The kinds of funding available to businesses have shifted in lockstep with the economy’s move toward rewarding innovation.
A broad range of assistance mechanisms and financing programs have emerged, both from the government and the business sector. This implies that entrepreneurs are no longer restricted to selling stock or bootstrapping growth. The SR&ED loan, also known as SR&ED finance, is a new kind of financing to support creative businesses.
This kind of financing aims to assist in smoothing out the timeframe for receiving SR&ED tax credits, allowing for development. So, in this article, we’ll discuss the variables that influence a lender’s choice to provide SRED financing.
But first, let’s take a look at the typical payment schedule and why financing a future SR&ED claim is a good idea.
What is SR&ED financing?
SR&ED financing is a kind of loan that enables a business to use its tax credit sooner rather than later.
The process of SR&ED funding is as follows: The lender utilizes the anticipated future tax credit as security for a low-interest loan, usually beginning several months before the CRA is scheduled to repay the tax credit.
How does it work?
The SR&ED tax credit is a tried-and-true program that has been in place for decades, and it is one of the most dependable receivables a business can have. Of course, all of this is contingent on the lender’s assessment of the claim’s quality, and working with a good adviser may help here.
Qualifying for the SR&ED tax credit is, of course, the essential requirement for obtaining SR&ED funding.
What activities are eligible for SR&ED?
The following are the company’s three primary qualifying criteria:
- You’re a business based in Canada.
- Has engaged in qualified research and development.
- The owner has spent money on business activities in Canada.
What kinds of spending are eligible?
Though understanding technology may be a difficult task, determining what expenditure qualifies is a lot easier.
The following expenses are eligible for reimbursement:
- wages and salaries
- payments made by a third party
These expenses must be traceable back to a specific project involving research and development. Timesheets and paperwork must support this, and it must be defendable in the event of an audit.
What are the payment methods for SR&ED claims?
Following the income tax return (T2) and the T661 have been submitted after the company’s financial year-end, SR&ED tax credits are paid.
The major problem with the payment is that, although the money is secure, it takes a long time to arrive.
This is reasonable; the CRA has developed a systematic and organized methodology to disbursing public funds. However, this gradual and steady pace may feel glacial at times for a business on a steep development path.
Many entrepreneurs wind themselves waiting months for the money to arrive, and it isn’t always on a regular timetable. Although the average period between submitting and getting the money is approximately 8-12 weeks, it may take longer. SRED financing, for example, may help to alleviate this uncertainty.