YOUR COMPANY IS LOOKING FOR SR&ED TAX CREDIT FINANCING!
SR ED FINANCING FOR REFUNDABLE TAX CREDITS IN CANADA
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Tax credit financing in Canada, especially when it comes to SRED finance loans, is all about making ' waiting' go away. There's really only one reason to finance an SR&ED tax credit, and that’s to utilize the cash today that you ordinarily would wait much longer for. Let's dig into the Scientific Research and Experimental Development Program, aka ' sred'!
FINANCING YOUR SR&ED CLAIM IN CANADA
There is a basic structure around the whole SR ED claim credit process, and the majority of that evolves into the basics of financing your claim. It goes without saying that new claimants (many companies file successful refundable tax credits under the SR ED program every year) want to ensure they are eligible to file.
HOW DOES THE GOVERNMENT HELP YOU QUALIFY YOUR SRED CLAIM
There's a time and cost investment to file a claim that maximizes your refund, so eligibility is key. Recently the govt instituted a ' pre-claim ' process allowing businesses to get a comfortable sense they qualify. By the way, top experts tell us that only about 1/3 of claims eligible are, in fact, filed! Information technology projects are a huge part of the SR ED tax credit program - a lot of software development is funded under the program - and therefore financeable.
THE ROLE OF THE SR&ED CONSULTANT
The vast majority of companies engage ' SR&ED Consultants ' to prepare claims, which are then filed in conjunction with your corporate tax return. ( By the way, although most firms tend to finance their ' refundable tax credits' after they file them, recent trends in financing innovation and creativity allow you to fund your claim before filing - or, at the opposite end of the spectrum - you can start to fund next years claim .. today! Most sr&ed consultants work on a contingency basis, so the consultant absorbs any risk in the claim as they do their work and due diligence on your claim.
PREPARING AND FINANCING FUTURE SRED CLAIMS
Future sr ed claims are that much more easier if you've got processes in place to capture your r&d capital investment work in each fiscal year. Your claim is filed with your financial statements annually.
QUALIFYING YOUR SR&ED REFUND
When it comes to preparation of the claims, that's where the expertise of the consultant you utilize helps to maximize the total refund - based on formulas under the program for allowable expenses of applicable salaries, contractor fees, materials, use of your premises, etc. Naturally, the larger claim = more financing available!
THE POPULARITY OF SRED CONTINUES
Going ' solo ' in business is never a good feeling as it sometimes denotes risk - but the reality of tax credit financing is that you're in good company with the 20,000 or so firms that file r&d expenses annually - receiving close to 4 Billion dollars or more in cash refunds. As we said, you should only finance your refund if you require business funds - and who doesn't? Interest rates are in the mezzanine funding range for sred claims, but loans typically are well under a year.
ANY COMPANY CAN FILE FOR SCIENTIFIC RESEARCH CREDITS
Remember also that many businesses filing SR&ED claims are start ups or early-stage revenue firms - you still get a cash refund if you aren't generating profits in your business.
When it comes to financing an SR&ED credit, the documentation couldn’t be more simple - a copy of the claim, info on who prepared it, some basic data on your firm, and any recent financial statements, forecasts, etc.
HOW DOES A TAX CREDIT LOAN WORK?
Claims are typically financed at 70% loan to value, and the uniqueness of financing a refundable tax credit allows the transaction to be structured as a ' bridge loan ' with no payments. The transaction is closed off when the govt confirms and funds the claim, closing out the loan. Bottom line - you only pay to finance funds for a short period of time while having benefited in a major way with the CRA tax credit program- financing a sr&ed claim is a solid method of cash-flowing working capital.
No debt financing really occurs here; you bring asset monetization into play as you cash your sr&ed receivable on the balance sheet. Some accountants choose not to book their claim as receivables in their financial statements, but clearly, it is a receivable from the government .around your r&d projects. Although a track record is a good thing in sr&ed, 7 Park Avenue Financial wants you to know that even first-time claims can be financed, even more so if you have chosen a good sr&ed consultant.
CONCLUSION
If you're interested in specializing in the ' art of making waiting go away,' consider seeking out and speaking to 7 Park Avenue Financial, a trusted, credible and experienced Canadian business financing advisor who can assist you with investigating SRED r&d finance loans.
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Stan Prokop
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