Fund your growth with on-demand SR&ED financing

Helping you grow your business strategically with SR&ED financing.

Managing cash flow is a daily challenge for a growing business. Funds need to be available on a schedule that sustains your trajectory.

All sources of capital have their advantages and disadvantages, and it’s prudent to consider each one carefully. Direct costs, like interest rates, are an obvious consideration, but there are other costs that must be evaluated.

Many sources of capital have a lengthy acquisition process that requires significant time and effort from senior management to secure. The opportunity cost of occupying management’s time cannot be overlooked, nor can the delay in receiving funds. In contrast, financing SR&ED can be a streamlined process if you choose the right partner. If your business claims SR&ED tax credits, you may be able to use on-demand SR&ED financing (aka capital on demand) to obtain the capital you need to secure your growth.  Funds can be available in as little as two weeks after applying. In some scenarios,  interest only accrues on withdrawals, enabling optimized cash flows, while reducing the cost of borrowing. The advances are secured by SR&ED credits which don’t require priority over any other assets, making SR&ED financing an attractive funding option for your other creditors.

SR&ED financing may be the means to strike the appropriate cost benefit balance for your capital mix

What is capital on demand?

Many companies meet the criteria to receive Refundable SR&ED Tax Credits both federally and provincially.  As such, when these companies incur eligible expenditures on SR&ED projects, they are essentially accruing refundable tax credits.  Those credits accumulate throughout the year, but are not received until after the SR&ED claim is filed with their tax return and the Canada Revenue Agency’s process of the claim is complete.  SR&ED financing essentially expedites that refund, giving claimants on-demand access to funding throughout the year.  This allows claimants to manage the timing of their refund, delinking it from the CRA’s administrative processes and timing.

How best to make use of accessing your SR&ED refund earlier will depend on the company and its needs.  Some possibilities include:

1. Extend your runway
When raising funds, timing is everything.  Early-stage companies can delay diluting equity by bringing the SR&ED refund forward.  This enables companies to extend the runway and boost valuations before diluting equity in exchange for capital. 

2. Secure more grants
Grants are an attractive option to fund projects, large and small.  However, companies often need to fund a large portion of the projects to be eligible.  Many incentive programs require that successful applicants incur the expenditures first and grant payments are received as reimbursements. Tapping into accrued SR&ED tax credits may enable companies to acquire the cash needed to unlock those grants. In certain scenarios, work on a grant project may even generate more SR&ED credits, further increasing tax refunds.  Through proper planning and the development of a sound incentives strategy, a company may significantly reduce the need for outside capital.

3. Reinvest into R&D and boost your refund
Companies can use their SR&ED advances to fund additional R&D. Performing additional R&D means more tax credits can be accrued thereby increasing the tax refund, all while accelerating projects and getting ahead of the competition. In some cases, the total refund could increase by four times the cost of advancing.

4. Free up funds for other projects
Many firms have an allocated annual R&D budget which cannot be exceeded. By paying for ongoing R&D with the SR&ED capital accrued from that eligible SR&ED project, companies could free up funds to put towards other projects while still staying within budgetary limits.

To find out if this is the right service for your SR&ED claim process, speak to an EY advisor today by filling out this form.