Tweet

Sr&ed Tax Credit Financing – The Only Two Things You Need To Know about sr&ed finance

Guest post by: Stan Prokop

Article Overview: Monetizing Your Sr&ed Tax Credit for Cash and Working Capital -Information on how Canadian business can financing sred ( sr&ed ) tax credits in order to generate cash flow and working capital on the monetization of their sred claim .

Sr&ed Tax Credit Financing – The Only Two Things You Need To Know about sr&ed finance

SR&ED Tax Credit Financing is somewhat misunderstood, or in fact not really considered by many Canadian business owners and financial managers in Canada. We use the word ‘considered ‘simply because many SRED claimants are not aware that their SR&ED claims can be financing as soon as they are filed – in some cases prior to filing!

So let’s return to our topic – what are the two things you need to know about financing your sred tax credit. We’ll keep it simple –

1. You have to have a Sr&Ed claim to obtain financing for the claim!

2. A sred financing claim is in fact similar to any business financing application – frankly it’s quite simpler and more focused!

Is that it? Yes, it’s as simple as that. SR&ED tax credit financing is one of the most unique ways to bring valuable cash flow and working capital back into your firm. Just the very nature of sred itself suggests that your firm relies heavily on the credit to recover the capital you have spent under the government’s quite generous non repayable grant.

So let’s return to our point # 1 – to finance a claim, you need a claim. The SRED program in Canada is the governments rebate; in effect it’s a grant, back to Canadian business for any investment you make in research and development. More and more information is coming out everyday from government and private sources which suggest that many firms who are eligible for the program either aren’t aware of it, or even more disappointing, don’t know how to go about preparing and filing a claim. We are often amazed when some clients infer that it’s ‘too much trouble ‘to prepare a sred claim.

A couple of points can be made on this subject. We have met a small handful, and we repeat small handful! Of clients over the years who prepare their own filings. This of course is possible, legal, and in some business owners minds ‘cost effective. The hard reality is that most firms don’t have the technical and financial know how to complete a claim on their own. (Apologies to the firms which successfully prepare a file their own claims – you know who you are!)

The majority of claims in the sred area are prepared by what is known as sred consultants. We tell clients that these consultants are high specialized, are up to date on current government sred and accounting matters, and in most cases work on contingency – meaning that they prepare the claim at their own risk and time, and charge a fee which is totally based on success of the final claim approval. If Canadian business owners and financial managers don’t choose to pay a contingency fee then they can play a flat rate based on the sred consultant’s time on the claim and filing. Naturally more often than not the sred fee has to be paid as soon as the claim is completed, even if you still have to wait several months to a year to get your funds.

More importantly, as it relates to the financing of the sred claim, a claim tends to be more financeable when it is prepared by a reputable consultant in this area. And in fact when you claim is financed, either at time of filing or prior, the sred consultant can also be paid in full or in part out of the financing.

So the bottom line on our point # 1 is simply – make yourself aware of the program if you are not, prepare a solid claim with the use of a reputable consultant, and be knowledgeable that the claim can be financed during preparation or at time of filing .

Let’s move on to point # 2- Clients ask, is it really that simple to finance a Sr&Ed tax credit. There is only one answer, which is of course yes. You should treat your sred tax credit financing just as any other basic financing. Because this area of Canadian business financing is somewhat of a boutique are you should ensure you are working with a credible, trusted, and experienced advisor in this area.

Let’s cover some of the very simple key basics around the financing of your claim. Most firms are eligible, under the program itself, to receive anywhere from 20-50% of your expenses in the R&D area. Your sred claim will ultimately have a final value, which is made up of the federal and provincial portions combined. Let’s assume its 200,000.00 as an example. You and your accountant have filed your year end financials, and included a sred claim of 200k. What happens now if you want to finance that claim. The reality is that you simply have to fill out a standard business financing application – just as if you were borrowing for any other matter. In our case the ‘collateral ‘, if we can call it that, it’s the sred claim.

Important to note hear that you are not incurring debt or creating a ‘ loan ‘ on the sred – Your balance sheet stays intact, you are simply ‘ monetizing ‘ the sred claim in order to generate working capital and cash flow now . Generally you receive approximately 70% of the claim as an advance, with the 30% held back and payable to yourself in full when you final claim is audited, approved, and that cheque from the government is ‘in the mail ‘! The financing feels itself, associated with the tax credit financing are deducted from that final 30% holdback. You can generally create a sred loan for a period of a minimum of 60 days, but most sred financing generally last from 3-12 months, depending on the size of your claim, its eligibility with CRA, and whether you are a first time filer.

