How To Finance Your Business With an SR&ED Tax Credit Secured Loan
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Can you actually finance your Canadian business via the monetizing of 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 program then you're potentially on your way to increased cash flow and working capital.
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 sector also participate vigorously in the program.
If your firm in fact 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 prior to filing in certain circumstances) makes great 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. Think of the SRED credit as a current asset, in fact 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 business 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.
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. Seek out 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 some 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 with a need for additional working capital.
Monetizing your claim will drive cash flow which will no doubt inspire your firm to further innovation.
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