OVERVIEW – Information on sr ed tax credit financing in Canada. SR ED Financing is a viable way of funding your SR&ED refund and monetizing that asset today
SRED Financing allows firms that have an r&d program to connect today to the cash flow refund they were waiting for – it’s as simple as that . Monetizing that refundable tax credit is, via a SR&ED loan, is a process, as is , of course the whole process of preparing and applying for maximum refund. Let’s dig in.
Not all Canadian business owners and financial managers are aware of one of the greatest government programs still currently in existence at both the federal and provincial level. The formal name for the program is Scientific Research and Experimental Development program. Most people call it simply the SRED (SR &ED) program; we have also heard many people pronounce it as ‘SHRED ‘also!
We put Canadian businesses into two categories when we discuss the program – those that don’t know about the program period, and those that know about the program but are not aware that their claims can be financed.
SR ED financing is an excellent source of short term cash flow, and allows a company to reap the benefits, in cash of funds that they have put into R&D.
It is probably useful to do a short overview – let’s call it a SR ED primer!
The program is administered at the federal and provincial levels of the Canadian government. It is very important to note that the SR ED grant (yes it’s non-repayable) is for Canadian private firms only – it does not apply to public corporations the program is applicable literally to almost every type of firm and industry in Canada. A company files it’s claim at the same time it files it’s year end tax return.
In our experience the majority, we feel almost 95%+ of claims are prepared by an independent third party. They have expertise, credibility, and have a strong knowledge of the program and the government requirements. We would further point out that if a claim is not prepared by a qualified third party then there may be an issue in financing the claim – not always, but sometimes.
Claims can be expensive to process and prepare, and in general the industry has evolved into two types of costs associated with the claim. What are those two cost scenarios?
1. Customer pays a third party in full for time and preparation involved in the claim. The customer reaps the full benefits of the claim when it is processed
2. Customer signs an agreement on a contingency basis, and pays the preparer of the SR ED a portion of the claim when it is approved – bottom line he has no cash outlay and the SR ED consultant is at risk re time and preparation involved in the claim.
Let’s now focus on financing of the claim. The financing of the claim is somewhat of a boutique industry in Canada, and requires specialized knowledge around the quality and collateralization of the claim. The Canadian banks, as a rule, with only minor exceptions, do not make SR ED loans.
Claims are financed at approximated 70% of loan to value. What do we mean by that? We mean that loans on SR ED are made to 70% of their combined federal and provincial amount. Example – Customer files a claim for $ 300.000.00. The SR ED loan would be for 70% of that amount: = $210,000.00.
Claims can be financed relatively quickly when working with a qualified financing expert in this area. It certainly is possible to complete a transaction in a couple of weeks, from initial discussions.
Naturally some level of due diligence is required on the firm, and we point out that many firms are in fact total start ups and are filing their claim for the first time. An additional financing note is that first time claims are scrutinized more closely as the customer at that point does not have a track record in this area. Track records help the financing.
Seek out and speak to a trusted, credible and experienced Canadian business Financing Advisor with a track record of success who can assist you with the ‘ special delivery’ process on your SR&ED refund.
Stan Prokop – founder of 7 Park Avenue Financial –
Originating business financing for Canadian companies , specializing in working capital, cash flow, asset based financing . In business 10 years – Completed in excess of 100 Million $$ of financing for Canadian corporations . Core competancies include receivables financing, asset based lending, working capital, equipment finance, franchise finance and tax credit financing. Info & Contact Details :
7 Park Avenue Financial
South Sheridan Executive Centre
2910 South Sheridan Way
Direct Line = 905 302 4171
Office = 905 829 2653
‘ Canadian Business Financing with the intelligent use of experience ‘
ABOUT THE AUTHOR
Stan has had a successful career with some of the world’s largest and most successful corporations.
Prior to founding 7 Park Avenue Financial in 2004 his employers over the last 25 years were, ASHLAND OIL, ( 1977-1980) DIGITAL EQUIPMENT CORPORATION, ( 1980-1990) ) CABLE & WIRELESS PLC,( 1991 -1993) ) AND HEWLETT PACKARD ( 1994-2004 ) He is an expert in Canadian Business Financing.
Stan has over 40 years of business and finance executive experience. He has been recognized as a credit/financial executive for three of the largest technology companies in the world; Hewlett-Packard, Digital Equipment and Cable & Wireless. Stan has had in depth, hands on experience in assessing and evaluating thousands of companies that are seeking financing and expansion. He has been instrumental in helping many companies progress through every phase of financing, mergers & acquisitions, sales and marketing and human resources. Stan has worked with startups and public corporations and has many times established the financial wherewithal of organizations before approving millions of dollars of financing facilities and instruments on behalf of his employers.
7 Park Avenue Financial
Canadian Business Financing