Author Box
Articles Categories
All Categories
Articles Resources

SR and ED Accrual Debt Financing Increases Cashflow for SMEs in a Non-Dilutive Manner

March 29, 2012 | Comments: 0 | Views: 188

With limited venture capital opportunities in Canada, high-tech small to medium enterprises (SMEs) often rely on friends and family, followed by government funding, in order to finance their businesses. One of the more critical forms of government financing for a SME is the Scientific Research and Experimental Development (SR&ED) tax incentive program. The SR&ED program can provide refundable tax credits (i.e. in the form of cash) to reimburse Canadian companies for eligible research and development expenses incurred.

Unfortunately, the downside of SR&ED is that it can take 1-2 years before the refund is received from the federal government. Many SMEs simply cannot afford to suspend business to wait for this critical source of funding, nor can they gain access to equity financing. This effectively creates a "funding gap" that is detrimental to further commercialization.

Financing of SR&ED Accruals Helps to Bridge Funding Gap

Recently, an innovation, non-dilutive accrual debt financing instrument has been developed that finances SR&ED claims before they are filed. Several institutions and banks exist which may factor SR&ED claims after they are filed; however, SR&ED accrual debt financing occurs BEFORE filing. To finance a claim before the filing date, a firm must have a hands-on understanding of the SR&ED claim and the SR&ED program, in order to mitigate the risk.

SR&ED accrual debt financing effectively assists SMEs to create excess cashflow to grow their businesses. Because SR&ED financing is debt-based, it is non-dilutive and far less costly than dilutive equity-based financing. From a financing perspective, a business should always take advantage of lower-cost forms of financing, before more expensive forms. Thus, SR&ED financing can effectively be used as bridge financing to extend the runaway until future rounds of funding.

More about the SR&ED Program

Administered by the Canada Revenue Agency (CRA), the Scientific Research and Experimental Development (SR&ED) program is the largest business incentive program in Canada. Currently valued at $3.5 billion, the goal of SR&ED is to encourage businesses to conduct research and development activities in Canada.

Eligible SR&ED expenditures may qualify for investment tax credits that can be refundable credits (i.e. cash refunds), non-refundable credits (i.e. to be applied, carried backwards, or carried forwards against taxable income), or a combination of both. Qualifying expenditures may include wages, materials consumed, machinery, and equipment that are attributed to:

(1) Experimental development,(2) Applied research,(3) Basic research, or (4) Support work.

For more information about SR&ED and SR&ED financing, please go to North Innovation Fund's (NIF) website.

Source: EzineArticles
Was this Helpful ?

Rate this Article

Article Tags:

Sr Ed Financing


Sr Ed Loans


Sr Ed Bridge Financing

In India, employment opportunities are set to grow by a good margin in the coming year, a phase which was started in the turn of the second decade of the 21st century. organisation, candidates with

By: Sarkariexam l Business > Careers Employment l April 01, 2013 lViews: 11708

Sometimes it is amazing to see that certain jobs can precipitate huge turnouts in the recruitment drives. It is as if thousands of people were waiting for the vacancy advertisements and the moment

By: Sarkariexam l Business > Careers Employment l December 30, 2012 lViews: 690

In recent times, jobs in healthcare segments have grown tremendously. It is anticipated that this growth curve will continue for the times to come. Various factors are responsible for this

By: Sarkariexam l Business > Career Advice l December 27, 2012 lViews: 447

Are you in a dilemma whether to choose web based CRM or not? If yes, don’t worry. You aren’t the sole person having this doubt.There are numerous firms trying to make out whether investing in a

By: Reneta Vasileva l Business > Customer Service l December 23, 2012 lViews: 409

If you think about it you will realize the fact that each business has its own set of risks that are involved in it.The trade secrets that you have and the information related to the business is what

By: brumbrum1 l Business > Risk Management l December 23, 2012 lViews: 263

As the time is changing, concierge management services are now growing despite the slowing economies of the world. The main reason of it is the need that is highly specific to the people who like to

By: willsmith10 l Business > Management l December 23, 2012 lViews: 334

A financial model is critical to receiving investment capital. This articles provides tips on building a credible financial model for start-ups that will help the business get funded through banks or

By: Kimberly Loftisl Business > Venture Capitall June 15, 2012 lViews: 184

In too many M&A transactions, even those related to software and technology companies, IT due diligence is, at best, an afterthought. There is no doubt that financial and legal due diligence are

By: Jim Hoffmanl Business > Venture Capitall May 29, 2012 lViews: 201

As it the case with any new business, capital is a necessity in order to not only launch a new business, but grow it. And many entrepreneurs are tethered to a job they dislike because they can not

By: Stephanie Rosendahll Business > Venture Capitall May 28, 2012 lViews: 178

President Obama signed the "Jumpstart Our Business Startups Act'' (the JOBS Act) on April 5. Part of this Act authorizes crowdfunding for the first time. Up until now, crowdfunding could only be done

By: Bruce E Methvenl Business > Venture Capitall May 20, 2012 lViews: 355

Business is the main block of success, wealth and fame for society today. If one has great business acumen, they can succeed easily in any kind of business they venture into.

By: Alston Spencerl Business > Venture Capitall May 14, 2012 lViews: 180

Your basic knowledge of capital, in terms of business, is that it is the seed of any negotiations. It is the fund used for you to start the wheel of money that your business would run through. You

By: Ben Vesticl Business > Venture Capitall April 29, 2012 lViews: 196

Discuss this Article

comments powered by Disqus