How To Finance Your Business With an SR&ED Tax Credit Secured Loan
SR&ED Tax Credit Financing - Cash Flow For Your Innovation
HOW SR&ED TAX CREDIT SECURED LOAN FINANCING CAN DRIVE YOUR INNOVATION AND GROWTH
FUNDING YOUR SR&ED ( SCIENTIFIC RESEARCH & EXPERIMENTAL DEVELOPMENT ) CLAIM
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WHAT IS A SR&ED TAX CREDIT LOAN FINANCING FOR INNOVATION?
SR&ED credit is treated as a future receivable, and businesses are provided with an advance loan (a cash flow facility). Businesses can draw down on this funding, to provide themselves with general working capital within their business.
Let's investigate how unlocking funding opportunities via sr&ed secured loans can drive your company's innovation!
This means they have the opportunity for improved liquidity at crucial moments of need, such as when there’s too much fluctuation in available funds or when companies are experiencing sudden growth due to increased market demand.
FUEL YOUR BUSINESS GROWTH WITH INNOVATIVE FINANCING
To qualify, your firm should have an eligible claim, typically prepared by a ' sr&ed consultant', and be a private company in a pre-profit financial status.
The most significant upside that comes from SR ED program tax credits being treated like a pre-payment option via a sred tax credit secured loan? It offers better protection against fluctuations in revenue streams.
MAXIMIZE THE TRUE VALUE OF YOUR R&D CREDITS - LEVERAGING SECURED LOAN FINANCING FOR CASH FLOW
In today's quickly changing and highly competitive business environment, the key to success is innovation. And when you're an innovative company with a great product or service that could be so much more if only you had enough money for it - then our SR&ED financing just might be your answer!
The Canadian government has invested in research & development (R&D), which means they are willing to support innovators like yourself who want their products developed further but don't have the cash needed for investment tax credits.
This funding will allow businesses of all sizes and stages better access to reliable capital at affordable rates while providing them complete flexibility by not tying up any collateral or equity stake from investors
WANT TO FINANCE YOUR SR&ED TAX CREDIT BEFORE YOU FILE? THINK OF IT AS YOUR SR&ED LINE OF CREDIT! CAPITAL AS YOU NEED IT!
Just as sr&ed financing is non-dilutive when it comes to not having to dilute or raise additional equity funding, your sr&ed claim in advance of filing is a tremendous cash management tool. A simple application process allows you to access your refundable sr&ed tax credits while conducting ongoing research before filing your claim.
That allows you to accelerate funding and manage cash flow needs in the business to fund day-to-day operations and ongoing research.
The process is simple! .. Allowing your company to access investment tax credit financing for work you have accrued and documented on your sr&ed claim.
WHY SR&ED? WHAT ARE SR&ED TAX CREDIT INCENTIVES?
Research and development (R&D) is a huge part of a company's success. Canadian businesses can use the SR&ED tax credit program to help conduct research, develop new products or processes, and improve existing ones. The SR ED refund tax credit loan in Canada provides funding for companies that are conducting qualifying R&D activities such as:
Product development & testing;
Process improvement, including automation;
Designing equipment needed for production, such as machines or computer software
Companies can also apply this money towards owner salaries responsible for the work being done on these projects. If you have questions about how to claim your SR&ED expenses under the tax credit program, contact 7 Park Avenue Financial!
CAN YOU UNLOCK THE VALUE OF YOUR SR&ED CREDIT?
Can you finance your Canadian business by monetizing an SRED tax credit secured loan? Absolutely, positively... maybe. We say maybe because if you don’t have an SR&ED tax credit, then it is of course not possible. However, if you participate in Canada's primary R&D tax credit refundable tax credit program, you're potentially on your way to increased cash flow and working capital.
WHAT IS SR&ED FINANCING?
One of the biggest problems in small businesses is that they accumulate SR&ED tax credits over a long period, but there can be months or years before you submit your return to CRA CANADA REVENUE AGENCY.
This means it's difficult for companies with tight cash flow issues and operating costs to access this money while waiting on potential refunds from the government because some funds are tied up until returns are submitted. Let the 7 Park Avenue Financial team show you how a company like yours can access advances against their accrued or filed! .. SR&ED credit investments as collateral instead of having this key receivable sitting idle- not making any interest gains!
HOW FAST IS IT TO RECEIVE YOUR SRED FUNDING?
SR&ED Financing can be structured in several ways.. It can come as a bridge loan from filing your SR&ED claim until you receive your refund checque from CRA. However, you can also get a cash advance as early as 3 months into your tax year - more than a year before filing for most claims if you have some historical claim experience.
Recent articles in the Canadian business press have criticized the need for the government to even further increase these tax credits. Typically most Canadian business owners and financial managers think that the SRED tax credit applies only to manufacturing, which is the farthest thing from the truth. A recent article in the Globe and Mail, one of Canada's premier business publications, stated clearly that firms in the resource, services and technology sectors also participate vigorously in the program.
If your firm innovates and spends money on R&D, the last thing you can be criticized for is under-investing in your future. Therefore monetizing your tax credit after it is filed (it can also be cash-flowed before filing in certain circumstances) makes excellent financial sense.
Is monetizing your tax flow credit risky in any sense of the word? Our clients hardly think so, as you are simply 'cash flowing', or 'discounting' your claim today, and you are not even adding debt to your balance sheet. Consider the SRED credit as a current asset; it’s a receivable, and you are simply collateralizing a bridge loan against your SR&ED claim.
SR&ED tax credits are more often than not prepared by an external consultant, although some firms choose to prepare the claim itself - we suspect it's because they think that they have a better handle on the nature of the claim. The reality is, however that you gain an additional 'brownie point' - if we can call it that by having the claim prepared by a professional SRED consultant.
