SRED Loans SR ED Financing Refundable Tax Credit | 7 Park Avenue Financial

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SR&ED Tax Credit & Grant Financing Solutions In Canada





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Financing & Cash flow are the  biggest issues facing business today



7 Park Avenue Financial
South Sheridan Executive Centre
2910 South Sheridan Way
Oakville, Ontario
L6J 7J8

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SRED Credits? Sweating bullets is one of our favourite expressions for some serious worrying. Worrying about when you will receive cash for your claim? Worry no more! Let's dig in.


That surely must be the case for thousands of Canadian firms and industry consultants who file SRED (SR&ED) claims in Canada for their non-refundable tax credits for their R&D processes. Most people know the formal name of the program is the Scientific Research & Experimental Development Program but everyone has come to call it: SRED!


We're not going to weigh in on whether this tax credit program is justified, not justified, or who screwed things up in the past, and at 7 Park Avenue Financial we're certainly no experts in scientific research, BUT we will say one thing - Your ability to get  Sred financing is still alive and well! In fact, in some ways, it just got better, and we'll talk about that also in reference to the bridge loan available for your sr ed tax credit.

Even the smallest of companies in Canada can work on world-class r&d  with help from Canada's sr&ed program. The incentive to do that comes from CRA's r&d refundable tax credit program  - allowing thousands of companies every year to become part of the new economy in Canada. That innovation by your firm and others narrows the gap in perceived productivity gaps when competing with U.S. and other firms worldwide in your industry - The reward?  Revenue growth and profits.


 Thousands of Canadian firms receive a total of billions of dollars every year from the Government of Canada for their research and development costs.  A large portion of their total costs in several categories of R&D, i.e. labour, comes back to them in the form of a refundable cheque around the sr ed investment tax credit.





SR&ED consultants are the folks that prepare your Sred filings around sr ed tax credits. These claims are filed with your annual tax filings to Revenue Canada. Although the majority of firms that SR &ED Bridge Loan in advance of filing.


All Canadian-controlled private corporations are eligible to receive the refundable tax credit once their expenditures are qualified and approved - As a general rule Canada Revenue Agency refunds approximately 35%  of r&d expenditures - with potential upside via provincial formula  -  Sred claim balances are refunded in cash - publicly listed companies also claim SRED and are allowed to offset taxes payable via their claims.





Could the sr&ed loan process be any easier - At 7 Park Avenue Financial, we don't think so!   Your ability to apply for funding could not be easier  - Basic loan application details around your business and your claim preparation make it as simple as that.

Repayment -  None during the term of the loan - your sr&ed loan is repaid out of the proceeds of your tax refund, less interest/fiancing costs - Again - simple as that!





KEY TAKEAWAY - if you have a qualified SRED claim with CRA you can finance it!


One of the key benefits of sred funding is that your refund can be funded in advance of filing - that advance funding process is cash acceleration 101.   The waiting around claim approval and processing might be the only downside in the sr&ed program - so advance sr&ed loans eliminate that problem.  Most claims can be approved and funded in a few weeks - Most SR&ED participants know that banks don't finance SR ED claims - somewhat surprising in that your claim is in reality a government receivable - But we'll let others debate that one!



Naturally getting monies back for your SRED claim is a huge and positive issue for thousands and firms who are either start-up, pre-revenue, or simply... you guessed it... need the cash. Many of our clients actually book the claim they file as a receivable, in effect non-refundable monies coming back into their company. The claim is, of course, a combination of funds from both the federal and provincial governments. Sred claims are separate from other grants and schemes such as IRAP, etc.


So, getting back to the one thing we want to emphasize today, and that’s ' cash flow '! Naturally, it’s a free country and if you want to wait to get your funds back from the government by all means do that. But consider also that you have another option, which is to finance your tax credits.


In Canada SRED claims of almost any size can be financed.  While larger claims make more economic sense claims generally in the 80k and higher range certainly are financeable. Aside from government loans under the Canada Small Business Financing Program the R&D  SR ED incentive funds billions for the amount spent around salaries, use of outside consultants, materials, etc under the published formulas of the program.





It's important to understand the role of ' sred consultants' in Canada as well as those involved in the grant writing process - these are 3rd party experienced business people, some of whom are fully accredited engineers, accounts, or working in specific scientific fields, - They have the knowledge and tools to prepare claims, and grants,  allowing you to maximize the funding you are eligible for.


Look for consultants that have track records and industry knowledge around your type of r&d - Some of the leading industries using sr ed consultants as claim writers are software, medical, food, manufacturing, the new green economy around the environment, etc!  Whether your firm is a start-up, pre-revenue, or a mature business  r&d research is an investment in long-term success.


