Many Canadian business owners and financial managers are either unaware of or misunderstand the SR&ED Tax Credit Financing. We use the term “considered” because many SRED claimants are unaware that their SR&ED claims can be funded right away—in some cases even before they are filed!
Therefore, let’s return to our subject: what are the two things you should know about financing your SRED tax credit? We’ll stick to the basics: 1. You must have a SR&ED guarantee to get supporting for the case!
2. A SRED financing claim is exactly the same as any other application for business financing, albeit much simpler and more focused!
Is that all? Yes, it’s that straightforward. One of the most unusual ways to bring valuable cash flow and working capital back into your business is through SR&ED tax credit financing. Your company relies heavily on credit to recover capital spent under the government’s generous non-repayable grant, as suggested by SRED’s very nature.
So let’s go back to our first point: you need a claim to finance it. The government rebate in Canada is the SRED program; It’s really a grant that goes back to Canadian businesses for any money they put into research and development. Every day, more and more information from both public and private sources suggests that many eligible businesses are either unaware of the program or, even more disappointing, do not know how to prepare and file a claim. When clients claim that preparing a SRED claim is “too much trouble,” we are frequently surprised.
On this subject, a few points can be made. We have only met a few, and we say only a few! over the years of clients who prepare their own filings. Naturally, this is possible, legal, and considered “cost effective” by some business owners. The stark reality is that the majority of businesses lack the financial and technical expertise necessary to independently complete a claim. My apologies to the businesses that successfully file their own claims!
SRED consultants are responsible for the majority of claims in the SRED region. We inform clients that these consultants are highly specialized, knowledgeable about current government SRED and accounting issues, and typically work on a contingency basis. This means that they prepare the claim at their own risk and expense and charge a fee that is entirely contingent on the success of the final claim approval. A flat rate based on the time spent by the SRED consultant on the claim and filing is an option for Canadian business owners and financial managers who do not wish to pay a contingency fee. Even if you have to wait several months to a year to receive your funds, the SRED fee must, of course, be paid as soon as the claim is completed.
All the more critically, as it connects with the supporting of the SRED guarantee, a case will in general be more financeable when it is ready by a respectable expert around here. In point of fact, the SRED consultant can actually be paid in full or in part out of the financing when your claim is financed, either at the time of filing or before.
Therefore, the bottom line for our first point is as follows: if you are unaware of the program, learn about it, prepare a strong claim with the help of a reputable consultant, and be aware that the claim can be financed while it is being prepared or when it is filed.
Moving on to point number two, customers inquire whether financing a SR&ED tax credit is really that straightforward. There is only one response, which is unquestionably “yes.” Your SRED tax credit financing ought to be treated similarly to any other basic financing. You should work with a reputable, dependable, and experienced advisor in this field because this sector of Canadian business financing is somewhat specialized.
Let’s go over a few straightforward fundamentals about how to finance your claim. Under the program itself, most businesses are eligible to receive 20 to 50 percent of their R&D costs. The sum of the federal and provincial portions of your SRED claim will ultimately determine its value. Let’s say it’s $200,000, for example. You and your accountant have submitted your financial statements for the year ending with a 200k SRED claim. What takes place right now if you want to fund that claim. You only need to fill out a standard business financing application, just like you would for any other kind of borrowing. The SRED claim is the “collateral” in our case, if we can use that term.
It is important to note that you are simply “monetizing” the SRED claim to generate working capital and cash flow at this time rather than taking on debt or making a “loan” on the SRED. Your balance sheet remains intact. When your final claim is audited, approved, and that check from the government is “in the mail,” you typically receive approximately 70% of the claim as an advance, with the remaining 30% held back and payable in full to yourself! The financing itself and the financing associated with the tax credit are subtracted from the remaining 30% holdback. A SRED loan can typically be created for a minimum of 60 days; however, the majority of SRED financing typically lasts between three and twelve months, depending on the size of your claim, its eligibility with the CRA, and whether you are a first-time filer.