Many firms in Canada aren’t aware that these consultants will even prepare your claim on a contingency basis - so if they are prepared to take the risk of time and expense on your claim, you can quite rightly assume they feel it will be approved, as professionals rarely choose to work for free!
While the Globe and Mail survey indicated that 70% of Canadian businesses thought the tax credits currently in place were not as generous as they thought they should be, let's be honest and can't we agree that receiving 40-50% back of every dollar you spend on R&D isn’t that bad of a start! And if you can turn your spent funds into instant cash flow by monetizing your claim, doesn’t that give you a leg up on your competition? We certainly think so.
THE SRED APPLICATION PROCESS MOVES QUICKLY
Cash for research tax credits is not a complicated process. A short overview is as follows - have your claim prepared in a manner that suits the government’s current filing process. File your claim with your tax return.
MANAGING YOUR CASH FLOW THROUGH THE SR&ED CYCLE!
If your business has an investment in research or technology, SR&ED funding can act as a continuous positive cycle. As you grow and continue to invest in R&D, the financing will flow back into more innovation under those tax incentives and help your competitiveness around the commercialization and monetizing of your products or services - so if your company hires an additional programmer, as an example, with SR&ED loan approx. 33% of their wages are added to a larger tax credit at the end of the year! At 7 Park Avenue Financial, we think that's good business!
"Governments don't create jobs; entrepreneurs do." - Mitt Romney
CONCLUSION - SECURING SR&ED TAX CREDIT FINANCING FOR YOUR R&D PROJECTS
Speak to 7 Park Avenue Financial, a trusted, credible and experienced business financing advisor who will work with you to complete an SRED financing application - it is not dissimilar to any other business financing application you have ever filled out. Include your SRED claim as additional back up, as it is in effect the collateral for your SRED loan. Claims can be financed in two to three weeks after basic due diligence.
Financing SRED puts you in line with other firms to get your share of the 3 Billion (yes that’s billion!) dollars of non-repayable cash grants. Turning your claim into a cash infusion makes great sense if you are a small to medium-sized firm needing additional working capital.
Monetizing your claim will drive cash flow, which will undoubtedly inspire your firm to further innovation.
A FINAL TIP?
Be proactive about SR&ED to avoid headaches. Use SR ED financing strategically to ' bridge the gap ', overcome funding challenges, and maximize growth and funding opportunities. Canadian start-ups, early-stage firms, and pre-revenue companies can access sr&ed bridge loans and take advantage of government incentives / financial assistance.
SR&ED is a lot of work and a commitment - and if you proactively track your expenses, then it becomes easier when filing taxes because you can get quarterly advances on accrued SR&ED instead of waiting for the CRA's refund checks that can take up many months from the start date or often 9+ months from the fiscal year-end filing of your claim and year-end tax filings.
FAQ: FREQUENTLY ASKED QUESTIONS / MORE INFORMATION / PEOPLE ALSO ASK
What is the Canadian R&D Tax Credit
For many Canadian companies, the SR&ED investment tax credit (commonly also referred to as shred credits) is a cash flow saviour. With 35%+ of eligible expenditures reduced in taxes or paid out in cash for Canadian controlled private corporations (CCPCs ) - the combination of federal and provincial programs allows firms to recoup up to 55% of r&d capital spent.
Canada Revenue Agency / CRA funds over 20,000 claims annually for billions of dollars in total - In 2021 alone, those fundings totalled almost 4 Billion dollars! For companies not using sr&ed finance solutions for funding sred credits, the process involves filing the r&d claim annually in connection with the business's year-end financial statement filing.
CRA reviews those claims and, over a period of months, processes and or audits claims. The waiting period for many firms restricts cash flow owing to the firm under the investment tax credit.
Canadian businesses view the sr ed program as a valuable part of the research and innovation process in Canada and the government's investment in the program helps foster innovation and makes research and development more accessible.
What are SR&ED Tax Credit Incentives?
Canada's Scientific Research and Experimental Development Program .. aka ' ' SR&ED " is an investment tax credit program which helps businesses in every sector of the Canadian economy to conduct r&d. The incentives can be a refundable tax credit or a deduction against reported income for technical challenges documented under program eligibility.
Privately owned ( i.e. non-public) companies, individuals, partnerships, and trusts can qualify for eligible credits under the tax incentive program.
What type of work is eligible under SR&ED
Categories of work under the SR ED Program include :
Questions in areas such as " did the effort involve formulating a hypothesis specifically aimed at reducing or eliminating the uncertainty .." is a cornerstone of the program
Supporting documentation in these three areas might include operations research, computer programming/software development, collection of data, and testing.
Items not eligible for sr&ed tax credit claims are items such as market research, quality control, and exploration and drilling in areas such as mining and oil
What is the CRA SR&ED Self-Assessment Tool?
Canada Revenue Agency provides a self-assessment tool that helps companies determine if the r&d work they do qualifies under sr&ed. It allows a company to do preliminary calculations around the amounts that might be eligible for sr&ed claims and provides tools for assessing the documentation and information the company may need to support a sred claim around the firm's work in scientific or technological uncertainty.
What are the benefits of financing sr&ed tax credits
The benefits of financing a sr&ed tax credit claim include the ability to access capital and additional funding for a business, as well as reducing the financial risk around research and development initiatives. Properly structured sr ed bridge loans improve cash flows and offer opportunities for additional growth and innovation in a business.
Companies benefit from the fact that no loan payments are made during the loan's duration and the simple application approval process around financing sr ed claims under a sr ed project.
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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