process, we tell our clients, takes two to three weeks if your full cooperation is provided. Naturally, if the timing is important you could start the process a little in advance of filing your claim. Any SR ED claim can be financed, but those that are prepared by competent parties are in effect ‘more financeable' as they have a credibility and experience factor attached to them.
Does your own firm’s financial status play a part in the financing of your SR ED? We can say with assurance that 90% of the SR ED financing questions rely very specifically on using the SR ED as collateral for the financing. But naturally, your firm has to be able to demonstrate some sense of ongoing viability with respect to sales prospects, etc.
However let's be honest, many firms are using SR ED tax credits because they are in growth or start-up mode, so that should not deter you from contemplating and discussing the financing of your SR ED. Utilizing a sr ed consultant will typically maximize the value of your claim as they are expert at experimenting technical challenges that require documentation under the federal sr ed program.
A normal SR ED financing application includes the usual business info data you would submit with any business financing – i.e. info on your firm, its financials, info on the owners, etc. Loans or advances against your claim are generally made at 75% loan to value -
In effect, you immediately receive 75% of the total amount of your SR ED tax credit claim. The balance is remitted to yourself, less financing fees when your claim is approved and funded in Ottawa.
A proper SR ED financing is structured so that you won’t make any payments while you wait, so it’s a pure cash flow and working capital strategy.
Sr&ed finance is a specialized form of financing in Canada that provides advance funding for the sr&ed refundable tax credit - It is a specialized form of finance that helps Canadian businesses accelerate cash flow and manage the cash flows of a business that invests in r&d.
CONCLUSION- LEVERAGING GOVERNMENT GRANTS AND TAX INCENTIVES FOR R&D FINANCING
In summary, utilize your tax credits to recover significant portions of all your R&D expenses if you are a privately owned Canadian company. Ensure you consider an SR ED financing strategy if you wish to accelerate SR ED spending or simply use the funds for any general worthwhile purpose. Speak to 7 Park Avenue Financial, a trusted, credible and experienced SR ED financing advisor and a specialized funding company that will structure a claim that makes maximum financial sense for your firm via funding a filed claim or utilizing accrual financing.
FAQ: FREQUENTLY ASKED QUESTIONS / PEOPLE ALSO ASK / MORE INFORMATION
What is the SR&ED program?
Canadian controlled private corporations in Canada, ( CCPC) are eligible to receive refundable tax credits on eligible expenditures that qualify under Canada's sr&ed r&d program. The investment tax credit is a combination of federal and provincial credits and is refunded as cash to private companies to stimulate economic growth in Canada . ( Publicly listed companies receive tax credits but not in the form of cash refunds) - The focus of the program is to encourage Canadian firms to carry out eligible aspects of research and development.
What types of activities are eligible for SR&ED tax credits?
Activities that are eligible for the sr&ed tax credit are experimental development and applied research and scientific research - All the work must be paid for and carried out in Canada under eligibility criteria set out by Canada Revenue Agency/CRA - SRED consultants are third-party firms and individuals that help companies with the sr ed claim process.
How can companies monetize their SR&ED tax credits?
Companies can monetize their sred tax credits under specialized r&d financing from specialized funding companies such as 7 Park Avenue Financial - solutions such as sr&ed short term bridge loans using the sred credit as collateral allow a business to access needed capital to continue funding general working capital needs for r&d efforts.
Who is eligible to claim SR&ED tax credits?
Any privately owned company that is engaged in r&d in eligible areas of Canada's sred program can claim refundable sr&ed tax credits - These credits via the sr ed claims can be claimed by businesses, partnerships, and individuals who utilize sr ed tax credit claims.
What are the benefits of using SR&ED tax credits to finance R&D?
When a business uses the sr ed investment tax credit to fund r&d benefits include accelerated cash flow as well as a significant reduction in overall r&d expenditures. Successful efforts in r&d allow a business to remain competitive and grow its products domestically and internationally.
What is a tax credit broker?
Tax credit brokers facilitate innovation funding and the financing of tax credits and government grants for companies that have earned tax credits and grants under various federal and provincial incentive programs designed to stimulate capital investment in areas of research and development. Funding is primarily from specialized commercial finance firms versus traditional financial institutions such as banks. Monetization options are in the form of specialized short-term bridge loans and allow participating borrowers to capitalize on investment opportunities in their businesses via access to short-term capital financing.
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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