A SRED (SR&ED) research and development tax credit loan finance strategy is essentially the 5th building block in your overall R&D strategy. The bottom line – it brings your cash recovery in plain sight! Let’s dig in.
SR&ED claimants in Canada can be veteran participators in the program, or in some cases first time filers. From our perspective when we talk to clients in the area of SR&ED loans it’s really a 5 prong strategy, with financing being that last building block that brings the cash home .
So what about those other 4 initial building blocks and how does the Canadian business owner/ financial manager filing ensure they have all the bases covered. It all comes down to a common sense approach to your R&D finance strategy.
First of all you have to ensure you’re eligible, other wise time and expense will be part of your agenda you don’t want. First time claimants often think their claim might be too small – smaller claims would typically be in the 50k range and larger claims certainly can be all the way up to a Million dollars+.
While the vast majority of firms are claiming SR&ED are legal corporations that actually isn’t a requirement and sole proprietorships/partnerships can also claim and file their R&D spend. Percentages of recovery of your research and development vary by category , and qualified SRED consultants or individuals can properly assess maximum recovery , which can be from 15-35% of your total spend.
Secondly, we’ve already mentioned the ‘SR&ED Consultant ‘ – it’s his or her role to ensure your claim qualifies. The quality of that filed claim will determine your total cash recovery, i.e. the refund. While the essence of a claim is the ‘ experimentation ‘ around the advancement of technology the manner in which that is documented is key.
The third building block is the way in which your claim is filed and when. You or your consultant is required to document your efforts and costs. Those costs typically include salaries that are a part of the R&D, payments to contractors, and overhead and materials. In recent years equipment purchased for research qualified but no longer does.
The 4th building block. It’s simply filing your claim which is typically done at the time you file your annual financials. The majority of consultants that Canadian business/owners managers use are paid on a contingency basis so filing a proper claim in the right timelines is as important to them as yourself. In recent years these preparers of claims actually have to identify themselves and their compensation arrangement with your firm
That brings us to building block # 5, and it’s the financing of your claim, unless of course you choose to wait for a refund. Refundable tax credits are a key part of the cash flow for many firms, and for them it makes sense to finance a claim and accelerate cash.
A SRED tax credit loan is a very basic process, with your actual claim, i.e. the refund serving as the key collateral for the loan. Claims are financed at 70% loan to value… so a 200k claim would typically net the business owner 140k in immeidate cash.
And those payments? The good news is there are none during the entire waiting process – and when your claim is adjudicated and approved you immediately receive the balance of the claim less financing costs. If you are focused on financing next years claim and have already started to spend on R&D monies can also be advanced prior to final completion and filing of your claim. In effects it’s a SRED credit line for your research…
If you’re filing SR&ED claims and feel cash flow acceleration is key investigate SRED FINANCE by speaking to a trusted, credible and experienced Canadian business financing advisor who can assist you in the financing of your claim.