Sweating bullets. Always a favorite expression for some serious worrying. That surely must be the case for thousands of Canadian firms and the industry consultants who file SRED (SR&ED) claims in Canada for their non refundable tax credit monies for their R&D processes.
We’re not going to weigh in on whether these tax credits are justified, not justified, or who screwed things up, but we will say one thing – Your Sred financing is still alive and well. In fact in some ways it just got better, and we’ll talk about that also.
Thousands of Canadian firms receive a total of billions of dollars every year from the Government of Canada for their research and development costs. A large portion of their total costs in several categories of R&D, i.e. labor, comes back to them in the form of a refundable cheque.
Naturally getting monies back for your SRED claim is a huge and positive issue for thousands and firms who are either start up, pre revenue, or who simply… you guessed it… need the cash. Many of our clients actually book the claim they file as a receivable, in effect non refundable monies coming back into their company .The claim is, of course, a combination of funds from both the federal and provincial government. Sred claims are separate from other grants and schemes such as IRAP, etc.
So, getting back to the one thing we want to emphasize today, and that’s ‘ cash flow ‘! Naturally it’s a free country and if you want to wait to get your funds back from the government by all means do that. But consider also that you have another option, which is to finance your claim. In Canada SRED claims of almost any size can be financed. While larger claims make more economic sense claims generally in the 80k and higher range certainly are financeable.
So how does the financing work? You should consider this as quite a ‘ normal ‘ business financing. (Is any business financing normal these days?!) . The basic application involves info on your firm such as your financial, projections, etc, info on the owners, and copies of the actual claim itself.
SRED claims have tended to be prepared by a group of people in Canada who term themselves SRED consultants. They work on either a contingency basis or a fee basis. We’ve been watching the SRED battle from a distance and some people are making the claim that the sred consultants themselves have become a part of the problem in the industry.
Let’s use 2 Billion dollars an example. If the federal government gave out 2 Billion dollars it’s the SRED consultants who worked on contingency that receive anywhere from 15- 30% of all these funds as fees. That makes a case for not a lot of value for the country from a pure R&D perspective. Anyway, we promised not to weigh in on that one, so we won’t.
What we are saying is that if your claim is properly prepared, by either yourself or a qualified sred consultant then it’s financeable.
SRED Financing claims are financed at, in general 70% loan to value. We spoke of new developments in the industry as far as financing the sred credit .The good news is that most claims are now financeable as your spend, prior to filing, This is called Accrual sred finance, and gives you cash flow reimbursement as you spend .
Is there a bottom line today? As always, there is. It’s simply that we kind of hope the sred program stays around for all those legitimate firms and consultants who see the true value of the program. And consider financing your tax credit for increased working capital and cash flow. Speak to a trusted, credible and experienced Canadian business financing advisor on Sred Tax Credit finance today.