OVERVIEW – Information on tax credit financing in Canada for the SR&ED program . SRED finance loans maximize and cash flow the benefits of a SR ED claim – here is why and how
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 a SR&ED tax credit, and that’s to utilize the cash today that you ordinarily would wait much longer for. Let’s dig in.
There is a basic structure around the whole SR&ED 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 SRED program every year) want to ensure they are eligible to file.
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 SRED – a lot of software development is funded under the program – and therefore financeable.
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 credits’ after they file them recent trends in financing innovation and creativity allow you to fund your claim prior to filing – or , at the opposite end of the spectrum – you can start to fund next years claim .. today!
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!
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?
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 arent generating profits in your business.
When it comes to the financing of a 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 .
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, therefore closing out the loan. Bottom line – you only pay to finance funds for a short period of time.
If you’re interested in specializing in the ‘ art of making waiting go away’ consider seeking out and speaking to a trusted, credible and experienced Canadian business Financing Advisor with a track record of success who can assist you with investigating SRED finance loans.
Writer Stan Prokop – 7 Park Avenue Financial :
Business financing for Canadian Firms , specializing in working capital, cash flow, asset based financing , Equipment Leasing , franchise finance and Cdn. Tax Credit Finance . Founded 2004 – Completed in excess of 90 Million $ of financing for Canadian corporations . Info /Contact :
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