Canadian business owners and financial manager who file for SRED credits are often not aware that these claims can be financed in order to generate working capital and cash flow out of the claim. They are even more surprised to hear that it is actually possible under most conditions to obtain financing even prior to financing the claim.
What could be a better working capital and cash flow strategy than getting immediate cash flow for a government grant that is non repayable? We frankly can think of no other risk free way to bring valuable cash funds into your company if you are utilizing this great government programme.
Let’s establish some bedrock around what we are talking about. The programmes formal name of course is the Scientific Research and Experimental Development aka ‘(SR&ED) ‘program that is funded by the federal and provincial governments. Each SRED claim has a federal and provincial portion, and, combined, they provided you with a non- repayable tax credit for a significant amount of the funds you spend on qualifying R&D and business processes.
Many clients we work with have their claims prepared on a contingency basis – that simply is letting someone else, known as a SRED consultant, prepare you claim and letting them absorb all ( yes all ) of the cost of that claim. When you finance a SRED claim you can actually arrange to have the SRED consultant paid at the same time also.
SRED claims continue to be on the rise in Canada, and when you couple the filing of those claims with a somewhat challenging financial environment for business financing you have a perfect storm, so to speak, for the consideration of financing your claim.
The financing of SRED claims is the ultimate ’boutique ‘financing business in Canada. We urge clients to work with a business financing advisor who can ensure they are receivable maximum funds and market rates, terms and structures for the amount of the claim.
Clients want to know how ‘complex ‘a SRED financing is. The reality is that you should view a SRED tax credit financing in exactly the same manner as any business financing, other than to understand perhaps that the main collateral on the SRED loan is really the claim itself. We use the word ‘SRED loan ‘but in reality the SRED financing brings no debt to the balance sheet – you are simply monetizing your claim for cash flow and working capital now.
The essence of the entire process can be simply described under the following process
- SRED financing application
- due diligence
It’s as simple as that, and we advise most clients the entire process can be completed within a few weeks, which is standard for most business financings anyways.
You would only want to consider SRED financing if in fact you don’t want to way from 1-12 months, (sometimes longer) for your grant cheque from the government. As a Canadian business that is growing you probably have much better uses of those funds now, including reducing payables, investing in even more r&d, acquiring new business assets, etc.
Consider SRED tax credit financing as one more toolkits you have in your overall business strategy. Work with an expert and maximize the amount of your return and the overall most effective use of that essentially free cash flow and working capital.