So whats our bottom line – it couldn’t be simpler:

- Make yourself aware of this great program – prepare a proper claim with someone who is experienced

- If you are focused on cash flow and working capital needs consider financing your claim and directly monetizing this great program

Related Articles
  Get the Most From Your SRED refundable credit – Financing Your SR&ED claim with a SRED bridge loan
  Use Your sr ed (SR&ED ) tax credits & Finance For Cash Flow Today!
  The Only Sr&ed Funding Guide You Need For Your Sred Loan on Your R&D Tax credit
  The Only Sr&ed Guide You Need For Your Sred Loan on Your R&D Tax credit
  Cash Flowing your B.C. and Ontario film grants – Film Finances Canada and Tax Credit Financing
  Your Company Qualifies For A sr ed tax credit financing - Can you factor sred? Yes you can!
  Sred Credits – How To Finance Your Claim for Immediate Cash Flow
  SR&ED Tax Credit Financing - 5 Things You Need To Know
  Is It Smart To Finance Your SR&ED TAX CREDIT via a Sred Loan ?
  Great Reasons to take your sr&ed claim and access sred financing via specialize sred funding Canada Programs
  How To Finance CRA Tax Credits For Sred for Cash Flow Now in Canada !
  Not Considering Sred Tax Credit Financing Could Be Costly
  SRED Financing - Finance SR&ED Claims Today
  How To Leverage SRED (SR&ED) Tax Credit Financing And Factoring for Cash Flow
  Are SRED ( SR&ED ) Tax Credits Dead ? We Hope Not! SRED Financing For Your SR ED Credit Claims Is Alive & Well !
  Should You Finance Your Sred Tax Credits Via Sred Consultants On Your SR&ED Claim?
  SR&ED Tax Credit Financing - 2 Things You Must Know
  A Working Capital Breakthrough – Financing Your SR ED tax credit claims ( SR&ED ) makes Sense!
  Effective Sred Tax Credit Financing – Using A SR ED Loan For The Right Reasons
  Financing Tax Pigs . Your SRED ( SR&ED Tax Credits ) Tax Credit Claims Are Still 100% Financeable!

Article Tags: cash flow, SRED FINANCING, SRED TAX CREDIT FINANCING



Related Forum Posts
re: restaurant start-up - I'm not sure about government grants for restaurants, but my recommendation would be to approach a lender that offers loans under the Canadian Small Business Financing Loan program where the government will guarantee 85% of the loan. You can borrow up to $250,000 to finance equipment and renovations under this program. Restaurants are very risky business, however some of the Chartered Banks will look at restaurants if there is enough of an initial equity investment and you have a solid business plan (experienced management team, good concept and strategic location).
Getting financed - It has always been my experience that it will always be better to be in business debt rather than personal debt, but I suppose when you can run your business out of your home and have so little overhead, it could be better to simply finance yourself and secure a business line of credit just in case you need it. On the flip side, when it comes to businesses outside the home, you want to secure financing and SBA is probably the way to go (depending upon what your total project will cost). Banks that provide SBA loan products prefer the loan be 100K or more. Then there are Micro Loans (loans that go up to 35K) and Signature Loans that are unsecured loans and mainly based on your credit score (680 or higher), they can finance anything in between and then some. It's been said in some of my other posts that when you obtain business loans its beneficial because you are building a track record with a lender for future use. Should you get financed via a business loan and later you need additional working capital to keep your business going (or to expand) the lender is going to be more apt to help you because they have already taken on the risk of your loan. Now, they would prefer you better yourself whether it be expansion or to pull yourself out of a hole so you do not default on the 1st loan... and if that means helping you further, believe me they will do it. However, if you finance yourself, who's going to help you with additional working capital if you run into trouble? Lenders won't help you because you financed yourself...they tend to take on the attitude that you didnt need them before, so why now? What if you had originally financed yourslef with home equity and still haven't paid it back...now you have a first mortgage a second or Home Equity line of Credit and your business is in touble and you have no way out.
Re: Kevin's Case Study #8 - How do you attract a finance expert? - I think the best way to find any reputable accountant would be by recommendation. If you cannot get one by recommendation then you should put those you narrow down your search to through an in depth prescreening process. Check the out their firm with BBB and make sure they are licensed & registered. Always check credentials and make sure they graduated from the schools they claim to have attended. Financing should be found in accordance to the type of financing you need and the type of business you are financing. You should always get prequalified before commiting to an application. You should seek out those financial institutions that specialize in the type of financing you are seeking and then check to enure they can finance your type of business.
Finance is the basic requirement - Without finance no one is going to stand next to you, your employees join your company looking at your financial situation and growth, if you don't have enough finance then better do a job.
Building credit - Credit is like reputations, I suppose. Takes a lifetime to build, and only a second to destroy.


Share this article with your friends. Fund someone's dream.

Leave a comment below or share on the left and you'll help support entrepreneurs in Africa through our partnership with Kiva. Over $50,000 raised and counting - Please keep sharing! Learn more.

Newsletter

Get advice & tips from famous business
owners, new articles by entrepreneur
experts, my latest website updates, &
special sneak peaks at what's to come!

Name:
Email:

Popular Articles

Maximum Impact Restaurant Greening

The Right Job - Part Five 'Compensation'

Induction – your first management job

Suggestions

Email us your ideas on how to make our
website more valuable! Thank you Sharon
from Toronto Salsa Lessons / Classes for
your suggestions to make the newsletter
look like the website and profile younger
entrepreneurs like Jennifer Lopez.