OVERVIEW – Information on SR&ED Finance in Canada. SR ED financing via a bridge tax credit loan provides valuation cash flow / working capital . Here’s what you need to know about Sred loans!
SR ED financing may often play a key part of your overall cash flow strategy as it relates to your R&D capital investment. How does a tax credit loan work and how can your firm access SRED loans that make sense for your business? Let’s dig in.
The alternative to financing your SR&ED claim isn’t often an easy one – it’s called ‘ Waiting ‘! That process can be anywhere from 6-18 months for the govt refund that’s a combo of your federal and provincial SR&ED claim. It’s plain to see that financing a claim is all about taking advantage of the valuable cash flow that’s tied up in your claim filing/refund.
Typically Canadian chartered banks almost never finance a SR&ED claim. There are probably a few reasons why that is the banks position, one of them being that claim ultimately might not be approved/processed for refund. That of course simply strengthens the case to ensure you’ve got a solid SR ED consultant preparing your claim. That’s key.
Note that even first time claims can be financed, although it’s safe to say that firms that have filed previously clearly enhance the chances of getting their claim financed. But to our point, first time filers can finance, and many firms we have worked with are start up and pre revenue stage companies.
Why do firms consider financing their R&D refund? In general it’s always about their cash flow and capital needs -in many cases the cash is actually used to continue to further research on the next years claim! Hopefully that R&D investment helps them position future success as translated into sales and profits.
Clients we talk to are also happy to hear that they can also finance claims that have not yet been filed. We can call this a form of a SR&ED credit line, allowing them to fund as they invest. That clearly shortens the waiting period given those interim advances.
Your Sred Financing is a very defined process, with the participants being your privately owned Canadian firm as the SR ED applicant, your SR ED preparer or consultant, CRA itself, and of course the finance firm as the final piece of the puzzle.
We meet with many firms that actually have qualified for SR ED cash grants for years and have not taken advantage of these funds. Unbelievably some business owners tell us they viewed the process as too time consuming, therefore they simply did not apply for the funds. In today’s business environment with a total focus on cash flow, working capital, and global competitiveness we feel you can’t afford to not take advantage of both the SR ED funds, as well as SR ED financing.
The basics are very simple – establish that you qualify for SR ED cash refunds, work with your accountant or an independent consult to set up a process and prepare claims on an annual basis, and, finally, unlock the cash flow in those SR Ed claims if you wish to finance the claim.
What is the actual finance process? Essentially consider your tax credit loan as a ‘ bridge loan ‘ with the actual collateral being the claim itself. In a way you’re creating a special government account receivable finance strategy. Loans are typically 70% of the total value of your combined fed/prov claim. Using a 350k SR&ED claim as an example your tax credit loan would be in the 245k range. Key point: No payments are made for the duration of the loan – financing costs accrue and are paid at the end when the loan is closed.
Key steps to success in Sr Ed financing are simply:
Ensuring you qualify
Preparing a clean claim with documentation ( with your accountant or consultant) We further note that many consultants with prepare your claim on a contingency basis, therefore ensuring you have zero out of pocket expenses in claim preparation .
In our experience the financing portion of the SR ED claim process typically takes up to 2-3 weeks. Is that a long time? Well of course the alternative is to get your aforementioned 245,000$ now or wait one year for the government to send you the cheque. Hopefully we have made out point! Seek out and speak to trusted, credible and experienced Canadian business Financing Advisor with a track record of success for your answers on SRED loans that make sense for your business.
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
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