Being able to maximize grants, sr&ed credits, or government loans without dilution of your owner equity should be job#1




Many businesses in Canada choose to work with various government and private research organizations around the grant funding process - There are several well-known grant programs at provincial and federal levels - One popular and long-standing program is the  ' NSERC ' program, standing for  Natural Sciences Engineering Research Council. 

Programs such as these are matching / in-kind funding programs with defined spending and time limits.


The challenge of both finding people or organizations with whom you want to collaborate as well as qualifying for grant funding can be significant.  Talk to the 7 Park Avenue Financial team about the benefits of grant financing.



So how does the financing work? You should consider this as quite a ' normal ' business financing. (Is any business financing normal these days?!) . The basic application involves information on your firm such as your financials , projections, etc, info on the owners, and copies of the actual claim itself.


SRED claims have tended to be prepared by a group of people in Canada who term themselves SRED consultants. They work on either a contingency basis or a fee basis. We've been watching the SRED battle from a distance and some people are making the claim that the sred consultants themselves have become a part of the problem in the industry.


Let’s use 3 Billion dollars an example. If the federal government gave out 2 Billion dollars it’s the SRED consultants who worked on contingency that receive a portion of all these funds as fees. That makes a case for not a lot of value for the country from a pure R&D perspective. Anyway, we promised not to weigh in on that one, so we won’t.


What we are saying is that if your claim is properly prepared, by either yourself or a qualified SR&ED consultant then it’s financeable.


SRED Financing claims are financed at, in general, 70% loan to value. We spoke of new developments in the industry as far as financing the sred credit.The good news is that most claims are now financeable as your spend, prior to filing, This is called Accrual Sred finance, and gives you cash flow reimbursement as you spend.




Both sr&ed tax credit loans and grant match financing are solid sources of cash flows when your business needs liquidity most - That benefit is even more dramatic if your business is in the early stage of development and in some cases even pre-revenue.  Funding rounds can be time-consuming for owners and financial managers, so any source of cash flow becomes extremely valuable. Many of these types of firms don't qualify for traditional debt financing and can't meet the credit criteria of banks and other traditional financial institutions.

In today's competitive environment and challenging economy being nimble and having access to cash is everything. Venture debt is extremely difficult to access in Canada, much more so than in the U.S.


Selling ownership/equity n the earliest stage of your business is absolutely the most expensive type of financing. Here is a great overview of the  debt/versus equity financing conundrum faced by owners and business managers 


Being in control of cash rather than dependent is a great business advantage - temporary financing sure beats permanent equity finance solutions.  And the advance funding processes around sr&ed and grant finance allow you to keep growing the business and investing in continued r&d with your developers and consultants.




Take advantage of alternative financing solutions that give you a realistic cash flow strategy, often a big challenge in the SME Finance area of Canadian business. Whether you are a startup or growing rapidly you can use the benefits of sr&ed loans and advance grant funding.


Is there a bottom line today? As always, there is. It’s simply that we kind of hope the sred program stays around for all those legitimate firms and consultants who see the true value of the program. And consider financing your tax credit for increased working capital and cash flow.


Speak to  7 Park Avenue Financial, a trusted, credible and experienced Canadian business financing advisor on Sred Tax Credit finance today.




What is Sred financing?


SR&ED financing  is a business finance solution around Canada's  Scientific Research and Experimental Development program

It allows  Canadian businesses to access capital for the sr ed claim process under federal government sr ed tax incentives in the areas o scientific or technological advancement in all areas of the Canadian economy, including the popular area of software development. SR ed loans allow a company to manage a funding timeline around their r&d spending. Cash management and growth funding are key for any company investing in research and development - SR&ED government assistance funds over 3 billion dollars of funding annually for sr&ed eligible companies.

The sr&ed tax credit loan uses the actual refundable tax credit as collateral for the loan - it allows Canadian companies to drastically shorten the receipt of cash flows versus waiting for adjudication and processing of refundable tax credits under the program.

There can be a long time process in doing the actual r&d, engaging a consultant to prepare a claim as well as then waiting for the fiscal year end to file the claim, at which point the waiting process begins. The process can be described as similar to financing accounts receivable via a factoring or receivable finance process.


What are SHRED Loans?

An SR&ED tax credit loan, also known as a SHRED loan, is an alternative finance solution that uses a sr ed refund for the investment tax credit under the program as collateral for short-term debt financing.


The Scientific Research and Experimental Development (SR&ED) is not a grant per se but a federal tax credit program via a refundable tax credit. Funds received under refundable tax credits are included as income in the following fiscal year. The program encourages Canadian businesses to perform r&d in their industry around technical challenges while earning credit for eligible expenditures.






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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